The federal government categorically refuses to recognize an economic extortion defense to liability under the Foreign Corrupt Practices Act (FCPA), even while it recognizes an FCPA defense based on physical extortion. The distinction is unsupported by law and policy and must change, particularly in view of the recent passage of the Foreign Extortion Prevention Act (FEPA) and the growing power of autocrats to destroy U.S. businesses through economic as well as physical extortion.
Legislative History and Interpretation of the FCPA’s Extortion Defense
Payments made to foreign officials are punishable under the FCPA only if made “corruptly.” The drafters of the FCPA recognized that extorted payments lack the requisite corrupt purpose, contrasting in the Senate Report accompanying the legislation (the “FCPA Senate Report”) payments made as a price of “gaining entry into a market or to obtain a contract,” which should not be shielded from FCPA liability because “at some point the U.S. company would make a conscious decision whether or not to pay a bribe,” with payments made in “true extortion situations,” which “should not be held to be made with the requisite corrupt purposes.” S. Rep. 95-114 at 10. The drafters of the statute described “a payment to an official to keep an oil rig from being dynamited” as an example of an extorted payment that would not be corrupt. Id.
The U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) interpret this language in their Resource Guide to the U.S. Foreign Corrupt Practices Act (2d Ed. 2020) (the “FCPA Resource Guide“) to excuse only a subset of extortion payments, those paid “in response to true extortionate demands under imminent threat of physical harm.” FCPA Resource Guide at 27. The FCPA Resource Guide excludes payments to avoid threatened economic harm from the protection of the statute, asserting that “[m]ere economic coercion, however, does not amount to extortion.” Id.
A January 2022 DOJ FCPA Opinion Procedure Release reinforces the purported distinction between extorted payments and payments made in response to economic coercion, excusing a payment made to secure, among other things, the release of a person who was suffering from a serious medical condition that would have been exacerbated by detention, but warning that a payment made upon threat of “severe economic or financial consequences in the absence of a payment” is unlikely to be excused. FCPA Opinion Procedure Release No. 22-1 (Jan. 21, 2022).
The Government’s Position is Legally Unsupported
The federal government’s effort to exclude from the FCPA’s extortion defense payments made in response to economically coercive demands is without legal support. The government regularly takes the position, and courts have long held, that extortion involves obtaining property “by threat of economic loss or by threat of physical harm.” United States v. Budd, 496 F.3d 517, 524 (6th Cir. 2007) (emphasis added); 2A Fed. Jury Prac. & Instr. § 53:07 (6th ed. 2024 update). The FCPA Resource Guide attempts to distinguish “mere economic coercion” from extortion, but wrongful economic coercion to obtain property – the conduct that occurs when a foreign official demands a personal payment to avoid severe economic harm – constitutes extortion and is among the conduct that the FEPA was adopted to prohibit. The “[s]ituations involving extortion” covered by the FCPA’s extortion defense thus necessarily include those in which foreign officials wrongfully apply economic coercion to obtain businesses’ property.
Moreover, the source of the FCPA’s extortion defense – the FCPA Senate Report – describes economic extortion as illustrative of a “true extortion situation[].” A “payment to an official to keep an oil rig from being dynamited” is a payment to avoid destruction of income-producing property (the oil rig), rather than a payment to avoid the “imminent threat of physical harm” to a person that the government currently asserts is necessary to invoke the extortion defense.
The FCPA Resource Guide asserts that a decision by former U.S. District Judge Shira A. Schiendlin in United States v. Kozeny, 582 F. Supp. 2d 535 (S.D.N.Y. 2008), recognizes the “distinction between extortion and economic coercion.” FCPA Resource Guide at 28. But Kozeny actually cites economic coercion as synonymous with extortion in stating that “the issue of extortion or ‘economic coercion’ is addressed by instructing the jury on the requisite intent of bribery.” Kozeny, 582 F. Supp. 2d at 540 & n.35.
Kozeny does hold that an “individual who makes a payment under duress (i.e., upon threat of physical harm) will not be criminally liable under the FCPA,” FCPA Resource Guide at 28, but it properly describes the affirmative defense of duress as an additional basis for avoiding FCPA liability, rather than as a substitute for the claim that extorted payments were not made corruptly, thereby negating the intent element of the crime. See Kozeny, 582 F. Supp. 2d at 540 n.31 (citing United States v. Gonzalez, 407 F.3d 118, 122 (2d Cir. 2005)).
Businesses subjected to foreign officials’ economically extortionate demands also can point to the Supreme Court’s and other courts’ recognition that a payment by a business subjected to economic extortion can be made without criminal intent. In the Supreme Court’s 2016 decision in Ocasio v. United States, 578 U.S. 282 (2016), the Court used economic extortion to demonstrate that when a “bribe payor is merely complying with an official demand, the payor lacks the mens rea necessary for a conspiracy” to pay a bribe:
For example, imagine that a health inspector demands a bribe from a restaurant owner, threatening to close down the restaurant if the owner does not pay. If the owner reluctantly pays the bribe in order to keep the business open, the owner has “consented” to the inspector’s demand, but this mere acquiescence in the demand does not form a conspiracy.
Id. at 298. The U.S. Court of Appeals for the Second Circuit has for decades explicitly recognized an “economic coercion defense” to domestic bribery liability, see United States v. Alfisi, 308 F.3d 144, 150-51 & n.1 (2d Cir. 2002), and other courts have held that payments motivated by fear a public official would inflict serious economic harm can be made without criminal intent. See, e.g., Roma Const. Co. v. aRusso, 96 F.3d 566, 574–76 (1st Cir. 1996).
Foreign Autocracy and the Economic Extortion Defense
Some courts have been reluctant to recognize extortion as a defense to domestic bribery charges. Regardless of the position’s legal merits, it may make sense to motivate businesses that are the subject of corrupt U.S. officials’ extortion attempts to report the attempts to other, non-corrupt officials so that the perpetrators can be apprehended before they succeed.
In United States v. Alfisi, for example, the Second Circuit recognized the economic coercion defense but stated that “[t]he proper response to coercion by corrupt public officials should be to go to the authorities, not to make the payoff.” 308 F.3d at 150 n.1 (internal quotation marks and citation omitted).
In United States v. Colacurcio, the U.S. Court of Appeals for the Fifth Circuit found unavailing defendants’ claims that payments were extorted or made under duress where “there were legal alternatives available: the matter could have been reported to the Internal Affairs Division of the [local] Police Department, to the district attorney, or to the United States attorney.” 659 F.2d 684, 690 (5th Cir. Unit A 1981).
This rationale does not translate well to businesses that are forced to interact with extortionate foreign officials, particularly those in autocratic regimes where the “legal alternatives available” to making payments or suffering threatened harms are limited or nonexistent. If police, prosecutors, and courts are subservient to the extortionate official, as they may be in an autocratic regime—or worse, facilitating the extortion—the business may not have recourse to non-corrupt officials who could intervene or other alternatives to making the payment. Accordingly, the only way that a victim of an autocratic official’s extortion can avoid suffering serious economic losses or other harms may be “mere acquiescence” in the demand. Ocasio, 578 U.S. at 298.
Corrupt officials’ threats of economic or other harms also are more likely to constitute “true extortion” in a foreign autocracy. Extortion law recognizes that a perpetrator’s history and associations are relevant to demonstrate “the fear reasonably experienced by the victims, an element of extortion.” United States v. Fazio, 770 F.3d 160, 165 (2d Cir. 2014). Within the United States, fear caused by an official’s threat is likely to be mitigated by limits on individual officials’ power and the availability of redress through law enforcement and the courts.
Compare this to a situation that a business might experience in Russia or another autocracy, where a powerful official could threaten to shut down a business unless corrupt payments are made. The regime’s history of destroying those who resist official demands, and the absence of an independent judiciary, prosecutor, or police force, make it likely that the official’s threat could be carried out with impunity. Foreign autocrats’ threats of serious economic harm thus are more likely to cause reasonable fear and constitute “true extortion” than if the same threats were delivered by domestic actors.
Guidance for Victims
Because the government has been reluctant to recognize the economic extortion defense, a business seeking to invoke the defense must develop a strong factual record in support of it. The business should work with counsel to obtain information from corporate records and employees on the nature of the threats and the feared consequences of nonpayment. It also should retain an experienced investigator to develop information on country conditions, and the background and conduct of extortionate officials, in order to show it lacked reasonable alternatives to making the extorted payments. An investigator skilled in foreign corruption investigations would look for, inter alia, prior instances in which the extortionate official or associates inflicted economic or physical harm—including business takeovers or shutdowns, imprisonment, or similar severe harm—on noncompliant citizens or businesses with impunity.
If a business develops a sufficient factual record, there is no legal or enforcement policy justification for subjecting it to criminal liability under the FCPA for succumbing to a foreign official’s wrongful threats—now criminal under the FEPA—whether economic or physical in nature.
Businesses may have entered foreign markets and operated legitimately but now face deteriorating conditions and extortionate threats from increasingly autocratic regimes. Why should a business that has done nothing wrong, but now reasonably fears an autocratic official’s criminal threats of “severe economic or financial consequences in the absence of a payment,” [FCPA Opinion Procedure Release No. 22-1], be forced to suffer those unjust consequences in order to remain in compliance with federal law?
Federal enforcement policy can fully recognize the extortion defense without limiting the government’s ability to enforce the FCPA. By recognizing a defense based on factually supported “true extortion” of any kind, including economic extortion, the government can avoid punishing victims of illegal foreign corruption while preserving the FCPA’s and FEPA’s ability to combat its harms.
Howard Master is a Managing Director and counsel to the CEO at Nardello & Co., the global investigative firm, where he works on FCPA and other corruption investigations. He also is an adjunct professor at the University of Pennsylvania Carey Law School, where he teaches an advanced seminar on corruption law.
*Originally published in New York Law Journal
