Payment of Bribes in the face of Duress and Extortion

Most compliance teams the world over focus on training their employees to avoid making improper payments to foreign officials for securing business advantages. However, in rare scenarios, companies may face situations where an improper payment is demanded while its employees face threats of physical danger in a foreign country. In this article, we analyse an opinion issued by the United States Department of Justice that can be useful for companies navigating situations where demands are made pursuant to an extortion attempt or putting the company under duress. We also contrast it with Indian law and provide practical tips for companies to lawfully navigate such requests.

Kunal GuptaPartner

Shreya KunduSenior Associate

Sahil BansalAssociate

The United States Department of Justice (DOJ) published a Foreign Corrupt Practices Act (FCPA) opinion on 21 January 2022 (Opinion) under its FCPA ‘Opinion Procedure’ (OPR). The OPR enables companies to obtain the DOJ’s opinion on whether specific, prospective (and not hypothetical) conduct flouts the FCPA’s anti-bribery provisions and would consequently invite enforcement action from the DOJ. The OPR can thus be a useful tool for companies facing real-life scenarios that are likely to violate the FCPA but has not been commonly utilised by private entities for several reasons, with this Opinion being only the second such opinion issued by the DOJ under the OPR since 2014.

  • Factual background to the Opinion

    A ship, owned by the company that requested the DOJ for its opinion (Requestor), anchored in Country X’s waters, instead of Country Y’s, due to an administrative error. Country X’s navy confiscated the ship’s documents, as well as documents of officers and crew onboard, and detained the captain onshore without questioning him or providing any documentation authorising his detention. Soon after the captain’s detention, an intermediary allegedly acting on behalf of Country X’s navy approached the Requestor and demanded a cash payment of a large amount to release the ship’s captain and to allow the ship to leave Country X. The intermediary refused to clarify whether any laws of Country X were violated by the ship’s inadvertent entry into Country X’s territorial waters and if the payment was being demanded pursuant to a penalty or fine imposed due to such a violation of Country X’s laws.

    Consequently, the Requestor felt there were sufficient red flags that the cash payment demanded by the intermediary was intended for navy or other government officials in Country X and was not a legitimate payment to any government institution in Country X. The Requestor then sought the DOJ’s opinion as to whether the DOJ would bring an enforcement action for violations of the anti-bribery provisions of the FCPA against the Requestor if it did fulfil the intermediary’s demand.

    The Opinion involves what is likely an uncommon scenario, but one that provides more general insights on dealing with extortionate demands in international business. Further, since India’s Prevention of Corruption Act, 1988 (PCA) also allows certain relaxations from criminal liability for bribes paid under compulsion, we use this discussion of the Opinion as a springboard to discuss the kinds of circumstances that have been considered by Indian courts to amount to ‘compulsion’ while paying bribes.

  • US courts have also expressly held that payments forced ‘on threat of injury or death’ do not qualify as corrupt payments under the FCPA, as actions taken under duress and ‘in response to true extortionate demands’ do not ordinarily constitute offences.

  • DOJ’s analysis in the Opinion

    In the Opinion, the DOJ emphasised that the FCPA prohibits corruptly giving or offering payments to foreign government officials with the purpose of obtaining or retaining business for any person. In its final analysis, the DOJ considered that both these ingredients were not present in the Requestor’s actions, and therefore there were no grounds to initiate an enforcement action.

    • No corrupt payment: To make a payment ‘corruptly’, one would have to make it with the intent or desire to wrongfully influence the recipient, i.e., to influence a foreign government official to misuse an official position. In this case however, the DOJ felt that based on the facts, the intent behind the Requestor’s payment was not to wrongfully influence the recipient in any manner but to prevent what by all counts appeared to be imminent serious harm to the detained captain and the crew. In such situations, United States (US) courts have also expressly held that payments forced ‘on threat of injury or death’ do not qualify as corrupt payments under the FCPA, as actions taken under duress and ‘in response to true extortionate demands’ do not ordinarily constitute offences.
    • Payment not made to obtain or retain business: With respect to the other ingredient, which is commonly termed ‘the business purpose test’, the DOJ stated that the payment did not appear to be motivated by an intent to obtain or retain business, since the Requestor had no ongoing or anticipated business with Country X.
    • Other factors: The DOJ also appears to have accorded weightage to the Requestor’s conduct. The Opinion notes that the Requestor did not try to conceal the payment demand made by the intermediary, but first engaged with US government agencies in attempting to open a line of communication with Country X, and also requested Country X authorities to provide formal documentation evidencing the legal basis for the demand. Only after these approaches failed to secure the release of the crew and the vessel, the Requestor considered making the payment demanded and sought the DOJ’s opinion.
  • Duress is distinct from economic and financial harm under the FCPA

    The situation encountered by the Requestor appears to have been a perfect storm of unfavourable circumstances, where an entirely administrative error led to the Requestor’s employees being in physical danger in what appears to have been a hostile jurisdiction, and as such, are not day-to-day matters in international business. Regardless, a key takeaway from the Opinion is the DOJ’s statement that true extortionate demands or situations of duress are readily distinguishable from situations in which a company is threatened with severe economic or financial consequences for failing to make improper payments.

    Thus, for example, in a situation where bribes are demanded to secure new government contracts or to obtain entry into new jurisdictions, and the absence of these new business opportunities would impact the company’s business financial bottom line, it would not be a valid defense to argue that such economic and financial impact constitutes duress under the FCPA. In fact, the DOJ specifically pointed out that payments under circumstances that companies may perceive as economically coercive, especially in foreign jurisdictions where they anticipate entering into or renewing business arrangements with government actors, could very well give rise to liability under the FCPA.

  • Bribe-giving under compulsion in India

    Amendments introduced in 2018 (2018 Amendments) to India’s PCA amended Section 8 thereof and made it an offence for any person to pay bribes to a public servant. However, Section 8 also states that it shall not apply where a person is compelled to pay such bribes, provided that such a bribe-giver should report the matter to law enforcement agencies within seven days from the date of making such a payment. Although courts in India are yet to interpret the term ‘compelled’ in the exact context of the newly introduced Section 8 of the PCA, to glean its meaning we can look at various legislative proposals concerning the 2018 Amendments, as well as cases in which Indian courts have evaluated whether bribe-givers should be treated as accomplices of public servants who accept bribes.

    Indian courts have typically characterised bribes as being paid freely when the bribe-giver gives them without being harassed, voluntarily and willingly, and with the understanding that they are consciously trying to obtain an advantage or avoid a disadvantage. On the other hand, courts have referred to bribes being compelled or coerced when bribe-givers are forced to pay bribes in factual circumstances which are such that bribe-givers are rendered victims rather than collaborators.

    Notably, Indian courts have not entirely ruled out that in some circumstances, bribe-givers may be compelled to pay bribes when threatened with pecuniary losses (and not just threatened with bodily harm and physical danger). However, while acknowledging that threats of pecuniary losses could amount to compulsion, Indian courts have accorded significant weightage to the relative economic vulnerability of the bribe-giver – for instance, courts are inclined to be more sympathetic to individuals in financially worse-off positions such as informal sector workers, whose refusal to pay bribes could result in a loss of livelihood. Courts may not be willing to apply the same stance in the case of corporations that receive demands for bribes from government officials to, for example, routinely renew expiring licenses or award government business. It is unlikely that mere loss of business opportunity or increased compliance costs would rise to the level of a significant pecuniary loss that courts would consider such corporate bribe-givers to be victims rather than accomplices.

    Finally, just as the DOJ gave weightage to the Requestor’s conduct in trying alternate approaches before considering making the payment demanded, when determining that bribe-givers have been victims rather than willing collaborators in bribery, Indian courts have also considered factual circumstances such as the payer refusing to pay the bribe initially, attempting to reason with the government official to convince them to withdraw the demand, etc.

  • When determining that bribe-givers have been victims rather than willing collaborators in bribery, Indian courts have also considered factual circumstances such as the payer refusing to pay the bribe initially, attempting to reason with the government official to convince them to withdraw the demand, etc.

  • Practical tips while facing demands of improper payments

    From the discussion above, it is clear that in any situation where demands of improper payments are made, whether it is the DOJ or the criminal courts in India that are evaluating the situation, the attendant risks of criminal liability vary upon the facts and evidence available.

    We set out below a few considerations that may be kept in mind in the event a company is in receipt of demands for improper payments:

    • Keep a detailed record, prepared as contemporaneously as possible with the demand in question, of the circumstances in which the bribe demand is made by the government official or any other person.
    • Request a written notice of the demand, to assess its legitimacy under local law.
    • Refuse to accept the payment demanded, politely explaining to the concerned officials or persons that making the payment requested is prohibited by company policies and business principles.
    • If it is legally feasible to make payments directly to the government authority or office itself, arrange for such payment in response to a written notice of demand issued by that government authority or office, and request formal receipts on government letterhead that include all payment details.
    • If the payment is made, it must be correctly recorded in all aspects in the company’s financial books and records, including an accurate explanation of its purpose. This is to prevent violations of not only Indian company law but also the FCPA’s accounting provisions, which require companies with securities listed on stock exchanges in the US to make and maintain books and records that accurately and fairly reflect the transactions of the company, as well as to devise and maintain an adequate system of internal accounting controls. The US Securities and Exchange Commission has in the past held companies liable for violating the FCPA’s accounting provisions due to inaccurately recording payments of fines extorted by foreign government officials.
    • If the demand persists, consider relying upon existing relationships to identify a more senior person in the government body in question who can be approached to resolve the situation legitimately.
    • In situations where the demand persists, consider explaining to the requestor that any such payment made must be recorded accurately in the company’s records, including names and other identifying details of the person making the demand.

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