HOUSE_OVERSIGHT_022529.jpg

27 Does the FCPA Apply to Cases of Extortion or Duress? Situations involving extortion or duress will not give rise to FCPA liability because a payment made in response to true extortionate demands under imminent threat of physical harm cannot be said to have been made with corrupt intent or for the purpose of obtaining or retaining business.’? In enacting the FCPA, Congress recognized that real-world situations might arise in which a business is compelled to pay an official in order to avoid threats to health and safety. As Congress explained, “a payment to an official to keep an oil rig from being dynamited should not be held to be made with the requisite corrupt purpose.”!”° Mere economic coercion, however, does not amount to extortion. As Congress noted when it enacted the FCPA: “The defense that the payment was demanded on the part of a government official as a price for gaining entry into a mar- ket or to obtain a contract would not suffice since at some point the U.S. company would make a conscious decision whether or not to pay a bribe.”!” The fact that the payment was “first proposed by the recipient ... does not alter the cor- rupt purpose on the part of the person paying the bribe.”!” This distinction between extortion and economic coer- cion was recognized by the court in United States v. Kozeny. There, the court concluded that although an individual who makes a payment under duress (i.c., upon threat of physi- cal harm) will not be criminally liable under the FCPA,"? a bribe payor who claims payment was demanded asa price for gaining market entry or obtaining a contract “cannot argue that he lacked the intent to bribe the official because he made the ‘conscious decision’ to pay the official.”!’* While the bribe payor in this situation “could have turned his back and walked away, in the oil rig example, “he could not.”!” Businesses operating in high-risk countries may face real threats of violence or harm to their employees, and payments made in response to imminent threats to health or safety do not violate the FCPA.!6 If such a situation arises, and to ensure the safety of its employees, companies should immediately contact the appropriate U.S. embassy for assistance. Principles of Corporate Liability for Anti-Bribery Violations General principles of corporate liability apply to the FCPA. Thus, a company is liable when its directors, officers, employees, or agents, acting within the scope of their employ- ment, commit FCPA violations intended, at least in part, to benefit the company.'”’ Similarly, just as with any other stat- ute, DOJ and SEC look to principles of parent-subsidiary and successor liability in evaluating corporate liability. Parent-Subsidiary Liability There are two ways in which a parent company may be liable for bribes paid by its subsidiary. First, a parent may have participated sufficiently in the activity to be directly liable for the conduct—as, for example, when it directed its subsidiary’s misconduct or otherwise directly participated in the bribe scheme. Second, a parent may be liable for its subsidiary’s con- duct under traditional agency principles. The fundamental characteristic of agency is control.'* Accordingly, DOJ and SEC evaluate the parent’s control—including the parent’s knowledge and direction of the subsidiary’s actions, both generally and in the context of the specific transaction— when evaluating whether a subsidiary is an agent of the par- ent. Although the formal relationship between the parent and subsidiary is important in this analysis, so are the practi- cal realities ofhow the parent and subsidiary actually interact. If an agency relationship exists, a subsidiary’s actions and knowledge are imputed to its parent.'” Moreover, under traditional principles of respondeat superior, a com- pany is liable for the acts of its agents, including its employ- ees, undertaken within the scope of their employment and intended, at least in part, to benefit the company.'*° Thus, if an agency relationship exists between a parent and a subsidiary, the parent is liable for bribery committed by the subsidiary’s employees. For example, SEC brought an administrative action against a parent for bribes paid by the president of its indirect, wholly owned subsidiary. In that matter, the subsidiary’s president reported directly to the CEO of the parent issuer, and the issuer routinely identified HOUSE_OVERSIGHT_022529