Monday, August 22, 2016

Blackmail, Ransom, and Leverage

by Michael Dorf

Two recent unrelated news stories raise interesting questions about the legitimate scope of leverage in dealings with and by the government. One concerns Aetna's decision to pull out of the ACA exchanges in eleven states in which it has been offering insurance on those exchanges--possibly in retaliation for the Justice Department's lawsuit blocking Aetna's planned merger with Humana. If that is what happened, it could be said that Aetna blackmailed, or extorted concessions from, the government. The other story concerns the revelation that the State Department delayed payment of $400 million owed to Iran for at least several hours in order to ensure that Americans held captive by Iran were released, a move that critics of the Obama administration have said amounted to paying "ransom." Was there anything improper about these arrangements?


The facts of the Aetna case are amenable to two readings. On one reading, Aetna was using its leverage over the Obama administration. The administration wants the exchanges to succeed but cannot go back to Congress for amendments to the law that would enable that outcome, because Congress is controlled by Republicans who want the ACA to fail. Accordingly, the administration must work within the confines of the existing law to induce or cajole insurers to offer policies on the exchanges. In the first view, Aetna knew that and sought to use its leverage in the ACA exchanges to extract an unrelated concession from the administration: forbearance from antitrust enforcement. If so, then what Aetna did was at best highly questionable.

I'm not sufficiently expert in criminal law to know whether it is a crime to say to the government that if the government takes some legal action against your firm, your firm will retaliate by taking some unrelated action it has a legal right to take anyway. I do know that if that's a crime, it is a crime that bears some similarity to conventional blackmail. Let's suppose Jane lawfully has in her possession embarrassing photos of Charlie. If Jane demands that Charlie pay her $10k not to publish the photos (even though Jane has a legal right to publish the photos), Jane has blackmailed Charlie. I assume the same conclusion follows if, instead of demanding $10k from Charlie, Jane demands that Charlie--on behalf of the United States in his capacity as an employee of the Justice Department--drop the government's legal action to block the merger of Jane's firm with another firm.

Now there is one obvious and one potential distinction between the actual Aetna case and the hypothetical case I've just described. The obvious distinction is that on no account of the facts did Aetna threaten to reveal (or not reveal) information. Thus, no one at Aetna could be prosecuted for violating the federal blackmail statute. Pundits claiming that Aetna attempted to blackmail the federal government are thus using the term "blackmail" in a loose sense. "Extortion" might be a better description of what Aetna arguably was attempting, although here too that would be in a loose sense, because threatening to do something one has a right to do does not violate the federal extortion statute (the Hobbs Act) either.

The potential distinction I have in mind invokes a second reading of the facts. Aetna and its officials claim that they were not threatening to take an unrelated action (dropping out of the exchanges). After all, Aetna's July 5 letter at issue does not literally say "if you block our merger we will retaliate by taking the unrelated action of pulling out of the exchanges." It says if you block our merger, we will lack the financial resources to continue to provide coverage at a loss on the exchanges. See the difference. It's not a threat. It's a prediction.

Of course, a threat can be veiled as a prediction. E.g., Nice coffee shop you got here. It'd be a shame if anything was to happen to it, know what I mean? But I doubt that the July 5 letter, standing alone, is sufficient evidence that Aetna was really only disguising an effort to threaten the government as a prediction about its own finances. There is too much plausible deniability.

This second reading of the Aetna facts makes the case uninteresting. So let's consider a hypothetical case based on the first reading of the facts. Suppose that a firm expressly did what some have accused Aetna of doing. Suppose that the Shmaetna Insurance Company literally did make the threat and did so simply as a means of gaining an advantage in the antitrust case. In this scenario, we assume that Shmaetna's health insurance business on the exchanges is either profitable or at least a break-even proposition. Absent the antitrust case, Shmaetna would have no reason to cease operating on the exchanges. But Shmaetna wants to take advantage of its leverage because it knows that the government really wants it to keep offering insurance on the exchanges. Forget about whether Shmaetna's threat is permissible under existing law. Is it the sort of thing that ought to be treated as unlawful?

I'm not sure. In some contexts, we think that trading in this way is permissible. Logrolling is familiar from the legislative process. And in daily commercial life, we are constantly exchanging goods and services for unrelated goods and services. If I have a bicycle that you want, you offer to pay me money for it. If you offer me enough money, I take your offer. I then use the money to purchase whatever I want--let's say piano lessons. The fact that you have gotten my bicycle by, in effect, giving me the unrelated service of piano lessons isn't wrong or shameful or anything of the sort. It's a simple exchange.

Yet there are contexts in which this kind of exchange is corrupt. Logrolling is verboten (at least as a matter of the publicly accepted norms) among the members of multi-member courts. Blackmail is illegal. And the extraction of antitrust enforcement forbearance in response to an unrelated threat--even a threat to do something lawful--seems corrupt. My intuition is that civil and criminal law enforcement ought to be made based on a judgment about the merits of the particular case, uninfected by extraneous considerations.


Now let's turn to the allegations that the administration paid a ransom to Iran for the American prisoners. Here there isn't much dispute about the facts. The Iranians claim that the prisoners were held for various crimes, but the charges were bogus. Still, there appears to be an important difference between what happened here and a conventional ransom case. In the latter, the kidnapper unlawfully takes hostages and then demands money or something else of value to which the kidnapper is not entitled. Here, however, the $400 million debt long pre-dated Iran's capture of the U.S. prisoners.

But so what? Suppose that Donald Trump owes $5 million to one of the many contractors he has stiffed over the years. The contractor has had enough of Trump's delaying tactics and obstruction, so he kidnaps Trump's ten-year-old son Barron, demanding payment of the $5 million for Barron's release. If Trump pays, is that a ransom?

The short answer is that it doesn't matter what we call the transaction. The reason why it's bad to pay ransom to kidnappers is that doing so encourages more kidnapping. In the hypothetical case, that's the effect of Trump paying the kidnapper. Seeing that kidnapping Trump's son led to Trump finally paying the money he owed will encourage all of the other people that Trump owes money to kidnap members of his family. So yes, payment in this case is the equivalent of a ransom, even though the debt pre-dated the kidnapping.

Does that mean that the Obama administration also paid the equivalent of a ransom? Not necessarily. The administration contends that it was planning all along to pay the $400 million and only delayed payment in retaliation for the taking of the prisoners. Iran took prisoners and the U.S. then threatened not to return the $400 million it was about to pay. It wasn't a ransom, the administration argues, because the U.S. side was doing the threatening.

That's plausible. Although the debt was longstanding, it probably would have been paid as part of the general effort to settle old cases along with the completion of the nuclear deal. And if so, it would have been paid sooner had the Iranians not been holding the Americans prisoner.

But maybe not. The administration's characterization of events depends on a counterfactual. Are we really sure that the $400 million was going to be paid anyway? And even if the administration was planning on paying all along, if the Iranians had doubts about that, then, from their perspective, this was a successful hostage-taking-and-ransom operation, which could encourage more such operations.

I'm left in a state of uncertainty about how to characterize the payment to Iran, but I do think the crucial question is who was doing the threatening. Was the U.S. threatening to withhold payment otherwise soon-to-be forthcoming or was Iran threatening to keep holding the prisoners absent payment? And what did each side understand about the other side's intentions? Because they depend on subjective intentions with respect to counterfactuals, these are largely unanswerable questions, so I won't attempt to answer them.


Instead, I want to conclude by connecting the Aetna and Iran cases. Note that in the Aetna case, Aetna's claim to innocence rests on its argument that it was not using the leverage it had in virtue of the fact that it offered insurance on the exchanges. By contrast, in the Iran case, the administration's claim that it did not pay ransom rests on its argument that it did use its leverage to withhold payment of the $400 million, rather than submitting to a demand by Iran exploiting the leverage that holding the prisoners provided. In one case, exercising leverage is inculpatory; in the other case, it's exculpatory.

That's interesting. My tentative view is that this juxtaposition shows that we lack a comprehensive account of when the exercise of leverage--whether in the form of a threat or a promise--is legitimate. Even familiar examples can be problematic when closely inspected. We accept logrolling as part of the necessarily messy process by which legislators compromise, but it is not difficult to see it as a kind of corruption. If the price of securing a House member's vote for a critical environmental protection bill is federal funding for the construction of a multi-million-dollar Museum of Rubber Bands and Paper Clips in his district, that is hardly a cause for celebration.

There is a substantial body of literature that attempts to explain and/or justify the crime of blackmail. How can it be unlawful to threaten to do something that one is legally entitled to do? I don't have a view about which, if any, of the accounts of blackmail are persuasive, but I do want to suggest that perhaps the problem is broader. Perhaps the problem of explaining the harm of blackmail is simply a subset of a larger problem we have offering a comprehensive and coherent account of when the use of leverage is proper.