FCPA Compliance and Ethics Blog

January 7, 2015

The End of an Era and the End of Facilitation Payments?

Bess MyersonTwo famous New Yorkers died this week. Both spoke to not only to the glamour of the Big Apple, but the city’s once undisputed crown as the cultural mecca of the US. They were Allie Sherman and Bess Myerson. Allie Sherman

Sherman was with the New York (Football) Giants as an Assistant Coach when they were the original America’s Team. He later became the Head Coach when the Giants were ending a phenomenal run as the greatest pro football team in America. Sherman coached some of the most memorable players from the last century including Sam Huff, Frank Gifford, Andy Robustelli, Charley Connerly and Y. A. Tittle. As an Assistant Coach, he was a part of a team that went to the National Football League (NFL) championship games in 1956 and 1958/9. As Head Coach, he took the Giants to the championship games from 1961-63. That is six championship games appearances in seven years, a record no other team in football has ever achieved.

The second death was that of Bess Myerson. In my little hometown in podunk Texas, Bess Myerson was about the highest epitomy of American high class and grace that one could imagine. (My parents hated the Kennedys so Jackie was not a candidate.) What I did not fully appreciate until I read her obituary in the New York Times (NYT), entitled “New Yorker of Beauty, Wit, Service and Scandal by Enid Nemy and William McDonald, was that Myerson was the first Jewish Miss America and what her win of that crown meant in 1945 to Jews in America. The article quoted Barra Grant, Ms. Myerson’s daughter for the following; “When my mother walked down the runway, the Jews in the audience broke into a cheer. My mother looked out at them and saw them hug each other, and said to herself, ‘This victory is theirs.’” But in Bryan, Texas, she was not the Jewish Miss America; she was just Bess Myerson, the one and only Miss America we knew by name.

I thought about these two famous New Yorkers, where they came from and what New York once stood for as I considered the ongoing tragedy of AirAsia Flight 8501 and pondered facilitation payments. In another article in the NYT, entitled “AirAsia Jet That Crashed Had Lacked All Clearances to Fly, Regulators Say, Tom McCawley reported that “AirAsia Flight 8501, which crashed in the Java Sea on Dec. 28, was allowed to take off from Surabaya, Indonesia, even though it did not have all the required clearances from regulators to fly that day, the Indonesian Transportation Ministry said on Monday.” While the article did not identify those Indonesian who allowed this to occur, McCawley did report “The [Indonesian Transportation] Ministry said it was suspending several officials for allowing the flight to take off.” Moreover, “other airlines and airports across the country will also be scrutinized to see if they have been cutting corners in similar ways.”

The article did not say or even suggest that bribes were paid to allow this flight to take off when it did not have the proper permits to do so, such actions did occur in Indonesia, which had a 2014 score on the Transparency International – Corruption Perceptions Index at 34 and came in at a ranking of 107 out of 157 countries ranked. Fresh on the minds of all anti-corruption, Foreign Corrupt Practices Act (FCPA), UK Bribery Act practitioners and others is the Alstom FCPA enforcement action where a large amount of the companies bribes were paid in Indonesia to secure winning contracts. Of course, Alstom is a French company and AirAsia is Malaysian entity.

FCPA enforcement actions involving US companies and the air industry are unfortunately very well known. Biz-Jet and its bribes to secure business are in a direct line to Dallas Airmotive, involved in a FCPA enforcement action in the past quarter. But in the AirAsia case, I wondered about something different, that continuing FCPA bug-a-boo around facilitation payments. Facilitation payments are exempted out of FCPA violations but the AirAsia case is a clear example of the slippery slope of how something that is not illegal can easily move into such a realm and the true cost of corruption. Two of the loudest responses by the business community to the Wal-Mart allegations of bribery and corruption were that they were simply payments to expedite the process of licensing in Mexico and what did you expect to get things moving in Mexico anyway?

What if AirAsia made small payments to move things along faster with the Indonesian Transportation Ministry? What if these payments might properly be characterized as facilitation payments under an anti-corruption law such as the FCPA? McCawley’s article reported, “Officials have said that AirAsia had permits to fly the popular Surabaya-Singapore route on Mondays, Tuesdays, Thursdays and Saturdays, but later changed its schedule to fly on other days of the week, The Associated Press reported. Flight 8501 took off on a Sunday. Mr. Murjatmodjo said that while Singapore officials had approved the Sunday flight, Indonesia had not, and the aviation agency used incorrect information in granting Flight 8501 a takeoff slot.”

So what if that ‘incorrect information’ used by the Indonesian aviation agency turned out to be ‘facilitated’ by a grease payment? Is the granting of such approval something that would be been granted eventually but AirAsia was just trying to speed up the process? What if there were safety reasons for not allowing AirAsia to operate on the Sunday when the plane went down? What if it was something safety related to the flight controllers or something other than the plane or crew? Make no mistake about it, facilitation payments are bribes, yet there are other gray areas around them that can create confusion and make it hard for companies to police them.

A similar view was recently articulated by Thomas C. Baxter, Executive Vice President and General Counsel at the Federal Reserve Bank of New York who indicated a general unease with facilitation payments. Baxter was quoted in the FCPA Blog for the following, “Baxter said an organizational policy that allows some types of official corruption — including facilitating payments – “diminishes the efficacy of compliance rules that are directed toward stopping official corruption.”” Further, “While I understand that the exception is grounded in a practical reality, I feel that zero tolerance for official corruption would have been a better choice. To any public servant with an extended hand, I would say in a loud and clear voice, “pull it back and do your job.” And, let me note the OECD Working Group on Bribery recommends that all countries encourage companies to prohibit or discourage facilitating payments.”

Allie Sherman and Bess Myerson reminded us of a New York that once existed. With the proliferation of the internet and social media, I doubt US culture will ever be so concentrated in one city again. The AirAsia crash may portend of things in the future, so if it comes to pass that bribery and corruption was involved to obtain a seemingly minor approval to allow the flight of an airplane on a day it was not licensed to fly; perhaps one thing that comes out of the tragedy is the removal of this seeming anomaly of allowing bribes under the FCPA by calling them facilitation payments.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

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