FCPA Compliance and Ethics Blog

December 19, 2010

UK Bribery Act Guidance-Facilitation Payments and Hospitality

For those of you who have not yet done so, you should check out the great resource available on the UK Bribery Act, through a website entitled thebriberyact.com. Hosts Barry Vitou, of the London office of Wiston and Strawn, and Richard Kovalevsky Q.C., from 2Bedford Row-the Chambers of William Clegg, Q.C., provide, in one site, one of the best collection of resources that can be found on the UK Bribery Act, all at no cost to the viewer. They also have a newsletter which is distributed through email subscription. Two of the sites more recent postings provide recent guidance and development from the UK Serious Fraud Office (SFO) on two of the most vexing topics for Bribery Act (or the Foreign Corrupt Practices Act (FCPA) for that matter) compliance practitioners, facilitation payments and hospitality under the UK Bribery Act.

Unlike the FCPA, the Bribery Act has no exemption for the payment of facilitation payments. Additionally, there is no affirmative defense or otherwise noted exemption or exception for hospitality, whether bona fide or not, under the Bribery Act. Therefore, under a strict interpretation of the Bribery Act, any facilitation payment or conceivable hospitality granted a customer or client could be a violation of the Bribery Act.

I. Facilitation Payments

In a recent speech before the International Corruption Hunters Alliance meeting, hosted by The World Bank in Washington, DC, SFO Director Richard Alderman noted that the SFO position is one of zero tolerance for facilitation payments. However, he noted that the focus of discussions in the UK has moved from persuading companies that it is wrong to give bribes to how it is possible to stop the demands for bribes in the first place. Director Alderman believes that both the UK regulators and the businesses subject to the Bribery Act should work together to end such bribes. He said that “What is needed here is international involvement between countries and including institutions such as the World Bank and others. It can also mean companies working together to share their experiences of working in other countries and bringing those experiences to us.”

To this end, Alderman suggested that unlike the Department of Justice (DOJ) or Securities and Exchange Commission (SEC), which jointly enforces the FCPA, the SFO is more than just a prosecutor. The SFO is pursuing a strategy to engage with corporations, NGOs, such as the World Bank, and other governments which support anti-corruption efforts, such as the United States for helping in solving these problems. The authors have previously noted that Director Alderman is on record as saying that he is “not only interested in concentrating on investigations and prosecutions but also, importantly, on prevention.” This prior statement clearly follows one of the points Director Alderman reiterated in his speech that corporations should look to the SFO “for help in solving these problems”.

II. Hospitality

thebriberyact.com has for some time reported that UK companies have voiced various fears which have been widely reported about the “uncertainties” around the application of the Bribery Act to corporate hospitality are overblown. The authors have noted that SFO position on hospitality is that if “hospitality is not lavish and people use their common sense then there should not be a problem” under the Bribery Act.

In today’s online edition of the UK Daily Telegraph newspaper, Director Alderman is reported to have said: “Sensible and proportionate expenditure on hospitality will remain perfectly lawful under the Bribery Act when it comes into force.” Further, “I understand that businesses want more detailed guidance before attending major sporting events. We will be happy to help by publishing our views.” This guidance is expected to be published in early 2011.

All US companies with UK operations should incorporate the Bribery Act requirements into their FCPA compliance programs. The Bribery Act has become the new gold standard for anti-corruption and anti-bribery compliance programs. As has been noted by the law firm of Fulbright and Jaworski, only 11% of respondent US companies believe that the Bribery Act will impact their compliance programs. From this report, it is clear that most US companies do not understand the differences in the Bribery Act and the FCPA. With the wide extra-territorial reach of the Bribery Act, US companies with UK subsidiaries, UK operations or UK citizens in their employ should assess their FCPA compliance programs to ensure Bribery Act compliance and the website thebriberyact.com is good starting point.
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, 2010

November 11, 2010

The End of the FCPA Facilitation Payment Exception?

In November, 2009 the Organization for Economic and Co-operation and Development (OECD) announced a new recommendation at the OECD’s celebration of “International Anti-Corruption Day” and the Tenth Anniversary of the “Entry into Force of the OECD Anti-Bribery Convention”. This change relates to facilitation payments (aka “grease payments”) which remain legal under the Foreign Corrupt Practices Act (FCPA). 

OECD Secretary-General Angel Gurría described these low-level payments, designed to expedite performance of a “routine government action” such as obtaining mail delivery, phone or power service, as “corrosive . . . particularly on sustainable economic development and the rule of law”. 

Facilitation payments, also known as “expediting payments” or “grease payments,” are bribes paid to induce foreign officials to perform routine functions they are otherwise obligated to perform. Examples of such routine functions include issuing licenses or permits and installing telephone lines and other basic services. The only countries that permit facilitation payments are the United States, Canada, Australia, New Zealand and South Korea. Facilitation payments, however, are illegal in every country in which they are paid. They have come under increasing fire under the FCPA as inconsistent with the totality of US policy on anticorruption. 

This change by the OECD brings the considerable problems associated with facilitation in the international business arena into keener focus. Just like large commercial bribes, grease payments abuse the public trust and corrode corporate governance. Treating them as anything other than outright bribery muddies the compliance waters and adds confusion where there should be clarity. This new stance by the OECD, coupled with the passage of the UK Bribery Act which bans facilitation payments and increased enforcement under the FCPA, may well bode the end of facilitation payments. 

I.          TRACE Facilitation Payments Benchmark Survey 

In October, 2009, TRACE International published the results of its “Facilitation Payments Benchmark Survey”. TRACE conducted a global survey with the following objectives: (1) to understand how facilitation payments are perceived in the international business community, including the level of risk they are deemed to pose and the compliance challenges they present; and (2) to map corporate policies on facilitation payments, including whether they are permitted and, if so, the types of safeguards corporations impose on their payment. 

The results of the TRACE survey reveal a definitive move by corporations to ban facilitation payments, coupled with an awareness of the added risk and complexity presented by facilitation payments: 

  • 76% of survey respondents believe it is possible to do business successfully without making facilitation payments given sufficient management support and careful planning.
  • Over 70% believe that employees of their company either never, or only rarely, make facilitation payments, even if their corporate policy permits facilitation payments.
  • Over 93% revealed that their job would be easier, or at least no different, if facilitation payments were prohibited in every country.
  • Nearly 44% reported that their corporations prohibit facilitation payments or simply do not address them because facilitation payments are prohibited together with other forms of bribery.
  • Almost 60% of respondents reported that facilitation payments pose a medium to high risk of books and records violations or violations of other internal controls.
  • Over 50% believe a company is moderately to highly likely to face a government investigation or prosecution related to facilitation payments in the country in which the company is headquartered. 

II. Facilitation Payments under the FCPA 

The original version of the FCPA, enacted in 1977, contained an exception for payments made to non-US officials who performed duties that were “essentially ministerial or clerical”. In 1988 Congress responded by amending the FCPA under the Omnibus Trade and Competitiveness Act to clarify the scope of the FCPA’s prohibitions on bribery, including the scope of permitted facilitation payments. An expanded definition of “routine governmental action” was included in the final version of the bill, reflecting the intent of Congress that the exceptions apply only to the performance of duties listed in the subcategories of the statute and actions of a similar nature. Congress also meant to make clear that “ordinarily and commonly performed actions”, with respect to permits or licenses, would not include those governmental approvals involving an exercise of discretion by a government official where the actions are the functional equivalent of “obtaining or retaining business for, or with, or directing business to, any person”. 

The FCPA now contains an explicit exception to the bribery prohibition for any “facilitation or expediting payment to a foreign official, political party, or party official for the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official”. “Routine government action” does not include any decision by a public official to award new business or continue existing business with a particular party. The statute lists examples of what is considered a “routine governmental action” including:

  • obtaining permits, licenses, or other official documents to qualify a person to do business in a country;
  • processing government papers, such as visas or work orders;
  • providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or transit of goods across country;
  • providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products from deterioration; and
  • actions of a similar nature. 

There is no monetary threshold for determining when a payment crosses the line between a facilitation payment and a bribe. The accounting provisions of the FCPA require that facilitation payments must be accurately reflected in an issuer’s books and records, even if the payment itself is permissible under the anti-bribery provisions of the law

 III.             Risks associated with relying on the “facilitation payments” exception. 

Facilitation payments carry legal risks even if they are permitted under the anti-bribery laws of a particular country. In the US enforcement agencies have taken a narrow view of the exception and have successfully prosecuted FCPA violations stemming from payments that could arguably be considered permissible facilitation payments. Violations of the accounting and recordkeeping provisions of the FCPA are also more likely when a company makes facilitation payments. Abroad, countries are increasingly enforcing domestic bribery laws that prohibit such payments. Companies that allow facilitation payments face a slippery slope to educate their employees on the nuances of permissible payments in order to avoid prosecution for prohibited bribes. 

A.    US enforcement authorities construe the exception narrowly. 

Other than as discussed above, there is no definitive guidance on circumstances in which the facilitation payments exception applies. There may be less risk of enforcement by US authorities in cases involving bona fide facilitation payments that are made specifically for one of the purposes enumerated in the FCPA. However, companies still face the risk of at least facing a governmental inquiry to explain the circumstances surrounding the payments, possibly resulting in penalties based on an unanticipated restrictive interpretation of the exception. As noted by the FCPA Professor, the recent Noble Non-Prosecution Agreement noted that the payments made by Noble’s Nigerian customs’ agent Panalpina, to facilitate the importation of its rigs into Nigeria did “not constitute facilitation payments for routine governmental actions within the meaning of the FCPA”.

B. Potential non-compliance with the FCPA’s accounting and recordkeeping provisions. 

While the anti-bribery provisions of the FCPA permit facilitation payments, the accounting and recordkeeping provisions of the law nevertheless require companies making such payments to accurately record them in their books and records. Companies or individuals may be reluctant to properly record such payments, as it shows some semblance of impropriety and effectively creates a permanent record of a violation of local law. However, failure to properly record such expenditures may result in prosecution by the Securities and Exchange Commission (SEC) even if the underlying payments themselves are permissible. One example of prosecution resulting from the misreporting of seemingly permissible facilitation payments involves Triton Energy Corporation, which settled an investigation by the SEC involving multiple alleged FCPA violations, including the miss-recording of facilitation payments. An Indonesian subsidiary of the company had been making monthly payments, of approximately $1,000, to low-level employees of a state-owned oil company in order to assure the timely processing of monthly crude oil revenues. The SEC did not charge that these payments violated the anti-bribery provisions of the FCPA; however, these payments were miss-recorded in corporate books and therefore violated the FCPA’s accounting and recordkeeping provisions. Triton Energy consented to an injunction against future violations of the FCPA and was fined $300,000. 

C. Increased enforcement of non-US laws that do not recognize an exception for facilitation payments. 

While the FCPA and certain other national anti-bribery laws contain exceptions for facilitation payments, such payments typically are considered illegal in the country in which they are made; there is not any country in which facilitation payments to public officials of that country are permitted under the written law of the recipient’s country. Accordingly, even if a particular facilitation payment qualifies for an exception of the FCPA, it, nevertheless, is likely to constitute a violation of local law – as well as under anti-bribery laws of other countries that also might apply simultaneously – and thus exposes the payer, his employer and/or related parties to prosecution in one or more jurisdictions. While enforcement to date in this area has been limited increased global attention to corruption makes future action more likely. Countries that are eager to be seen as combating corruption are prosecuting the payment of small bribes with greater frequency. 

D. Corporate approaches to facilitation payments may exceed the legitimate scope and applicability of the exception.

As demonstrated in the TRACE Benchmark Survey, businesses struggle with how to address the “facilitation payments” exception in their compliance policy and procedures, if the subject is covered at all. Businesses should be wary of allowing employees to decide on their own whether a particular payment is permissible. Unless such payments are barred completely or each payment is subject to pre-approval (which in many cases would be unrealistic (e.g., passport control)), there is always the risk that an employee, agent or other person whose actions may be attributed to the company will make a payment in reliance on the exception when in fact the exception does not apply. In addition, the temptation to improperly record otherwise permissible facilitation payments has been discussed above. 

IV.             End of facilitation payments?

 

The global business environment has changed even as the FCPA has remained static. After his prepared remarks at the Compliance Week 2010 Annual Conference, Assistant Attorney General for the Criminal Division of the US Department of Justice, Lanny Breuer took several questions from the audience. One of his more interesting responses was regarding facilitation payments and whether the US was moving towards the OECD/UK Bribery Act model of not allowing such payments. He responded that it was a question which needed consideration as compliance standards are evolving on a world wide basis. However, as of this date, Breuer was not aware of any proposed change in the FCPA on this issue but that it may be visited in the not too distant future. 

US companies should recognize the weakening of the argument supporting a facilitation payment exception and should develop compliance policies that do not permit any kind of grease payments. A policy that prohibits all payments (unless there is high level of legal and compliance approval) will relieve businesses of the compliance burden of differentiating between lawful and unlawful payments. From the point of view of the modern global corporation, a compliance regime that attempts to differentiate between “good” corrupt payments and “bad” corrupt payments will do more harm than good. 

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 can be reached at tfox@tfoxlaw.com. 

© Thomas R. Fox, 2010

May 27, 2010

Lanny Breuer at Compliance Week

Assistant Attorney General for the Criminal Division of the U.S. Department of Justice (DOJ), Lanny Breuer gave the final day’s keynote speech at the Compliance Week 2010 Conference. Many of his remarks were directed at the ethics and compliance professionals who attended the event. He confirmed that the Obama Administration is committed to combating financial fraud, particularly in the area of overseas bribery and corruption as prohibited by the Foreign Corrupt Practices Act (FCPA). He used a quote from Attorney General Holder in emphasizing this point, that bribery “is a scourge on civil society.”

He stated that tools which had been previously used to combat organized crime would now be employed in the fight against white collar crime, including both wiretaps and sting operations as were used against the gun manufacturing industry in the operations which culminated in the arrests of 22 individuals in Las Vegas in January of this year. He also discussed that many foreign governments had entered into collaboration agreements to facilitate cross-border investigations and enforcement actions.

Breuer stated that one of the goals of the DOJ is to “charge individuals” as a strategy to deter corporate conduct. Further, holding individuals accountable is essential and will also deter illegal corporate conduct which results in violations of the FCPA. One of the more startling statistics cited by Breuer was the number of individual prosecutions pursued by the DOJ in the years 2004-2009. Since 2004, 84 individuals have been charged with FCPA violations. However 46 of those individuals were charged in 2009 so over ½ were charged in the last year. Indeed there have been 22 individuals charged already this year in the gun industry sting case so the facts would seem to bear out his statements. (For prior post on gun industry sting case, see here).

After emphasizing that the DOJ will continue to hold individuals accountable under the FCPA, Breuer turned to some of the things that he considered key elements of a compliance program. He began by listing a couple of references as benchmarks and they were the US Sentencing Guidelines and the OECD Good Practice Guidance for Anti-Bribery Compliance Programs. He then delineated the following elements: Tone at the Top; a compliance program which not only punishes compliance violations but also rewards good ethical behavior in a corporation; a strong whistle-blower program (and protection) through a hotline or other appropriate mechanism; and significant and direct reporting by the compliance officer to the Board. He also stated that the DOJ wants to know about not only your company, but also the companies which your may be doing business with; both in the form of third party foreign business partners and customers. He concluded by emphasizing that an effective compliance program is not static but dynamic, adapting to meet new and additional compliance challenges and subject to periodic reviews and appraisals by outside experts.

Breuer stressed the importance of coming to the DOJ rather than the DOJ coming to you, when a potential FCPA violation was discovered. The benefits to a company can be significant if a company comes forward AND fully cooperates with the DOJ. Breuer stated that if a company does so it will receive meaningful credit. He cited two examples where the penalty assessed was significantly less than the range suggested under the US Sentencing Guidelines. Breuer cited two examples. First in the Siemens’ case, the fine which could have been levied, based upon the conduct was between $1.35BN to $2.75BN and final fine levied by the DOJ was $450MM (the total fine paid to the US and German governments was $1.6BN). The second example was the fine paid by Helmerich and Payne, that of $1MM. This was 1/3 of the total fine which could have been levied based upon the US Sentencing Guidelines.

Lastly Breuer noted that it is his position that a company should come to the DOJ when it initially makes the discovery of a potential FCPA violation, rather than doing so after it conducts its investigation. This should be done for a couple of reasons. Initially Breuer remarked that the DOJ can provide guidance on the issues that it wants investigated by the company. This may prevent the company from investigating an issue that the DOJ does not deem necessary. Conversely the DOJ may suggest areas which it wants investigated that the company may not have considered. More importantly, such early notification allows the company involved to have a constructive dialogue with the DOJ and allows the DOJ to become a partner with the company in the investigative and remediation process.

Breuer took several questions from the audience. One of his more interesting responses was regarding facilitation payments and whether the US was moving towards the OECD/UK Bribery Act model of not allowing such payments. He responded that it was a question which needed consideration as compliance standards are evolving on a world wide basis. However as of this date, Breuer was not aware of any proposed change in the FCPA on this issue but that it may be visited in the not too distant future. (For a comparison of the FCPA and Bribery Act, see here).

The talk and Q&A by Breuer was well received by the audience and provided concrete guidance in several areas relating to FCPA compliance policies and issues.

For a copy of the text of Breuer’s remarks, click here.

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, 2010

April 14, 2010

Changes Coming: US Sentencing Guidelines, UK Bribery Bill & OECD on Facilitation Payments-Part I

At its April 7, 2010 meeting the United States Sentencing Commission approved amendments to its Sentencing Guidelines. The next day on April 8, 2010, the UK Bribery Bill received Royal Assent. These two events follow the December 9, 2009 release by the Organization for Economic Co-Operation and Development’s (OECD) Recommendation for Further Combating Bribery of Foreign Public Officials, when the OECD marked the tenth anniversary of the entry into force of the OECD Anti-Bribery Convention.

These three releases, which comprise of two changes in the legal schemes by two of the world’s largest economic players and the proposal of one of the largest Non-Governmental Organizations dedicated to ending corruption across the globe portend significant changes in how companies will be structured and transact business going forward in the new decade. This will be the first of three postings in which will discuss the changes that companies, with any US or UK presence, will be required to implement. The initial post will be on the changes to the US Sentencing Guidelines; in our second post, we will then consider the changes required by the UK Bribery Bill; and in our third and final post, we will end with the recommendation as found in the OECD’s Recommendation for Further Combating Bribery of Foreign Public Officials regarding the ending of facilitation payments.

The US Sentencing Guidelines are used in the sentencing of organizations and serve as the de facto blueprint for corporate ethics and compliance programs. The changes, which were approved at an April meeting, must be formally submitted to Congress by May 1, and will take effect November 1, 2010, unless Congress passes legislation to reject or modify them. These proposed changes follow public hearings and public comment period which ended in March. The most significant changes in the Sentencing Guidelines are as follows.

1. Direct Report. The amendment would change the reporting structure in corporations where the Chief Compliance Officer (CCO) reports to the General Counsel (GC) rather than a committee on the Board of Directors. The proposed change reads “the individual…with operational responsibility for the compliance and ethics program…have direct reporting obligations to the governing authority or any appropriate subgroup… (e.g. an audit committee or the board of directors)”. If a company has the CCO reporting to the GC, who then reports to the Board, such structure may not qualify as an effective compliance and ethics program under the Sentencing Guidelines. The better practice would now appear to be that the CCO should be a direct report to the Board or appropriate subcommittee of the Board such as compliance or audit.

2. Discovery of Problem Inside the Organization Rather Than Outside. This amendment encourages a company to have a hotline and other mechanisms to detect any compliance and ethics violations internally. While most companies have a Code of Conduct, with attendant implementation policies and procedures in place, training thereon and a hotline; many companies have yet to implement any type of self-audit program to measure Foreign Corrupt Practices Act (FCPA) compliance program performance. This encourages companies to not only monitor its internal self reporting to actively test the information available to it through a system such as continuous controls monitoring. For post on CCM, see here.

3. Promptly Report. This amendment inserts specific language regarding the “prompt” reporting of any violation of a compliance and ethics program. While no definition of the word “prompt” is provided, the revisions to the Commentary note that an organization will be “allowed a reasonable time to conduct and internal investigation” and that no reporting is required if “… the organization reasonably concluded…that no offense has been committed”. Nevertheless this language reiterates what many former Department of Justice employees tell industry representative at conferences and events regarding the FCPA. It is always preferable to report a violation to the US government rather than the US government finding out and coming to you.

4. No Person With Operational Responsibility Condoned or Was Willfully Ignorant. This proposed amendment is aimed at those personnel within a company’s compliance and ethics organization. While operational responsibility could be defined to mean only those who might report to the Board, this commentator would suggest the better approach is to include all company personnel with direct reporting responsibility in the compliance and ethics group. The definition of “willfully ignorant” has not changed from the current version of the Sentencing Guidelines, which is provided in Application Note 3 of Commentary to §8A1.2 (Application Instructions-Organizations). The definition reads in full “An individual was “willfully ignorant of the offense” if the individual did not investigate the possible occurrence of unlawful conduct despite knowledge of circumstances that would lead a reasonable person to investigate whether unlawful conduct had occurred”.

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 can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2010

December 18, 2009

END OF GREASE PAYMENTS COMING

As recently reported in WragBlog, the OECD announced a new recommendation at the OECD’s celebration of “International Anti-Corruption Day” and the Tenth Anniversary of the “Entry into Force of the OECD Anti-Bribery Convention”. This change relates to facilitation payments (aka “grease payments”) which are legal under the Foreign Corrupt Practices Act (FCPA).

OECD Secretary-General Angel Gurría described these low-level payments, designed to expedite performance of a “routine government action” such as obtaining mail delivery, phone or power service, as “corrosive . . . particularly on sustainable economic development and the rule of law”.

Facilitation payments, also known as “expediting payments” or “grease payments,” are bribes paid to induce foreign officials to perform routine functions they are otherwise obligated to perform. Examples of such routine functions include issuing licenses or permits and installing telephone lines and other basic services. The only countries that permit facilitation payments are the United States, Canada, Australia, New Zealand and South Korea. Facilitation payments, however, are illegal in every country in which they are paid. They have come under increasing fire under the FCPA as inconsistent with the totality of US policy on anticorruption.

This change by the OECD brings the considerable problems associated with facilitation in the international business arena into keener focus. Just like large commercial bribes, grease payments abuse the public trust and corrode corporate governance. Treating them as anything other than outright bribery muddies the compliance waters and adds confusion where there should be clarity. This new stance by the OECD, coupled with the increased enforcement under the FCPA, may well bode the end of facilitation payments.

I. TRACE Facilitation Payments Benchmark Survey

In October, 2009, TRACE International published the results of its “Facilitation Payments Benchmark Survey”. TRACE conducted a global survey with the following objectives: (1) to understand how facilitation payments are perceived in the international business community, including the level of risk they are deemed to pose and the compliance challenges they present; and (2) to map corporate policies on facilitation payments, including whether they are permitted and, if so, the types of safeguards corporations impose on their payment.

The results of the TRACE survey reveal a definitive move by corporations to ban facilitation payments, coupled with an awareness of the added risk and complexity presented by facilitation payments:

• 76% of survey respondents believe it is possible to do business successfully without making facilitation payments given sufficient management support and careful planning.
• Over 70% believe that employees of their company either never, or only rarely, make facilitation payments, even if their corporate policy permits facilitation payments.
• Over 93% revealed that their job would be easier, or at least no different, if facilitation payments were prohibited in every country.
• Nearly 44% reported that their corporations prohibit facilitation payments or simply do not address them because facilitation payments are prohibited together with other forms of bribery.
• Almost 60% of respondents reported that facilitation payments pose a medium to high risk of books and records violations or violations of other internal controls.
• Over 50% believe a company is moderately to highly likely to face a government investigation or prosecution related to facilitation payments in the country in which the company is headquartered.

II. Facilitation Payments under the FCPA

The original version of the FCPA, enacted in 1977, contained an exception for payments made to non-US officials who performed duties that were “essentially ministerial or clerical”. In 1988 Congress responded by amending the FCPA under the Omnibus Trade and Competitiveness Act to clarify the scope of the FCPA’s prohibitions on bribery, including the scope of permitted facilitation payments. An expanded definition of “routine governmental action” was included in the final version of the bill, reflecting the intent of Congress that the exceptions apply only to the performance of duties listed in the subcategories of the statute and actions of a similar nature. Congress also meant to make clear that “ordinarily and commonly performed actions”, with respect to permits or licenses, would not include those governmental approvals involving an exercise of discretion by a government official where the actions are the functional equivalent of “obtaining or retaining business for, or with, or directing business to, any person”.

The FCPA now contains an explicit exception to the bribery prohibition for any “facilitation or expediting payment to a foreign official, political party, or party official for the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official”. “Routine government action” does not include any decision by a public official to award new business or continue existing business with a particular party. The statute lists examples of what is considered a “routine governmental action” including:
• obtaining permits, licenses, or other official documents to qualify a person to do business in a country;
• processing government papers, such as visas or work orders;
• providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or transit of goods across country;
• providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products from deterioration; and
• actions of a similar nature.

There is no monetary threshold for determining when a payment crosses the line between a facilitation payment and a bribe. The accounting provisions of the FCPA require that facilitation payments must be accurately reflected in an issuer’s books and records, even if the payment itself is permissible under the anti-bribery provisions of the law

III. Risks associated with relying on the “facilitation payments” exception

Facilitation payments carry legal risks even if they are permitted under the anti-bribery laws of a particular country. In the US enforcement agencies have taken a narrow view of the exception and have successfully prosecuted FCPA violations stemming from payments that could arguably be considered permissible facilitation payments. Violations of the accounting and recordkeeping provisions of the FCPA are also more likely when a company makes facilitation payments. Abroad, countries are increasingly enforcing domestic bribery laws that prohibit such payments. Companies that allow facilitation payments face a slippery slope to educate their employees on the nuances of permissible payments in order to avoid prosecution for prohibited bribes.

A. US enforcement authorities construe the exception narrowly

Other than as discussed above, there is no definitive guidance on circumstances in which the facilitation payments exception applies. There may be less risk of enforcement by US authorities in cases involving bona fide facilitation payments that are made specifically for one of the purposes enumerated in the FCPA. However, companies still face the risk of at least facing a governmental inquiry to explain the circumstances surrounding the payments, possibly resulting in penalties based on an unanticipated restrictive interpretation of the exception.

B. Potential non-compliance with the FCPA’s accounting and recordkeeping provisions

While the anti-bribery provisions of the FCPA permit facilitation payments, the accounting and recordkeeping provisions of the law nevertheless require companies making such payments to accurately record them in their books and records. Companies or individuals may be reluctant to properly record such payments, as it shows some semblance of impropriety and effectively creates a permanent record of a violation of local law. However, failure to properly record such expenditures may result in prosecution by the Securities and Exchange Commission (SEC) even if the underlying payments themselves are permissible. One example of prosecution resulting from the misreporting of seemingly permissible facilitation payments involves Triton Energy Corporation, which settled an investigation by the SEC involving multiple alleged FCPA violations, including the miss-recording of facilitation payments. An Indonesian subsidiary of the company had been making monthly payments, of approximately $1,000, to low-level employees of a state-owned oil company in order to assure the timely processing of monthly crude oil revenues. The SEC did not charge that these payments violated the anti-bribery provisions of the FCPA; however, these payments were miss-recorded in corporate books and therefore violated the FCPA’s accounting and recordkeeping provisions. Triton Energy consented to an injunction against future violations of the FCPA and was fined $300,000.

C. Increased enforcement of non-US laws that do not recognize an exception for facilitation payments

While the FCPA and certain other national anti-bribery laws contain exceptions for facilitation payments, such payments typically are considered illegal in the country in which they are made; there is not any country in which facilitation payments to public officials of that country are permitted under the written law of the recipient’s country. Accordingly, even if a particular facilitation payment qualifies for an exception of the FCPA, it, nevertheless, is likely to constitute a violation of local law – as well as under anti-bribery laws of other countries that also might apply simultaneously – and thus exposes the payer, his employer and/or related parties to prosecution in one or more jurisdictions. While enforcement to date in this area has been limited increased global attention to corruption makes future action more likely. Countries that are eager to be seen as combating corruption are prosecuting the payment of small bribes with greater frequency.

D. Corporate approaches to facilitation payments may exceed the legitimate scope and applicability of the exception

As demonstrated in the TRACE Benchmark Survey, businesses struggle with how to address the “facilitation payments” exception in their compliance policy and procedures, if the subject is covered at all. Businesses should be wary of allowing employees to decide on their own whether a particular payment is permissible. Unless such payments are barred completely or each payment is subject to pre-approval (which in many cases would be unrealistic (e.g., passport control)), there is always the risk that an employee, agent or other person whose actions may be attributed to the company will make a payment in reliance on the exception when in fact the exception does not apply. In addition, the temptation to improperly record otherwise permissible facilitation payments has been discussed above.

IV. End of facilitation payments?

The global business environment has changed even as the FCPA has remained static. In the absence of any legislative action to roll back the facilitation payment exception, the Department of Justice (DOJ) and the SEC plainly have set out to repeal it on a case-by-case basis. US companies should recognize the weakening of the argument supporting a facilitation payment exception and should develop compliance policies that do not permit any kind of grease payments. A policy that prohibits all payments (unless there is high level of legal and compliance approval) will relieve businesses of the compliance burden of differentiating between lawful and unlawful payments. From the point of view of the modern global corporation, a compliance regime that attempts to differentiate between “good” corrupt payments and “bad” corrupt payments will do more harm than good.

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