The End of the Facilitation Payment Exception?
The FCPA, which was passed in 1977, contains an exception for facilitating payments. The exception was expanded and made more explicit in the 1988 amendments to the FCPA – to include a facilitating or expediting payment made to “expedite or secure the performance of a routine governmental action.”
With the global anti-corruption movement, there has been a marked trend against allowing facilitation payments. The OECD recommends that companies prohibit such payments even though the 1997 bribery convention provides for such an exception. The UK Bribery Act bars such payments. From a practical standpoint, many companies are barring such payments because of the danger of distinguishing between bribes and routine payments, and the increased risk of misconduct. However, a flat prohibition may not be realistic in certain circumstances.
In some countries, companies face realities which make compliance difficult, especially when basic services cannot be obtained without a “routine” expediting payment. The FCPA exception recognizes this reality. The statute provides specific examples in the definition of “routine governmental action,” such as obtaining permits, licenses, or other official documents; processing governmental papers such as visas and work orders; providing police protection, mail services, scheduling inspections; or providing utilities, and cargo handling.
While the UK Bribery Act prohibits facilitation payments, the guidance, which was issued at the end of March 2011, outlined factors which would tend to favor or against a prosecution. The factors in favor of prosecution include: large or repeated payments; pre-meditated planning of payments as a standard way of doing business; payments may indicate ongoing corruption; and failure to follow prescribed procedures for review and approval of such payments. The factors against prosecution include: a single small payment; the payment was identified as part of a proactive self-reporting process; following of prescribed procedures for approval of such payments; and the payer was in a “vulnerable position” and needed to make the payment.
There have been several enforcement actions relating to the facilitation exception. The factors cited by the government included: regular payments made to export/import goods which were in violation of laws and regulations and evade higher duties and taxes; inaccurate recording of the payments; and the size of the payments.
Compliance challenges will depend on the applicability of the FCPA and the UK Bribery Act (and possibly other anti-corruption laws). Companies that choose to adopt a flat prohibition on facilitation payments should include exceptions for unique circumstances. Procedures to elevate the issue within the organization for review and approval have to be anticipated in advance. It is easy to imagine situations where policies must be flexible and procedures should be in place to document the reasons for the decision and the good faith exercise of discretion.
A compliance program needs to address several issues related to facilitation payments, including: the limit of such payments; defining “routine” governmental action; internal approval procedures; accounting for such payments; and monitoring and auditing programs. The exact outline of any facilitation payment exception or review procedure will depend on the risk assessment and the specific risks a company faces. In some industries, routine government payments are more important than others. Whatever the situation, every company has to anticipate facilitation payment issues and plan accordingly.