All organizations that do business outside of the United States must pay attention to the Foreign Corrupt Practices Act (FCPA). In general terms, the FCPA prohibits covered organizations from making payments or giving gifts to foreign officials in order to influence “ any act or decision of such foreign official in his official capacity, including a decision to fail to perform his official functions; or [to induce] such foreign official to use his influence with a foreign government or instrumentality thereof”  in order to assist such organization in obtaining or retaining business for or with, or directing business to, any person or organization.

While there is, nominally, an exception for “facilitating payments” – payments made to foreign officials to expedite non-discretionary routine government action, both the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) take a dim view of them. Organizations are well-advised to carefully consider any decision to allow such payments.

Some History

The FCPA was enacted in 1977. The Act did not contain the phrases “facilitating payments” or “expediting payments”, however the bill language specifically excluded from the definition of a “foreign official” any governmental employee whose duties were essentially ministerial or clerical, and it specifically included the word “corruptly” to describe prohibited behavior.

As amended in 1998, the Act no longer excluded ministerial or clerical employees from the definition of a foreign official, however language about facilitating or expediting payments was added – “Subsections (a) and (g) of this section shall not apply to any facilitating or expediting payment to a foreign official, political party, or party official 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.”

Facilitating Payments Explained

In November 2012 the DOJ and the SEC jointly issues the FCPA Resource Guide. The Guide reiterates that the facilitating payment exception applies only when a payment is made to further routine governmental action that involves non-discretionary acts.

Examples of such routine action include:

• Obtaining permits, licenses, or other official documents;
• Processing governmental papers, such as visas and work orders;
• Providing police protection or mail service, or scheduling required inspections;
• Supplying utilities like phone service, power or water, loading or unloading cargo, or protecting perishable products from deterioration; or
• Actions of a similar nature.

Such routine action, according to the Guide and the Act itself, specifically does not include a decision to award new business or to continue business with a particular party. Nor does it include acts that are within an official’s discretion or that would constitute misuse of an official’s office.

Thus, states the Guide, “paying an official a small amount to have the power turned on at a factory might be a facilitating payment; paying an inspector to ignore the fact that the company does not have a valid permit to operate the factory would not be a facilitating payment.”

One analyst points out that the language in the Resource Guide regarding an official’s acts seems to be based on a court ruling that is worded slightly differently; the ruling says “acts that are within an official’s discretion and that would constitute misuse of an official’s office”  rather than “or that would constitute misuse …” (Harnisch, 2013) The more restrictive use of the word “or” in the Guide may be a reflection of international pressure to prohibit or discourage facilitating payments.

As stated, both the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) take a dim view of the use of facilitating payments and will closely scrutinize claims of such payments. In addition, the Organization for Economic Cooperation and Development’s (OECD’s) Working Group on Bribery recommends that all countries encourage companies to prohibit or discourage the use of “small facilitation payments” (facilitating payments.) So while true facilitating payments may be legal under FCPA, they may be illegal under local country law. As a consequence, the Harnisch article notes, many companies have proactively decided to either prohibit facilitating payments outright or to or to tightly control the use of such payments.

Ethical Advocate periodically blogs about general-interest FCPA-related news. Browse our archives for additional posts.

References:

Harnisch, Kevin, Steven Wtizel, and Joshua Roth. “The Disappearing Exception for Facilitating Payments: Agencies Take Narrow View of this FCPA Defense”, February 27, 2013.

OECD. Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions, November 26, 2009.

U.S. Department of Justice and U.S. Securities and Exchange Commission. A Resource Guide to the U.S. Foreign Corrupt Practices Act, November 2012.