Facilitation payments, also known as "grease payments" are low value payments designed to speed up routine government actions. Put simply, facilitation payments are used to persuade government officials to do a task that they are already obligated to do. Although many have argued that these sorts of payments are crucial to their operations in some regions such as Asia and Africa, the line of difference between a facilitation payment and a bribe is often unclear.
In 2009, the Organisation for Economic Co-operation and Development (OECD)'s Working Group on Bribery in International Business Transactions Recommendation (the OECD Recommendation 2009) called for a ban on facilitation payments amongst member nations.1 Other international organisations such as the Asia Pacific Economic Cooperation have also encouraged businesses to eliminate the use of facilitation payments.2 As a result, there has been a general move by many countries to prohibit them, with Canada recently doing so and Australia considering a similar move. Other countries that still provide for an exception for facilitation payments are the US, New Zealand and South Korea.3 For example, a "small pecuniary or other advantage ... to a foreign official ... in order to facilitate the legitimate performance of the official's business." is permitted under South Korea's antibribery law.4 There have been signs that the US is considering changing its approach to facilitation payments. Many companies are not waiting for the US to catch up with the global trend and are prohibiting facilitation payments in their own policies and procedures, as adopting a global approach to compliance is both safer and more efficient than adapting to navigate the different regimes.
Diminishing exception under US Foreign Corrupt Practices Act (FCPA)
The US FCPA contains an express but narrow exception which allows for facilitation payments to be made in order to further "routine governmental action", being non-discretionary acts which are ministerial or clerical in nature.5 In other words, "routine governmental actions" are actions which the official must perform in any event, for example: processing visas, providing police protection, and supplying utilities like phone service.
The US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) have used the resource guide published in November 2012 (the Guide) as an opportunity to take a disapproving view of facilitation payments. This is reflected in the Guide where it is highlighted that although the exception exists under the FCPA, the scope of its application is narrow and the use of facilitation payments may violate local laws of other jurisdictions as well as other international bribery laws, such as the UK Bribery Act.6 The Guide expressly refers to the OECD Recommendation 2009 which asks companies to discourage or prohibit the use of facilitation payments.7 The Guide also suggests that there has been an abuse in the use of the label "facilitation payment" by companies, and warns that just because a bribe is recorded as a "facilitation payment" in a company's books does not actually make it one.
narrowed their interpretation of the facilitation payment exception by relying on United States v. Kay8 , and state in the Guide that "routine government action" does not include acts "that are within an official's discretion or that would constitute misuse of an official's office."9 This interpretation was a result of Kay's review of the legislative history behind the facilitation payment exception, which found Congress' intention to seek to "...distinguish permissible grease payments from prohibited bribery by only prohibiting payments that induce an official to act 'corruptly,' i.e., actions requiring him 'to misuse his official position' and his discretionary authority..."10 The point to note is that the DOJ and the SEC have, in effect, replaced the "and" used in Kay with a much broader "or" when interpreting the scope of the facilitation payment exception in the Guide, which effectively further minimises its applicability in reality.
Most FCPA cases have in the past been resolved via settlements instead of litigation. Some of these settlements have significant influence in the context of the FCPA and serve as guiding materials for enforcement agencies in future enforcement actions. As such, together with the general eagerness of companies to resolve FCPA charges without exposing themselves to the attention of a trial and the risks associated with any possible convictions, the DOJ and the SEC have had wide latitude to draft some settlement documents in a way which partly premise FCPA liability upon payments which could arguably be categorised as facilitation payments. This is another way for the DOJ and the SEC to narrow down the potential scope of the facilitation payment exception without the direct involvement of the judiciary.11 For example, in some marginal cases such as United States v. Westinghouse Air Brake Technologies, the DOJ has included wording in the non-prosecution agreement to characterise as unlawful certain payments made to Indian government agents for the purpose of expediting the scheduling and performance of preshipping product inspections.12
On the occasions when facilitation payments have been considered by the courts, the approach adopted has not necessarily been as restrictive. In United States v. Duran,13 the DOJ failed to establish that the payments made did not qualify as facilitation payments. Duran counter-argued that there was no evidence that the payments were made for the purpose of obtaining or retaining business; rather, the "facts merely demonstrate[d] a ministerial or clerical matter involving the processing of government papers and the automatic release of the aircraft."14 The court did not give reasons for its eventual acquittal of Duran in 1990, but it could be argued that an increasingly narrow view of the facilitation payment exception adopted by the DOJ and the SEC is out of line with the approach being adopted by the courts.
Firm stance of UK Bribery Act to be relaxed?
Facilitation payments have always been illegal in the UK, regardless of their size or frequency, even before the UK Bribery Act came into force in 2011.15 A facilitation payment could be a violation of the UK Bribery Act, namely the offence of bribery of foreign officials16 or, where there is an intention to induce improper conduct, the offence of bribing another person17 and therefore potentially the offence of failure of commercial organisations to prevent bribery.18 The Ministry of Justice takes a firm stance against facilitation payments and believes that an exemption for such payments would "create artificial distinctions that are difficult to enforce, undermine corporate anti-bribery procedures, confuse anti-bribery communication with employees and other associated persons, perpetuate an existing 'culture' of bribery and have the potential to be abused."19
In its revised statement of policy regarding enforcement of the UK Bribery Act issued on 9 October 2012,20 the UK Serious Fraud Office (SFO) reiterated that facilitation payments are bribes and should be seen as such. The SFO emphasised in the statement that whether it prosecutes in respect of facilitation payments will be governed by the Full Code Test in the Code for Crown Prosecutors and the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010. In relevant circumstances, the Joint Guidance on Corporate Prosecutions will also be applied. Hence, the key test which the SFO will follow when considering prosecution is whether there is "sufficient evidence to provide a realistic prospect of conviction" and that "a prosecution [must be] required in the public interest".21 Factors which the SFO may take into account as part of the "public interest consideration" tending against prosecution are, for example, the "existence of a genuinely proactive and effective corporate compliance programme".22 However, these are by no means meant to be, and should not be treated as, exemptions from prosecution.
Although the UK's stance against facilitation payments remains relatively clear, there has not yet been a prosecution of a commercial organisation regarding facilitation payments in the UK. Rather, recent news suggests that the UK Bribery Act could be "watered down" to address concerns about the cost of compliance for small and mediumsized businesses.23 According to a summary of a meeting held in March 2013 by the "Star Chamber", a toplevel group charged with reducing red tape across Whitehall, the potential review of the UK Bribery Act will focus on facilitation payments. Such a review is motivated by a bid to reduce "red tape" as well as pressure from the businesses that face difficulty in ascertaining what adequate procedures (in relation to facilitation payments) they would need to demonstrate in order to protect themselves from unfair prosecutions under the UK Bribery Act. UK businesses have also complained that their inability to make facilitation payments is hindering their expansion and competitiveness abroad. The likely outcome of the review by the UK Government may be more detailed guidance on facilitation payments, targeted at small and medium-sized businesses.
Potential facilitation payments reform in Australia
Since the implementation of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions in 1999, provisions in relation to bribing foreign public officials have been enacted under the Criminal Code Act 1995 (Criminal Code).24 The defence in relation to facilitation payments under the Criminal Code is almost identical to that of the FCPA.25
This defence has not been raised in court yet, and the only prosecution so far relates to two Australian companies, Securency and Note Printing Australia, and individuals from those companies, where both companies pleaded guilty to the charges and were fined a total of A$21 million in 2011. The lack of application of the facilitation defence, coupled with the fact that there has been no judicial guidance on this area of the law, makes the facilitation payment defence uncertain and unreliable. For example, what exactly constitutes "benefit of a minor nature" is still undefined. Also, as with the FCPA, it is difficult to ascertain what constitutes "routine government action" under the Criminal Code. Hence, Australia's current law on facilitation payments is no more clear than the anti-bribery regimes of other countries.
In light of the above, the OECD released the Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Australia in October 201226 (the Phase 3 Report) to evaluate and shed light on the uncertain situation regarding the facilitation payments exception in Australia. Based on its consultation, the OECD noted that the general perception of facilitation payments in Australia is that they "appear to be frequently equated with any bribes of small value" and that "Australian companies may be making facilitation payments, and that the practice may be prevalent, at least in certain regions."27 The Phase 3 Report also highlighted that there is a general confusion between certain payments made under duress and genuine facilitation payments in Australia, stating that "the uncertainty over the meaning of a facilitation payment is one reason why many on-site visit participants favoured abolishing the defence."28
However, instead of making suggestions to abolish the facilitation payments exception, the OECD made the recommendation that Australia should continue to raise awareness of the distinction between bribes and facilitation payments, and to encourage companies to prohibit them.29 It should also be noted that another concern of the OECD is the inconsistency between the record-keeping requirements under the taxation legislation and the Criminal Code, which makes it possible for a company which fails to meet the more stringent recordkeeping requirement for a facilitation payment under the latter, still to claim a tax deduction for the same under the former.30
On 15 November 2011, the Australian Federal Government released a public consultation paper on the facilitation payments defence in order to seek views on whether it should be abolished. The submissions have now been closed. Despite much of the commentary being in favour of the abolition of the facilitation payments defence in Australia, there have yet to be any suggestions from the Australian Federal Government that it will reform the law in this regard.
Canada to eliminate facilitation payments exemption
On 19 June 2013, the broad amendments to Canada's Corruption of Foreign Public Officials Act (CFPOA) came into force. This was a result of the passing of Bill S-14, also known as the Fighting Foreign Corruption Act, which introduced (amongst other amendments) the eventual elimination of the facilitation payments exemption under the CFPOA. Although the coming into force of this amendment has been suspended until a future date to be determined by the Canadian cabinet, the eventual elimination of the facilitation payments exemption will bring the CFPOA into closer alignment with the UK Bribery Act and other antibribery legislation around the world which prohibits facilitation payments. On the other hand, this elimination will cause the CFPOA to be out of step with the FCPA, which currently still exempts facilitation payments.
There are two implications arising out of this amendment to the CFPOA. First, Canadian entities will have to adjust their operations abroad as well as their overall compliance programmes so as to make sure that they do not violate the CFPOA. Government witnesses have stated that the delayed implementation of the amendment is intended to offer adequate time for Canadian entities to adapt their business practices to the new regime. Secondly, given the close commercial connection between the US and Canada, the elimination of the facilitation payment exemption from the CFPOA may put pressure on US companies to amend their compliance programmes so as to have a "onesize- fits-all" system to monitor their operations across the border.
Implications for companies operating in Asia Pacific
Doing business in certain countries in the Asia Pacific region presents operational challenges, some of which are potentially eased through the use of facilitation payments. It is still technically possible for those not subject to the UK Bribery Act to maintain a global anti-corruption policy which adopts a country-bycountry approach to facilitation payments, permitting them in some countries but not in others. However, the complexity of such a system ultimately increases the compliance burden on an organisation. More importantly, the uncertainty that such an approach creates in the minds of employees in respect of an exception which is itself uncertain, leads to a real risk that improper payments might be inadvertently or even deliberately made. As a result, many organisations operating in the Asia Pacific region are adopting a "golden standard" and prohibiting all facilitation payments. This approach is in line with the global trend and enables organisations to manage the risks that they face more effectively.
Footnotes
1http://www.oecd.org/daf/anti-bribery/antibriberyconvention/
44176910.pdf - The OECD Recommendation 2009 at 4.
2http://www.apec.org/Groups/SOM-Steering-Committeeon-
Economic-and-Technical-Cooperation/Task-Groups/~/
media/Files/Groups/ACT/07_act_codebrochure.ashx - The APEC
Anti-Corruption Code of Conduct for Business at 4
3Evidence of the impact of facilitation payments -
Transparency International (July 2013) at 2.
4Act on Preventing Bribery of Foreign Officials in
International Business Transactions, art. 3, sec. 2.b.
(Korea).
515 U.S.C. §78 dd-1(b), 2(b), 3(b) (2010).
6Guide at 25.
7The OECD Recommendation 2009 at 4.
8United States v. Kay, 359 F.3d 738 (5th Cir.
2004).
9Guide at 25 (emphasis added).
10United States v. Kay, 359 F.3d 738, 747 (5th
Cir. 2004) (citing H.R. Rep. No. 95-640, at 7-8) (emphasis
added).
11The Disappearing Exception for Facilitating Payments
– New York Law Journal (February 11, 2013).
12Non-Prosecution Agreement, Westinghouse Air Brake
Technologies Corporation, at Appendix A 2.
13Judgment of Acquittal, United States v. Duran, No.
89-00802 (S.D. Fla. April 17, 1990).
14Motion for Acquittal at 18-19, United States v. Pou,
No.89-00802 (S.D. Fla. April 17, 1990).
15Facilitation payments were regarded as an "undue
reward" under the common law offences of bribery in the UK.
The common law offences of bribery in the UK prohibit the offering
or giving of any undue reward to any person (or receiving of any
undue reward by any person) whatsoever in a public office, in order
to influence his behaviour in office and incline him to act
contrary to the known rules of honesty and integrity.
16Section 6 of the UK Bribery Act.
17Section 1 of the UK Bribery Act.
18Section 7 of the UK Bribery Act.
19Guidance on the Bribery Act 2010 issued by the
Ministry of Justice (March 2011) at 18
20http://www.sfo.gov.uk/bribery--corruption/the-briberyact/facilitation-payments.aspx
21The Code For Crown Prosecutors (2010), at
¶¶ 4.1, 4.5,4.11.
22Joint Prosecution Guidance of the Director of the SFO
and the Director of Public Prosecutions on the Bribery Act 2010
p.8.
23http://www.ft.com/intl/cms/s/0/cab2111c-c6c8-11e2-a861-00144feab7de.html#axzz2a8ugKHhs
24Division 70 of the Criminal Code Act 1995.
25Section 70.4 of the Criminal Code Act 1995, stating
that a person shall not be guilty of bribery if: "the value of
the benefit was of a minor nature; and the person's conduct was
engaged in for the sole or dominant purpose of expediting or
securing the performance of a routine government action of a minor
nature; and as soon as practicable after the conduct occurred, the
person made a record of the conduct."
26http://www.oecd.org/daf/anti-bribery/Australiaphase3reportEN.pdf
(Phase 3 Report)
27Phase 3 Report at 10.
28Phase 3 Report at 10.
29Phase 3 Report at 11, stating that Australia should:
"raise awareness of the distinction between bribes and
facilitation payments, and encourage companies to prohibit or
discourage the use of small facilitation payments in internal
company controls, ethics and compliance programmes or measures,
recognising that such payments must in all cases be accurately
accounted for in such companies' books and financial
records." 30Phase 3 Report at 36.
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