The Department of Justice and the Securities and Exchange Commission jointly issued a 120-page "resource guide" to the Foreign Corrupt Practices Act (FCPA) in November 2012 (the Guide). Although the Guide breaks little new ground, it confirms the DOJ's and the SEC's narrow view of several key defenses under the FCPA. This article examines the evolution of the "facilitating payments" (also known as "grease payments") exception, the Guide's treatment of that exception, and the extent to which such payments remain permissible under the FCPA.
Origin of the Exception
Facilitating payments are typically small payments made to foreign government officials to expedite or secure a non-discretionary routine government action. The original version of the FCPA in 1977 created an exception for facilitating payments by excluding individuals "whose duties are essentially ministerial or clerical" from the statutory definition of "foreign official":
The language of the bill is deliberately cast in terms which differentiate between [prohibited] payments and facilitating payments, sometimes called "grease payments." In using the word "corruptly," the committee intends to distinguish between payments which cause an official to exercise other than his free will in acting or deciding or influencing an act or decision and those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action. In defining "foreign official," the committee emphasizes this crucial distinction by excluding from the definition of "foreign official" government employees whose duties are essentially ministerial or clerical.1
Notwithstanding that exception, Congress expressed its general disdain of such payments: "While payments made to assure or to speed the proper performance of a foreign official's duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments."2
Congress subsequently amended the FCPA in 1988, creating, among other things, an express exception for facilitating payments meant to secure the performance of non-discretionary "routine government action," defining the exception in terms of the "purpose of the payment," rather than the "duties of the recipient."3 The FCPA defines "routine government action" to include such things as, obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; processing governmental papers, such as visas and work orders; and other similar ministerial or clerical acts. However, "routine government action" does not include "any decision by a foreign official whether, or on what terms, to award new business to or to continue business with a particular party."4
Chipping Away at the Exception
The DOJ and the SEC have taken a dim view of the facilitating payments exception. Despite the fact that the FCPA explicitly permits facilitating payments, the DOJ and the SEC have construed the exception so narrowly that few are willing to rely on it. The Guide expresses the DOJ's and the SEC's disapproval of facilitating payments and notes that the United States "encourage[s] companies to prohibit or discourage facilitating payments."5 The Guide highlights the "narrow" scope of "true facilitating payments," and warns that such payments may violate applicable local laws and "other countries' foreign bribery laws," such as the U.K.'s Bribery Act.6
Because most FCPA cases are resolved through settlements (rather than litigation), the DOJ and the SEC have used the settlement process to define narrowly the scope of the facilitating payments exception without direct judicial involvement. Corporate defendants in FCPA cases are often understandably eager to resolve FCPA charges without the risks associated with a trial and corresponding collateral consequences associated with adjudicated findings of wrongdoing. Given that corporations often desire to settle, the DOJ and the SEC have had wide latitude to include language in some settlement documents that partly premised FCPA liability upon payments that, at least on their face, could credibly have been characterized as facilitating payments. Professor Mike Koehler (well known for his popular blog "FCPA Professor") has suggested that FCPA enforcement has "gone off the rails" and that the solution "lie[s] not in the statute itself" but rather in addressing the policies which promote the current state of enforcement.7
For example, in SEC v. Summers, the defendant settled FCPA allegations stemming from, among other things, a $30,000 payment to an employee of a Venezuelan state-owned oil company to secure overdue payments for services already rendered.8 Although the payment in Summers was for a significant amount of money, the payment arguably qualified as a "routine government action" because it was meant to expedite the state-owned oil company's payment of a lawful debt. Similarly, in United States v. Westinghouse Air Brake Technologies, the DOJ's non-prosecution agreement characterized certain payments made to expedite the scheduling and performance of required inspections as unlawful.9
Settlements like Summers and Westinghouse have outsize influence in the FCPA context because there are so few judicial opinions and the DOJ and the SEC have a tendency to point to prior settlements as justifications for positions they are taking in current matters. From a counseling perspective, attorneys must take into account positions the DOJ and the SEC have staked out in settlements when advising clients how certain types of proposed conduct may be viewed by the government. Moreover, from a practical standpoint, international companies with a U.K. nexus are also effectively prohibited from making any facilitating payments because of the prohibition against them in the Bribery Act.
Nevertheless, when the DOJ and the SEC have been forced to defend their positions in court, they have not always been successful. For example, in United States v. Duran, the DOJ charged three defendants, including Alfredo G. Duran, with FCPA violations stemming from alleged payments made to obtain the release of an aircraft seized by the Dominican Republic.10 Two defendants pleaded guilty, but Duran was acquitted after arguing that the DOJ failed to establish that the alleged bribes did not qualify as facilitating payments.11 Duran argued that there was no showing that the payments were made in order to obtain or retain 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."12 The court granted the acquittal, but did not provide a rationale. Nevertheless, Duran suggests that the DOJ's and the SEC's cramped view of the facilitating payments exception may not be justified.
The DOJ and the SEC have further narrowed their view of the facilitating payments exception in the Guide. Relying on United States v. Kay, the Guide states that routine government action does not include acts "that are within an official's discretion or would constitute misuse of an official's office."13 In Kay, the DOJ alleged that the defendants made improper payments to foreign officials in Haiti to reduce the defendants' corporation's customs duties and sales taxes.14 The court held that such payments could fall under the FCPA's broad proscription, but that the DOJ was required to prove that the payment was intended to "assist in obtaining or retaining business."15Kay reviewed the statutory language and legislative history behind the facilitating payments exception, and found that Congress "sought 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, not those 'essentially ministerial' actions that 'merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action.'"16 Without any analysis or explanation, the Guide notably replaced the "and" in Kay with a far broader "or."
Given that nearly every country prohibits its officials from taking bribes, prohibiting payments because they would induce an official to "misuse" his or her office would eviscerate the FCPA's exception for facilitating payments. Such a requirement would also conflate the facilitating payments exception with the affirmative defense that the payment was legal under the applicable local law. Under that affirmative defense, the defendant has the burden of proving the applicable local law expressly permits the payment at issue; the absence of a written law or a demonstration that the bribe would not be prosecuted is inadequate.17 However, this affirmative defense has very limited (if any) utility because almost every country prohibits bribery (at least on paper). Without any solid legal authority, the DOJ and the SEC have essentially conflated this affirmative defense with the statutory exception for facilitating payments in an effort to effectively proscribe such payments.
Health and Safety Concerns
While sometimes confused with the facilitating payments exception to the FCPA, coerced payments fall outside the scope of the FCPA because such payments are not made with the required "corrupt intent."18 To illustrate this exception to the FCPA, the Guide cites an example, from the legislative history, authorizing a bribe to a foreign official to keep an oil rig from being dynamited.19 This exception, however, does not apply if the risk was accepted by doing business in a particular place. The distinction being that if the payer made a conscious decision, or in other words he "could have turned his back and walked away," then a true extortionate situation was not present.20 This distinction is made clear in United States v. Kozeny, which discusses how economic coercion (e.g., payment is demanded as a price for gaining market entry or obtaining a contract) is not a sufficient defense to allegations of FCPA violations.21
Facilitation payments have always been a narrow exception to the FCPA; the continued viability of these "grease payments" is uncertain. The extreme skepticism with which the DOJ and the SEC view purported facilitating payments means that companies should utilize great caution before permitting such payments.
With the increased outside pressure on the United States to discourage and prohibit these payments, companies should not expect to persuade the DOJ and the SEC to forgo bringing an FCPA case on the basis that the payments at issue were permissible facilitating payments. As a result, many companies have proactively decided to either prohibit facilitating payments outright or to tightly circumscribe the circumstances under which such payments may be made, and that trend is likely to continue.
1. H.R. REP. NO. 95-640, at 8 (1977).
3. Crim. Div., U.S. DOJ & Enforcement Div., U.S. SEC, "A Resource Guide to the U.S. Foreign Corrupt Practices Act," n.159 (Nov. 14, 2012) (the Guide).
4. 15 U.S.C. §78 dd-1(f)(3) (2010).
5. Guide at 25.
6. Id. In drafting the Bribery Act, Parliament debated an exception for facilitating payments, ultimately deciding against it because having a specific defense "risks legitimizing corruption at the thin end of the wedge." Joint Committee on the Draft Bribery Bill, Draft Bribery Bill First Report, 2008-9, HL 115/HC430-I, at 50 (U.K.). The Ministry of Justice's published guidance on the Act further elucidated this reasoning: "Exemptions in this context 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." Ministry of Justice, The Bribery Act of 2010 Guidance, at 18 (U.K.).
7. Mike Koehler, "Foreign Corrupt Practices Act Enforcement as Seen Through Wal-Mart's Potential Exposure," White Collar Crime Report, Sept. 21, 2012, at 6.
8. Complaint, SEC v. Summers, No. 10-02786 (S.D. Tex. Aug. 5, 2010), available at http://www.sec.gov/litigation/ complaints/2010/comp21617.pdf .
9. Non-Prosecution Agreement, Westinghouse Air Brake Technologies Corporation, at Appendix A 2 ("Pioneer employees and agents routinely made unlawful payments to various agents of the Indian government in connection with Pioneer's business dealings...to [among other things] schedule pre-shipping product inspections").
10. Indictment, United States v. Pou, No. 89-00802 (S.D. Fla. Nov. 21, 1989).
11. See Motion for Acquittal, United States v. Pou, No. 89-00802 (S.D. Fla. April 17, 1990); Judgment of Acquittal, United States v. Duran, No. 89-00802 (S.D. Fla. April 17, 1990).
12. Motion for Acquittal at 18-19, United States v. Pou, No. 89-00802 (S.D. Fla. April 17, 1990).
13. Guide at 25 (emphasis added).
14. United States v. Kay, 359 F.3d 738 (5th Cir. 2004).
15. Id. at 756 (remanding to the district court to determine whether the government made sufficient allegations of the business nexus element).
16. Id. at 747 (citing H.R. Rep. No. 95-640, at 7-8) (emphasis added).
17. Guide at 23.
18. See United States v. Kozeny, 582 F. Supp. 535 (S.D.N.Y. 2008) (discussing the legislative history of the FCPA). Even when a payment is coerced (and therefore outside the scope of the FCPA), the payment must be reported accurately in the company's books and records. See Guide at n.169.
19. Guide at 27. Another example that we often use in counseling clients about the scope of this exception is a payment to an employee of a state-owned hospital to expedite the provision of medical assistance. Whether or not such a payment would qualify as a facilitating payment, it is extremely unlikely that regulators would ever find fault under those circumstances.
20. Kozeny, 582 F. Supp. at 3-4.
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