Facilitating Payments

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The conundrum of international anti-bribery enforcement

By John Rupp and Suzanne Siu

Finding a compliance professional able to claim with a straight face that he or she has found a magic potion to deal with demands for “facilitating” payments would be an extraordinarily difficult task.

Why is that so? The factors are nearly endless. Seeking to make ends meet in countries in which governments have failed to pay a living wage to those performing routine or even decidedly non-routine government functions is undoubtedly a large factor.

Country-specific cultural or societal traditions also play a major role. And then there are highly individualized motivators — greed, a lack of respect for the law and/or a willingness to pay a little extra by those wanting or needing something from government.

One is entitled to ask whether facilitating payments are actually that big a deal. If thousands of payments are demanded and paid every day, is there safety in numbers? Or is the environment surrounding such payments changing so rapidly and dramatically that companies should be placing a premium on solving the facilitating payments conundrum?

In fact, the environment for facilitating payments has evolved dramatically over the past 10 years — in ways that add greatly to the risks being taken by companies for which the payments are regarded as simply the cost of doing business.

We believe that making such payments presents especially acute risks to transport and logistics companies. Transport and logistics company personnel deal with government officials on a daily basis, through ports, airports, customs and highway use.

This article seeks to dispel some of the most enduring myths surrounding facilitating payments. It also suggests some approaches for solving the facilitating payments conundrum for those companies that have a professed commitment to complying with the laws and a disinclination to tolerate imprudent risks.

Myth I: Bribery statutes around the world do not prohibit the making of facilitating payments. 

The U.S.  Justice Department’s Foreign Corrupt Practices Act, known as FCPA, contains a specific exemption for facilitating payments made to foreign government officials. But the significance of that exemption has eroded greatly during the past 10 years.

The fact is that the making of facilitating payments is almost invariably a criminal act — if not under the FCPA, then under the laws of the country in which the payment is made. That does not mean the making of a payment, or even a series of payments, will be prosecuted. But neither can that risk be ignored.

We have seen a number of instances, for example, in which a country — having a rather lackluster record for combating corruption generally — has gone after one or more international companies for having made facilitating payments. In some cases, the motivation for prosecution has been supplied by a local competitor.

In addition, a single payment may be prosecutable in several countries simultaneously. A payment made in Nigeria, for example, might be prosecuted under the U.K. Bribery Act 2010 or any of a number of other statutes having broad extra-territorial reach and completely banning the making of payments to foreign government officials.

Switzerland is another example of a “don’t do it here” country. Although the Swiss statute on foreign bribery contains a facilitating payment exception, the exception does not apply to payments made in Switzerland. That is the almost invariable rule in the very few countries that have not criminalized the making of facilitating payments abroad.

Those having responsibility for a company’s compliance program also need to understand that officials at the U.S. Department of Justice take a very narrow view of the exemption.

Myth II: Law enforcement officials in the countries with the most robust foreign bribery statutes do not care much about the making of facilitating payments.

Several international organizations, including the Organization for Economic Cooperation and Development, or OECD, have been making concerted and increasingly successful efforts to link petty bribery at a low level with ubiquitous corruption at a high level. Many anti-bribery enforcement officials around the world believe such a link exists and have reacted accordingly.

Myth III: Any small payment to a low-level foreign government official will be treated as a facilitating payment in the handful of  countries that have enacted statutes permitting such payments.

Enforcement officials in the very few countries that have adopted statutes containing a facilitating payment exemption increasingly are construing the exemption in a very narrow way.

In general, any payment that is made to affect the substance — as opposed to the timing — of a government decision or action will not qualify as a facilitating payment. Put another way, if the action or inaction that is sought involves an element of discretion or substantive judgment on the part of a government official, any offer, promise or payment that is made to secure the action or inaction will be fully prosecutable.

Further, the laws prohibiting public and/or private sector bribery generally do not include de minimis exceptions. None of the following types of payments would qualify as facilitating payments under any of the few foreign bribery statutes that contain an exception for the making of facilitating payments:

— Paying a government official for positive inspection results.

— Paying a customs official to overlook a missing document when goods are presented for shipment, even when the missing document exists and could be supplied at a later date.

— Paying a customs official to settle a bona fide dispute concerning the correct classification of a product.

Myth IV: So long as neither I nor my company has direct knowledge of the making of a facilitating payment — even one benefiting my company — neither I nor my company will be at risk of prosecution.

There is no “head in the sand” defense to a facilitating payment prosecution — a defense seeking to take advantage of the fact that no one at the company for which the payment was made had specific knowledge of it, no one there authorized the payment and the pertinent company personnel would have disapproved of the payment if authorization had been sought.

The tendency of enforcement officials is to ask what the company did to ensure that its agents were acting properly. They ask, more specifically, what due diligence the company completed on current and prospective agents, whether the company’s contract with agents prohibited the making of facilitating payments and whether the company regularly audited expenditures by its agents or otherwise made efforts to control their behavior.

Failing to make reasonable efforts to control the conduct of agents and other intermediaries will raise the risk of prosecution.

Myth V: If no one at my company knows that a facilitating payment benefiting my company has been made, no specific record of the payment needs to be kept.

This is a variant of the non-existent “head in the sand” defense. A publicly listed company generally has an affirmative obligation to keep books and records showing accurately and in reasonable detail the reasons for which expenditures by the company have been made and to maintain an adequate system of financial controls.

Euphemisms such as “customs fees” or “processing fees” do not suffice.

Myth VI: So long as no cash changes hands, no facilitating  payment would be deemed to be made.

Although most payments are made in cash, non-cash benefits or advantages also can qualify as a facilitating payment or prohibited bribe. A case of wine, a paid or unpaid internship for the son or daughter of a government official or an offer of a job for a government official’s friend or relative all can be viewed as part of a corrupt bargain.

Myth VII: If the payment that is made or the benefit or advantage that is given is directed toward an employee of another company in the private sector — for example, a private operator of a government-owned port facility — no bribery can be said to have occurred.

Those who are employed by a private sector operator of a government-owned facility are likely to be viewed as being a government official under the applicable anti-bribery law or laws. But even if that is not so, the payment, benefit or advantage is likely to run afoul of one or more laws prohibiting commercial bribery.

Such laws tend to define a prohibited commercial bribe as consisting of any payment that is made or benefit or advantage that is given or offered to prompt the recipient or some other person in the private sector to act improperly — in the usual case, in violation of his or her duty of loyalty to his or her employer. That means, for example, that a payment to an individual to reduce or not impose an otherwise applicable port or storage charge generally would qualify as a commercial bribe.

Myth VIII: Payments made to prevent processing delays jeopardizing perishable shipments are not facilitating payments but are, instead, a justified response to illegal extortion.

We doubt that any law enforcement authority ever would seek to prosecute as a prohibited bribe a payment that was believed in good faith to be needed to protect the health and safety of a company’s employees or the health and safety of some other person who is providing a service to the company. At the same time, however, law enforcement authorities in many countries have made clear that economic extortion is not a recognized defense to a bribery charge.

Recognizing an economic extortion defense would tend to eviscerate or greatly diminish the effectiveness of efforts to combat bribery. Officials often have gone on to note that an economic or financial motive prompts most of the bribes that are paid to port and customs officials — speeding the delivery of critically needed equipment, moving products from the port to the shelf in an expeditious manner, preventing product deterioration or reducing the risk that products stored in a port or customs facility will be pilfered.

Although painting a dramatic picture of bananas rotting at the port occasionally may be sufficient to cause an enforcement authority to pass on a potential prosecution, those whose payments have an economic or financial — rather than a health and safety — motivation must recognize that they are violating the governing law.

The really tough issues relate to the steps that transport and logistics companies should consider taking to curtail and eventually eliminate the making of facilitating payments for which they can be deemed to have been responsible. A number of transport and logistics companies have learned over the past few years of the price to be paid — in fines and lost business — if they fail to take the appropriate steps.

Step I: Any transport or logistics company having an important international clientele should consider adopting promptly a strict policy against facilitating payments.

We recognize that a strict policy against making payments may make life difficult — if not almost impossible — for some transport and logistics companies operating in some countries. But the complete withdrawal from such countries may be an appropriate price to pay to protect the relationship that such companies have worked so hard to develop with clients — in particular, international clients — that have themselves adopted a strict policy against such payments.

If a transport or logistics company has not adopted a strict policy against the payments, it should. It also should document carefully the steps it has taken.

We recognize that some transport and logistics companies may claim to have adopted a zero-tolerance policy even though they fully intend to continue making such payments without notifying their customers. We also recognize that there may be instances in which such companies may seek to capitalize on the “better” service they are able to offer than their zero-tolerance competitors to retain or obtain business.

The perfect antidote to the potential competitive disadvantage can be explaining to current and prospective clients what is possible or not possible in Country X without making facilitating payments.

Step II: Having adopted a firm policy against the making of facilitating payments, a concerted effort should be made to get appropriate “buy in” from the company’s international clientele.

Often transport and logistics companies find themselves under pressure to make or authorize facilitating payments because of pressures from client personnel — personnel who have failed to send needed shipping documents or have failed to allow sufficient lead time for the clearing or transporting of shipments. Such problems can be solvable or at least can be reduced substantially, particularly if the transport or logistics company personnel carefully explain to their clientele what they need to perform their contracted tasks.

They also need to be prepared, of course, to counter unrealistic expectations on the part of their clientele.

Step III: Resist demands for facilitating payments in a staged and carefully considered manner.

Unfortunately, there is no “silver bullet” or “one-size-fits-all” solution to demands for facilitating payments. Among the measures that have worked in some places at some times are the following:

— Research the rules, regulations and procedures in the particular country and clarify any uncertainties with relevant central authorities.

— Instruct those working for your company, either as employees or agents, to seek a written explanation of the reasons a personalized payment has been requested.

— Ask to see a copy of the law, rule or regulation permitting a personalized payment to be made.

— Demand an official receipt for any payment that is made.

— If no receipt is offered, use a preprinted receipt — a receipt on which pertinent information is entered, including the amount of the payment that was demanded and the person to whom the payment was made.

— Make clear to the person demanding the payment the company’s intention to inform the head of the department, agency or other entity that employs the person.

— Consider forming a consortium of like-minded companies to lobby for legislative or other relief.

— Seek assistance from home country embassy personnel or other home country officials in the particular country.

— If the problem appears to be limited to a single department, agency or government-owned entity, consider retaining local and/or international intermediaries who may be able to assist your company in resisting the demands that have been made.

— If the problem relates to the customs clearance process, offer to work with local officials to implement a largely automated or pre-paid customs clearance system.

— Consider using a port or entry point at which demands for facilitation payments are believed to be made less frequently.

None of these steps summarized above comes with a guarantee of success.  Some approaches will work better in some countries than in others.

The most risky option for any transport or logistics company is, however, to do nothing at all — to proceed as though the world is perfect, that everyone has an equal commitment to complying with the law, and that clients will be supportive if a facilitating payment is determined to have been made on their behalf or for their benefit.

John Rupp is a partner in the London office of Covington & Burling LLP.  Suzanne Siu is an associate in the London office of the same firm.