Asia Pac, Construction, Facilitation payments, Your Questions: Answered - Written by on Saturday, March 12, 2011 7:42 - 1 Comment

Ask Barry & Richard: I want to set up in the Asia but am concerned about “grease payments”

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Question:

I work for a relatively small business which manufactures building products. We have production facilities in the UK but want to set up manufacturing operations in Asia Pacific. I have been told that it is not unusual for requests for small payments to be made to officials to ensure that our finished products can be shipped on a timely basis. I have read that payments like these may be illegal.  Are they? and if they are how can we run our new operation without breaking the law?

[Anon]

Answer:

Thank you for your question.

The short answer to your question is yes, they are illegal under UK law today and the Bribery Act does not alter this position.

It is also worth noting that such payments are unlikely to be legal in the jurisdiction in which they are made and that jurisdictions like China and India are taking a more aggressive stance when it comes to corruption. In addition, if your business has dealings with the US or operations there then it could also be subject to the US Foreign Corrupt Practices Act. While the US law contains possible exemptions for facilitation payments such payments must be properly recorded as such which would equate to an admission of guilt under UK law.

Now for the longer (and more useful) answer.

Payments like these have received a lot of attention in the UK media.  There has also been a significant amount of lobbying relating to them from the business community who have said that an outright ban on such payments will make it impossible for them to do business overseas (albeit that they are illegal today!).

The sector in which your business operates is widely considered to be a high risk sector in published surveys and indices.  In the UK there have been prosecutions by, and civil settlements with, the SFO by organisations within the industry.  In other words the construction industry is on the SFO radar.

Given that the payments are illegal the next question is what is the view of the lead UK investigator and prosecutor when it comes to enforcement.

In Belgium two weeks ago Richard Alderman set out his stall when it comes to the question of facilitation payments. He said:

“Now the chances of a single one off small facilitation payment being prosecuted in my jurisdiction seem to me to be very remote.  However, if we find that a company is regularly using facilitation payments in the expectation that this will give them a business advantage over companies that do not make these payments, then clearly we shall be taking an interest in that company.”

“I appreciate that this is a difficult area. I appreciate as well that facilitation payments are not going to stop on the date when the Act comes into force. Nevertheless, lots of companies already prohibit facilitation payments and indeed the experience that they have is that this is good for their business. What I say to other companies that have not reached zero tolerance yet is that I expect them to work towards that culture. I tell them to come and talk to me at the SFO about what they are doing and to assure us that they are embarking on the journey towards zero tolerance and that they expect to get to this within a reasonable period of time. I have said that I will be sympathetic to those approaches.”

We have spoken to Richard Alderman about the subject of facilitation payments and he has said much the same thing to us.  Namely, businesses should try their best to stamp out such payments and work towards eradicating them.  However, he has also said that he appreciates that this is unlikely to happen overnight.  He has told us that if businesses have problems with demands for the making of such payments then they can approach him and the SFO may try to assist.  We are aware of an example where an approach to the SFO (who then intervened) in this way resulted in the demand for such payments terminating.

Working with our offices in the Pacific Rim we can and do help companies who are considering expansion into the jurisdiction on the practical as well as legal issues they face (in the local jurisdiction, the UK and potentially in other jurisdictions) and the practical steps to take to deal with these issues to reduce and/or stop demand for these payments and deal with legal issues arising.

The fabled UK government guidance is expected to be issued soon and rumoured to provide further clarity on this issue.

 

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Mar 15, 2011 3:26

[…] takes a question from a reader about setting up business in Asia despite the risks of making “grease payments.” […]

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