Facilitation payments, Russia - Written by Barry & Richard on Wednesday, April 13, 2011 6:12 - 5 Comments
The F word.
Statements along these lines have been one of the primary criticisms of the Bribery Act. The US Foreign & Corrupt Practices Act “exemption” (it’s in quotes because there are strings attached) for them cited as a pragmatic and practical solution to the problem.
In the last week we have attended two presentations given by Transparency International where an anecdotal straw poll carried out among the TI chapters (of which there are 90 operating in some of the most exotic locations in the world with the poorest reputations for corruption) produced the result that the Russian TI chapter said that it would be impossible to do business there without paying bribes.
This begs the question: how does TI operate there? However, that is not the purpose of this piece.
The point is that in some parts of the world facilitation payments are a normal part of doing business. However, under English law they are illegal today and will be illegal after the Bribery Act enters into force.
Why the fuss? Because after the entry into force of the Bribery Act prosecuting companies for violations will be much easier using the failure to prevent bribery offence.
The position of the prosecutor in deciding whether or not to prosecute is keenly watched and tea leaves are read.
The Ministry of Justice published a case study on facilitation payments which Howard Sklar took to pieces. Not much help there then. The SFO has also published guidance which you can read for yourself here. As Howard Sklar said:
“I just had to relate one “factor tending against prosecution”: “A single small payment likely to result in only a nominal penalty.” Are they serious? Has anyone ever made just one facilitation payment? For guidance that can be fairly criticized as overly business friendly, it is significantly detached from reality.”
Back to the tea leaves.
With this in mind a recent speech from the Director of the SFO, Richard Alderman may shed some more light on the topic. He said this:
“…I have said in public that…I do not expect facilitation payments to end the moment the Bribery Act comes into force. What I do expect though is for corporates who do not yet have a zero tolerance approach to these payments, to commit themselves to such an approach and to work on how to eliminate these payments over a period of time. I have also said that these corporates should come and talk to the SFO about these issues so that we can understand that their commitment is real. This also gives the corporate the opportunity to talk to us about the problems that they face in carrying on business in the areas in which they trade. It is important for us to know this in order to discuss with the corporate what is a sensible process.
The type of case where we are likely to want to consider prosecution will be one where corporations have no intention of ceasing to use facilitation payments. Instead they want to continue. Indeed, they look at this as a way of obtaining an advantage over those corporations that have banned them.
My position here is straightforward. I have always believed that the SFO should be a support to UK ethical businesses. Those who seek to disadvantage ethical UK corporates by using facilitation payments will receive SFO attention…I need only quote from Ken Clarke’s Foreword where he says that the rules ‘are directed at making life difficult for the mavericks responsible for corruption not unduly burdening the vast majority of decent law-abiding firms’. Those important words will be the hallmark of the SFO’s approach to enforcing the Bribery Act.”
…What is the approach that is needed for the most difficult jurisdictions? We cannot sacrifice the general principle of anti-corruption but the prosecutors’ guide indicates that in looking at the public interest there are a variety of factors to be taken into account before making a decision.
Engagement with the SFO and discussions about these issues is very helpful to both sides.”
So there you have it. If your business has no alternative but to make facilitation payments the SFO want to know about it, understand it, learn from you what your strategy is to curb the problem and suggest methods to do so.
If a business does not do this the risk is that the SFO will conclude that it falls into the group of companies they are very keen to prosecute, namely those who the SFO believe have no intention of stopping paying facilitation payments and who use them to disadvantage those who are taking active steps to curb them and stamp them out.
At the very least organisations must take an honest look at the facilitation payment question and document steps they are taking to stop them over time. Businesses could also take up the SFO offer of engagement and seek assistance from them in forming the strategy to stop them. We consider that it is unlikely that the SFO will prosecute if this approach is adopted (though it will be essential to take legal advice before embarking on the SFO engagement strategy).
Doing nothing is not advisable and could result in another entirely different F word outcome.