Facilitation payments, Russia - Written by on Wednesday, April 13, 2011 6:12 - 5 Comments

The F word.

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If you tell me that facilitation payments are illegal then we might as well shut up shop and stop trading in [X] – is a common refrain.

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.

TIP:

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.

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“The F Word:” Facilitation payments under the UK Bribery Act
Apr 13, 2011 7:25

[...] Read more: “The F Word:” Facilitation payments under the UK Bribery Act — thebriberyac… [...]

Howard@OpenAIr
Apr 14, 2011 8:49

The difficulty here—and I’m not pretending that this area isn’t difficult—is that “zero tolerance” policies tend to drive behaviour underground. Payments still get made. The alternative most companies have devised, onerous approval processes, aren’t much better. No one wants to go to the General Counsel to get a $3 payment in Kazakhstan approved. Like there’s even time to go through an approval process. I would go so far as to say that an approval process for facilitation payments is entirely smoke and mirrors for the regulators.

Ask any company with an “approval process” when the last time someone actually requested approval for a facilitation payment. Does that mean that no payments are being made?

Although I was heavily critical of the MOJ’s guidance, and the SFO’s too, on facilitation payments, the truth is that I sympathize. They want (and need) to be business friendly, but the only answer that makes sense is “don’t pay facilitation payments, and take your punishment like a man.” There aren’t many companies willing to do that in the name of aboveboard business.

I believe that although we call them “facilitation payments,” or “expediting payments,” or “grease payments,” they are, unequivocally, bribes. We use euphemisms because it makes us feel better, but they are bribes, pure and simple. And bribes, even small ones, distort the market, engender disrespect for the rule of law, and make the locals’ life a little harder. That’s not being a good corporate citizen.

Just one man’s opinion.

David
Apr 14, 2011 13:00

I agree Howard that facilitation payments are far from easy, but one distinction is that many facilitation payments are extorted from the payer, and amount to the coercion of extra payments for a service that the service provider is compelled to provide anyway. More traditional bribes (for want of a better term) are typically voluntary, and made to reward or gain future advantage. If extorted, I think there is a difference. Paying a ransom or blackmail payment is often the rational, and not generally illegal, response to an extortion situation, when for example safety, property damage, or a perishable commodity is involved.

Howard@OpenAIr
Apr 15, 2011 14:46

It’s a fair point, David. I keep thinking about what I would have done in the Chiquita Banana situation, where what amounts to a terrorist group was saying, “pay us for protection, or your banana fields will burn down.” Then they got hit for giving money to a terrorist group. Impossible situation, really, especially when the local government can’t or won’t intervene.

Whenever I gave training, I always gave employees the “if it’s a question of safety, do what you have to do to get out of the situation, just make sure to tell me about it later.” I’m not going to ask my employees to endanger themselves so the company doesn’t make a facilitation payment.

I agree with you, though; there’s a reason there are two terms for the payments: one bribe, one extortion. They’re not the same thing.

But I also think the number of extorted payments might be overblown. I think safety issues certainly fall into the blackmail category, but an official saying, “your license might not get approved without an extra administrative fee payable to me,” isn’t necessarily extortive. It’s a demand for a facilitation payment. I think that the difference lies between that and “plata o plomo” (silver or lead, that is, money or a bullet) that is cover for a true threat. In the latter case, I dont pretend to know the answer. I think it might start with the old phrase “sunlight is the best disinfectant.” I think you need to publicize it, either through the embassy or through BribeLine (the TRACE reporting tool…I think that’s what it’s called). But a company’s first responsibility is the safety of its employees.

Someone smarter than me is going to have to figure this one out.

Mark
Apr 22, 2011 12:30

The bribery/extorton distinction may be more important than you think in the facilitation payment context. I believe there is a strong argument that, even if there were no facilitation payment exception, most such payments would not be illegal under the FCPA. First, I’m not sure where the corrupt intent is if you are merely paying someone to do what they are supposed to be doing anyway, or to prevent them from doing harm to you. Second, where’s the “improper advantage” in such a case? The Bribery Act seems to have plugged this hole (if that’s what it is). Paragraph 44 of the Guidance indiates that it is a violation of section 6 where the acceptance of the payment itself is improper. I don’t think that’s the case under the FCPA, even absent the facilitation payment exception, and I don’t think it should be. Facilitation payments are an insidious problem, but I don’t think it’s fixed by criminalizing those who accede to extortion.

On the issue of corporate policies, I agree with Howard that zero tolerance will drive this stuff underground. While I actually have experienced employees coming forward to report facilitation payments, the real value of calling them out as an exception is that employees are more likely to tell you about them when you ask, and then you can do something about fixing the problem. All of this is probably moot, as we are quickly approaching an era of zero tolerance in all corporate policies, and a lot of pretending that the problem doesn’t exist.

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