As anti-bribery enforcement goes increasingly global, some companies are opting to ban facilitation payments entirely to avoid the tricky compliance issues they pose.
A survey conducted by TRACE International shows some companies are prohibiting facilitation payments—colloquially known also known as “grease payments”—which are given to induce foreign officials to perform routine functions they’re already obligated to perform, such as issuing licenses or permits and installing telephone lines. In theory, such payments simply nudge foreign officials to do their jobs more promptly.
In practice, however, the line between a permissible facilitation payment and an illegal bribe can be very blurry. And to complicate matters, while the United States, Canada, Australia, New Zealand, and South Korea allow their citizens to make facilitation payments, they are illegal under local law in every country in which they are actually paid.
Among 76 companies that participated in the TRACE survey, 35 percent prohibit facilitation payments, and another 9 percent say they don’t address such payments specifically because they’re prohibited along with other forms of bribery. One-third of those polled say they permit the payments with prior approval; 29 percent say they permit them but discourage the practice. Roughly 23 percent say they permit facilitation payments except where prohibited by local law, and almost 11 percent say they limit the amount of such payments.
The TRACE survey admittedly is only a snapshot of a small group of companies, but legal experts say the mixed results are indicative of Corporate America overall.
“It’s an issue that a lot of companies are looking at carefully because of some of the compliance challenge facilitation payments pose,” says Lucinda Low, a partner in the law firm Steptoe & Johnson. She says many companies ban facilitation payments entirely “because it’s an easier, simpler line to draw.”
Wrage
Likewise, TRACE President Alexandra Wrage says: “There’s a general queasiness about these payments, because it’s difficult to explain the difference between facilitating payments and bribes.”
The anti-bribery conventions of the Organization for Economic Co-operation and Development leave the question of facilitation payments to OECD’s signatory countries, and most of them ban such payments. The OECD Working Group on Bribery plans to revisit facilitation payments as part of a broader review of the OECD anti-bribery rules, but that is the extent of possible reforms so far.
Morley
On a practical level, facilitation payments raise a host of compliance headaches. For starters, such payments almost always violate local law, says Matthew Morley, a partner with the law firm K&L Gates. And since most companies have codes of conduct that require employees to obey the laws of the countries where they do business, that implies a de facto ban.
TRACE KEY FINDINGS
The following excerpt illustrates “key findings” from the TRACE survey* on facilitating payments:
76% of survey respondents believe it is possible to do business successfully
without making facilitation payments given sufficient management support and
careful planning.
Over 70% of respondents believe that employees of their company either never, or
only rarely, make facilitation payments, even if their corporate policy permits
facilitation payments.
Over 93% of survey respondents revealed that their job would be easier, or at least
no different, if facilitation payments were prohibited in every country.
Nearly 44% of survey respondents reported that their corporations prohibit
facilitation payments or simply do not address them because facilitation payments
are prohibited together with other forms of bribery.
Almost 60% of respondents reported that facilitation payments pose a medium to
high risk of books and records violations or violations of other internal controls.
Over 50% of the respondents believe a company is moderately to highly likely to face a government investigation or prosecution related to facilitation payments in the country in which the company is headquartered.
*TRACE received seventy-six responses to this survey. Survey responses relate to corporations headquartered in North America, Western Europe, Asia, Central America, the Middle East, Africa and Australia/Oceana. These corporations operate in virtually every region of the world and represent an array of industries.
Source
Trace Facilitation Payments Benchmarking Survey (October 2009).
Further, Morley and others say the definition of facilitation payments under the Foreign Corrupt Practices Act is difficult to apply. The U.S. law allows “any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.”
“It's a grey area, because in many cases it’s hard to prove something is really a facilitating payment and not something else,” Morley says.
Consider the example of a payment to a customs official. Is that payment really to get your goods through customs, which is permissible? Or is it to get them into the country ahead of a competitor—which gives you a business advantage, and therefore isn’t allowed?
“It’s very easy for people to put a lot into that bucket [of facilitating payments] that may not belong there,” Low says.
Navigating the Maze
Wrage says one issue is a lack of guidance on the exception under the FCPA. Currently, the only guidance is the language in the statute itself. The survey results echo that sentiment: Almost 81 percent of those polled said a clear definition of facilitation payments, with examples, would be useful.
Facilitation payments also put companies at risk for FCPA books-and-records violations if they’re not properly recorded. But if employees do correctly record a facilitation payment, they’ve just documented a violation of local law, Wrage adds.
Most companies view facilitation payments as risky for that reason, according to the survey. Twenty-three percent of respondents said the risk of books-and-records or some other internal control violation was “high,” 35 percent ranked it as medium, and another 35 percent judged it low. A combined 52 percent said a company is highly or moderately likely to face a government investigation or prosecution related to a facilitation payment.
Weinstein
FACILITATING PAYMENT POLICIES
The following excerpt from the TRACE survey* on facilitating payments answers the question, “Which of the following BEST describes your company’s policy with respect to facilitation payments, if any?”:
Policy Description
Percent of Respondents
Prohibits facilitation payments:
34.7%
Permits facilitation payments if there is a risk to health or safety of employee(s):
34.7%
Permits facilitation payments with prior approval:
33.3%
Permits facilitation payments, but discourages them:
29.3%
Permits facilitation payments, except where prohibited by law:
22.7%
Permits facilitation payments, but with a monetary limit (e.g. up to $500):
10.7%
Is silent on facilitation payments because they are prohibited together with other forms of bribery:
9.3%
Permits employees to use discretion when making facilitation payments:
5.3%
Is silent on facilitation payments because the company has no policy:
0%
*TRACE received seventy-six responses to this survey. Survey responses relate to corporations headquartered in North America, Western Europe, Asia, Central America, the Middle East, Africa and Australia/Oceana. These corporations operate in virtually every region of the world and represent an array of industries.
Source
Trace Facilitation Payments Benchmarking Survey (October 2009).
Martin Weinstein, a partner in the law firm Wilkie Farr & Gallagher, also warns that facilitation payments of any size could theoretically be a risk, since the FCPA doesn’t specify a dollar limit for prohibited bribes. “If a payment is big enough, it’s hard to envision it’s for a non-discretionary action,” he says.
Likewise, Low says, “We’re in an era of heightened attention to compliance, and companies are being prosecuted for relatively small payments that are cumulative in nature.”
So what’s a company to do? Low says companies shouldn’t ban facilitation payments outright, since employees might decide to make the payments without telling supervisors at all—“and then you’ve got a bigger problem,” she says. “The issue takes a lot of compliance attention either way.”
Weinstein and others say companies can use facilitation payments legitimately, if they expend sufficient resources to get it right. That especially means training employees to understand the scope of the exception. Companies will also need to maintain tight accounting controls so the payments are recorded properly, and conduct regular audits to confirm compliance.
Weinstein also says companies that choose to ban facilitation payments should include an exception to allow the payments when an employee believes his health or safety is at risk.
Case Study
One company that has banned facilitation payments is Milwaukee-based Rockwell Automation, an industrial automation business with roughly 20,000 employees in 44 countries. Until 2007, Rockwell’s anti-bribery policy included the exception for facilitation payments allowed under the FCPA, says Riv Goldman, the company’s vice president of commercial law.
Goldman says the exception was difficult to explain, “particularly when you’re talking about your ethics program and saying we don’t pay bribes. To turn around and say ‘It’s OK to pay little bribes’—there’s something fundamentally wrong with that.”
Goldman embarked on an effort to remove the exception when she joined Rockwell in October 2006. “I was eager to have a policy that didn’t put me in a position of sending mixed messages,” she says.
Rockwell’s policy now bans such payments, but includes an exception in the event an employee believes his or her safety is at risk.
Goldman sought support from Rockwell’s general counsel and CEO. The company’s regional manager in Latin American had already barred the payments there, and since France doesn’t allow facilitation payments, they were banned there, too.
When the policy change was proposed to the board, Goldman says the data and the process detailed in “The High Cost of Small Bribes” treatise written by Wrage strengthened the argument.
Goldman says Rockwell hasn’t seen any significant disruption in its business since facilitation payments were banned. “Our ethics training is much easier,” she says. “We simply say it’s not consistent with our ethics policy to pay bribes and we’re done.”
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