Ignoring The Obvious: Facilitation Payments

by Michael Volkov

ignoringChief Compliance Officers have plenty of issues to focus on when it comes to anti-corruption compliance.  If you rank the risks, facilitation payments are not at the top of the list, especially if you have sales staff and third-party agents who regularly interact with foreign officials for business.  Even gifts, meals, entertainment and travel eclipses facilitation payments on the compliance radar screen.

Part of the reason is the disjointed legal definitions in the FCPA and the UK Bribery Act.  Under the FCPA, facilitation payments, albeit limited, are permitted.  Under the UK Bribery Act, they are prohibited.  International treaties and organizations all suggest that countries prohibit facilitation payments.

Many companies bar facilitation payments even if authorized in the country.  These companies justify the prohibition by explaining that they do not want to allow facilitation payments because it is a very risky activity which depends on fine-line definitions and which can undermine a culture of compliance and lead to more significant payments.

The issue has sparked significant debate, especially when one considers that the UK bribery Act has not been, and is unlikely to be for the near future, enforced.  Even assuming that the UK Bribery Act is somehow raised from the dead and enforcement actions begin, it is hard to see how a case can be based on facilitation payment violations.

The issue becomes even more difficult when companies expand their operations intoignoring4 India, Russia, China, Mexico and Brazil where relatively small facilitation payments (less than $250) are routinely requested by government officials.  The argument is often made that if the payments are not made, companies will be put at a severe disadvantage.

In response to this seeming unsolvable problem, CCOs face a difficult quandary.  Business managers in the company stress the importance of making those payments and assert that if they are not permitted, the company wills surely suffer in the country.

The worst thing a company can do is ignore the issue – saying one thing and doing another is a sure way to undermine a compliance program and any chance at a culture of compliance.

There are two solutions to the problem.

First, a company can ban facilitation payments no matter where and when except in extreme cases where safety is a question.  This requires a company to adopt a proactive policy where it informs foreign officials they will no longer make such payments, and sticks to the policy to defeat any expectations that they will make such payments.  It is a tough course of action, which requires determination and will not be smooth for a while.  The company could suffer in the competitive marketplace but eventually will persevere.

A second solution is to adopt a practical policy based on a “good faith” interpretation of the law as it applies to the specific payments and documentation of the policy decision and the action that is taken so that there is no question that the company acted in good faith, implemented a solution in good faith, and monitored the policy in good faith.  This second alternative includes a significant risk – while the policy may be in compliance with the FCPA, it will not be in compliance with the UK Bribery Act, assuming that the Act applies to your company.  Companies may not want to embrace that risk and have to recognize that ignoring5it will undermine a culture of compliance.

In the absence of any enforcement by the Serious Fraud Office, and depending on a company’s ability to prohibit all facilitation payments, companies may choose to make facilitation payments recognizing the risk involved and the remote chance of prosecution.  For companies that do not have a strong competitive position (such as a major brand), the second solution may be the best of two alternatives.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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Michael Volkov

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