Today’s post is from Professor Bruce Bean (Michigan State University College of Law). Prior to academia, Bean had a diverse practice career including at various law firms and in-house counsel positions.
As FCPA Professor recently highlighted, Transparency International UK released a new publication, “Countering Small Bribes – Principles and Good Practice Guidance for Dealing with Small Bribes including Facilitation Payments.” (See here.) For once, TI has it all wrong!
This publication focuses on “grease,” “tea money,” “facilitation payments.” These terms describe small payments, and while no one knows how small these may be, such payments are common in the real world. “Countering Small Bribes” discusses these in 44 pages and prescribes how such “bribes” can be eliminated.
TI begins by repeating a mantra regularly heard by those of us who deal in this area:
“[P]aying small bribes feeds a climate of corruption, which creates an unstable operating environment for companies. It destroys trust in government and public administration, undermines the rule of law, damages human rights and distorts business transactions. Small bribes are not confined to demands made to companies, as there are no boundaries for officials and others who demand bribes.”
Nice words. We have heard them before. They are wrong.
Small bribes do not “[create] an unstable operating environment,” “[damage] human rights” or “[distort] business.” Rather, small bribes are one of the results of being in a jurisdiction where the rule of law has not been established and locals already do not trust government. Facilitation payments do not create and do not corrode public and business standards; they are the result of an existing culture of corruption.
While the goal of eliminating corruption is a noble one, punishing the alleged “bribe” givers while ignoring the officials, high level and low, who extort such payments has proved to be fruitless. Small and large bribes are more often extorted from businesses. After all, no legitimate business hopes to give a bribe. Such extortion is practiced by experts who have developed techniques very difficult to resist. Fighting corruption by punishing the victims of such extortion is equivalent to pushing on a rope. It gets us nowhere. Given the 37 years of experience we have had with the FCPA, we cannot escape the conclusion that approaching bribery in international business solely from the bribe payers’ perspective has not, does not, and will not work.
Consider the prescription contained in “Countering Small Bribes.” The TI approach is based upon ten unobjectionable principles.
“Effective countering of small bribes – including facilitation payments – will be based on the following principles.
1: There is a supporting culture of integrity
2: The company commits to eliminating small bribes
3: Risk assessment is the basis for designing the strategy and programme to eliminate small bribes
4: The company implements a programme to counter small bribes
5: Communication and training are provided to employees
6: Attention is given to countering third party risks
7: The internal accounting controls are designed specifically to counter small bribes
8: Appropriate actions are taken if small bribes are detected
9: The company monitors the effectiveness of its programme to counter small bribes
10: The company acts strategically to influence the corruption environment in which it operates.”
These principles already underlie many companies’ in-house anti-bribery compliance programs. But these Ten Principles, or any principles, cannot be effective in eliminating bribes, large or small, in a corrupt environment. The corruption problem in my experience (eight years in Moscow) will never be eliminated by focusing solely on the bribe payer, as the FCPA and the U.K. Bribery Act do.
TI-UK’s “Countering Small Bribes” focuses on small bribes. Fine. Consider an employee driving home from work in a foreign city, late at night. This is a common scenario if the client’s home office in the US opens for business at 3:30 PM or later Moscow time. Leaving the office in Moscow at 10 PM is not unusual. A local police officer, lying in wait on the street opposite the office parking lot, flags down the employee and suggests that, because of the late hour, he must have been drinking. This faithful public servant demands a blood test and displays a not-very-sanitary syringe. Which of the Ten Principles applies? (After a payment of less than $20, I was no longer deemed inebriated.)
“Countering Small Bribes” also explains why the FCPA exception for “facilitation payments” is wrong.
“The US Foreign Corrupt Practices Act (‘FCPA’), which was passed in 1977, introduced in 1988 the concept of facilitating (also commonly referred to as ‘facilitation’) payments with an exception from prosecution for such payments. This was to recognise a type of intractable bribery confronting US businesses when operating abroad. Since then, this form of bribery has attracted considerable debate and controversy.
Facilitation payments are illegal in most countries, although a small number including Australia, New Zealand, South Korea and the USA provide exceptions, in certain circumstances, for facilitation payments when paid abroad. They remain illegal in their own domestic law.
There is growing international recognition that facilitation payments are not easily separated from other forms of small bribes and more and more companies are following a no-bribes policy throughout their global operations, with no exemptions for facilitation payments.”
The “growing recognition” referred to in the final quoted paragraph doubtless refers to UK’s Bribery Act 2010, which criminalized all bribes, no matter how small. The Bribery Act was the UK’s long delayed response to the OECD Convention on Combating Bribery of Public Officials in International Business Transactions first signed by the British in 1997. At that time, the official Commentary addressed facilitation payments as follows:
“Small “facilitation” payments do not constitute payments made “to obtain or retain business or other improper advantage” … and, accordingly, are also not an offence. Such payments, which, in some countries, are made to induce public officials to perform their functions, such as issuing licenses or permits, are generally illegal in the foreign country concerned. Other countries can and should address this corrosive phenomenon by such means as support for programs of good governance. However, criminalization by other countries does not seem a practical or effective complementary action.”
Note the final sentence: “Criminalization by other countries does not seem a practical or effective complementary action.” Obviously the U.K. Parliament disagreed when, after much debate, it explicitly criminalized facilitation payments. Governmental hypocrisy is normal in every U.S. administration and is perhaps a necessary aspect of today’s democracies. Our British cousins exemplify this with this statement describing facilitation payments which is found in the Guidance to the UK Bribery Act 2010:
“As was the case under the old law, the Bribery Act does not (unlike US foreign bribery law) provide any exemption for such payments.”
This carefully crafted statement is precisely accurate. It explains that neither the Bribery Act enacted in 2010, nor the superseded earlier anti-bribery laws in England and Wales dating back to 1886, exclude facilitating payments from the definition of crime of bribery. Absolutely true – the law of England and Wales has never excepted such payments. On the other hand, in the century plus of British foreign trade under their prior trio of anti-bribery laws, and in the three years since the new Bribery Act became effective, there has also never been a prosecution for foreign facilitating payments. Not one! Perhaps this is why Parliament had no problem criminalizing something they believed was not going to be prosecuted. Whatever one might think about the wisdom of the grease payment exception in the FCPA, as readers of FCPA Professor are aware, the Department of Justice does actively ignores this exception in bringing enforcement actions.
TI-UK’s “Countering Small Bribes,” unfortunately, does nothing to advance the fight against corruption. TI does very valuable work, the results of which we all rely upon. But “Countering Small Bribes” does not advance this fight. To combat bribery, national prosecutors must actually bring cases. To be meaningful, such cases should involve actual bribes, not small facilitation payments. And if we are sincerely interested in effectively reducing bribery, we must enhance our efforts to punish the extortionate government officials who demand bribes, rather than continue to punish only the victims of extortion.
Note – contrary to TI’s suggestion, facilitating payments were always exempted in the FCPA originally though a carve-out in the “foreign official” definition (i.e. a “foreign official” did not include an individual with ministerial or clerical duties). In 1988 this exemption became the stand-alone facilitation payments exemption currently found in the FCPA.