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“I Have Such Trouble Understanding The Facilitating Payment Exception”

Southern District of Texas Judge Keith P. Ellison.  HANDOUT.

In the minds of some, the Foreign Corrupt Practices Act is a clear statute with no ambiguity whatsoever (see here for a prior post on the same subject).  To such commentators, it’s easy –  just don’t bribe.  (The irony of course is that if it was so easy, then why do many of these same commentators devote their practice to FCPA compliance?).

To suggest that the FCPA is an ambiguous statute has been met by claims that such statements are nothing more than pandering to a particular audience.

Well, federal court judges are apparently pandering to a particular audience because if there is one common thread in many FCPA judicial decisions, it is judges finding various FCPA provisions vague or ambiguous.  (See the above prior post for numerous examples).

The latest example occurred in SEC v. Jackson & Ruehlen (the individual enforcement action the SEC settled on the eve of trial this past summer in what could only credibly be called an SEC defeat – see here and here for prior posts).

As to relevant background, in a pre-trial ruling (see here for the prior post), Judge Keith Ellisson (S.D.Tex.) ruled that the SEC had the burden of negating application of the FCPA’s facilitating payment exception.  As noted in this prior post, the enforcement action focused on alleged payments in connection with temporary importation permits in Nigeria for oil rigs.

Deep within the pre-trial transcript (see here), one will find Judge Ellison engage in the following exchange with SEC counsel.

JUDGE:  I have such trouble understanding the facilitating payment exception.  […] I mean, it almost swallows the rest of the statute.  And I know it’s in the legislative history that these, I think reference is made to grease payments, somehow to grease the skids.  How do I separate those payments, which do seem to be contemplated, from the payments that [the SEC] alleges were made in this case, which you think are squarely within the FCPA’s prohibition?  […] And I don’t understand it.  Whether we make the distinction based on size of payments, regularity of payments, purpose of payments, nature of the — of the favorable conduct elicited.  I just really struggle with it.”

SEC:  […] For the — for the exception to apply, the SEC’s position is that two elements must be met.  There must be a purpose to expedite an act and the act must be a routine government action within the meaning of the statute.

JUDGE:  Both those could apply to the temporary — to the temporary import, though, couldn’t it?

SEC:  Well, in what way, Your Honor?

JUDGE: Well, because it purpose was to expedite an act and it was a routine government action.  These import permits were granted all the time.

Elsewhere in the transcript, one will find Judge Ellison expressing concern about the SEC’s position that the defendants violated the FCPA’s books and records provisions because Noble Corp. booked the alleged bribe payments in a special facilitating payments account based on the good faith belief that they were indeed facilitating payments.  The following exchange occurred.

JUDGE:  You also argue that recording the payments as facilitating payments in the company’s book is essentially duplicative or duplicitous.  Would payments to government officials, just say to that, like so, would that be accessible?

SEC:  Your honor, these payments were recorded as a particular kind of payment, a lawful payment.  A payment that meets a legal exception to liability under the FCPA.  As this Court recognized in the motion to dismiss opinion, calling a payment something that it is not is false.

JUDGE: What would they have needed to call it?  That’s what I am asking?

SEC:  Payments to government official — I can’t speculate all the things that it possibly could have been called, but payments to government officials may have been – may have been adequate.  However, they weren’t designated payments to government officials in this case …

Elsewhere in the transcript, the SEC acknowledged that the facilitating payments exception is “a difficult area to understand, largely because of the wording of the exception and the statute overall.”  The following exchange occurred.

SEC: This is how we conceptualize it.  And I think it’s — and it’s clearly evidenced and its manifest in the words of the statute and the exception.  Now, the facilitating payment exception is exactly that. It’s an exception for government actions that are routinely or ordinarily carried out. And you’ll see in the — in the exception itself, a number of examples that Congress set out as — as possible facilitating payment — facilitating payments and government — routine government actions. […]

JUDGE: In your mind, does “routine” mean frequent or does “routine” mean automatic or does “routine” mean both?

SEC: I think that’s a fact issue, Your Honor. I think there could be situations where a routine governmental action can be something automatic. I think there can be situations where a — a routine governmental action is something that is issued or granted by a government entity or official routinely, so frequently, or without exception.

JUDGE: Well, I’m trying to identify which of the those things.  I mean, what if it were routine but not consistent; or automatic but not routine, it only happened once every five years?

SEC:  […] Now, what’s important here is that the SEC posits whether a particular action is a routine governmental action is an objective inquiry.  You just take a look at the Nigerian law that governs this particular action.  If the Nigerian law says that it’s nondiscretionary, that’s the end of the inquiry.

JUDGE: Well, that’s what I trying to identify.  The fact that it’s nondiscretionary.  Do you think — do you agree with that?

SEC: No, Your Honor.

JUDGE:  Tell me what the lynchpin is?

SEC: The lynchpin is, again, it’s a fact-intensive inquiry.  What did the defendants – all right – what did the defendants believe was the action here?  And the action here was in — again, tying to the specific — specific facts of this case, the action was applying for temporary import authorizations that had, prior to the relevant period in this case, had been routinely granted.

JUDGE: Meaning — meaning consistently?

SEC: Consistently, to our — to our knowledge, without exception.

JUDGE:  Consistently and frequently?

SEC:  Yes

JUDGE:  Okay.

SEC:  Every — every time an application was put in, they received the authorization.

JUDGE: And those — to the best of your knowledge were those applications put in without — without any further monetary inducement or were they accompanied by monetary inducement?

SEC:  Accompanied by monetary inducement; hence, the payment itself, the facilitating payment, for a government action that was routinely rendered.

JUDGE: So the government would grant these routinely if it was paid?

SEC:  Well, Your Honor, we don’t know whether — we don’t necessarily know whether they were — whether they would have been granted if — if a payment had — payment had not been made, but what — what matters here is the payments were made —

JUDGE:  Isn’t that a big difference, though?  If it would have been granted anyway, without a payment being made, isn’t that signficant?

SEC:  I don’t think so, Your Honor.

In short, while many FCPA commentators continue to believe that the FCPA is a simple, straight-forward statute (and that claims of vagueness and ambiguity are the stuff of sugar plums and tinkerbells), the above example is just the latest of many (and please do visit this prior post for the numerous other examples) where federal court judges remain confused about various aspects of the FCPA.

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