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The FCPA’s “Illusory” Facilitating Payments Exception

Facilitating payments. The FCPA is clear, as was Congress when it passed the FCPA. Such payments are excepted from the FCPA’s anti-bribery provisions.

Yet why do so many FCPA enforcement actions concern payments to low-level foreign officials to secure permits, licenses and the like?

In the words of former SEC FCPA enforcement attorney Richard Grime (see here [1]) it is because “the DOJ and the SEC’s narrow interpretation of the facilitating payments exception is making that exception ever more illusory, regardless of whether the federal courts – or Congress – would agree.”

In this [2] piece, Grime and co-author Sara Zbed (here [3]) discuss the FCPA’s facilitating payment exception, how “recent enforcement actions have diminished the availability of the exception,” and why the exception has been “further eroded by the recently-enacted U.K. Bribery Act, which lacks any comparable exception and applies broadly to individuals and companies as long as they carry on some business in the United Kingdom.”

Excerpts from the article appear below.

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“The drafters of the Foreign Corrupt Practices Act (“FCPA”) recognized that such demands for “grease payments” are a reality in many countries, and accordingly made clear that certain payments made to expedite the approval of permits or licenses, or to prompt the expeditious performance of similar low-level ministerial duties, fell outside the ambit of the statute’s anti bribery provisions. Yet that exception for “facilitating payments” – enacted during the FCPA’s 1988 amendments – is becoming harder and harder to rely on.”

“By excluding facilitating payments from the FCPA’s ambit, Congress acknowledged that such payments – while considered reprehensible within the United States – are “not necessarily [considered reprehensible] elsewhere in the world” and, for that reason, that “it is not feasible for the United States to attempt unilaterally to eradicate all such payments.””

“The FCPA contains no indication of whether permitted facilitating payments are required to be below a certain dollar amount; nor does the statute provide any additional guidance about where a facilitating payment ends and a corrupt payment begins. Federal courts have not squarely confronted the issue, either. To the contrary, only a small handful of decisions even mention the facilitating payments exception, and those that do provide little clarity about the exception’s outer limits.”

“… [T]he Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) have pressed a narrow view of the exception in recent years, and businesses and other defendants, reluctant to test the law’s boundaries at trial, have settled their cases instead.”

“The DOJ and the SEC have stepped into the void created by this absence of relevant case law, and their recent enforcement actions have diminished the availability of the exception in two principal ways. First, the business purpose requirement of the FCPA is being expanded to cover all manner of circumstances regardless whether there is a clear connection between the payment to the foreign official and obtaining or retaining business. For example, payments to obtain tax refunds, expedite inspections, and procure inspections from government officials are being charged as violations of the anti-bribery provisions without any explanation of why those payments satisfied the business purpose requirement of the law. Second, both the SEC and DOJ have charged violations of the accounting provisions for facilitation payments that are not recorded accurately.”

“Of course, the fact that the FCPA’s twin enforcement agencies have treated certain payments as prohibited despite their possible categorization as facilitating payments does not mean a federal court would agree. But because the vast majority of enforcement actions are resolved through deferred prosecution agreements, non-prosecution agreements, and other settlement devices, these cases never make it to trial. As a result, the DOJ and the SEC’s narrow interpretation of the facilitating payments exception is making that exception ever more illusory, regardless of whether the federal courts – or Congress – would agree.”

Grime and Zbed then shift gears and talk about the FCPA’s facilitating payment exception in light of the U.K. Bribery Act, a law that went live on July 1st.

“Whatever force the facilitating payments exception retains in this environment has been further eroded by the recently-enacted U.K. Bribery Act, which lacks any comparable exception and applies broadly to individuals and companies as long as they carry on some business in the United Kingdom.”

“If the increasing skepticism with which the FCPA’s enforcement agencies view facilitating payments gives pause to companies that permit such payments, so too should the recently enacted Bribery Act – a United Kingdom law that does not permit facilitating payments and whose broad territorial sweep may render the FCPA’s exception even more illusory.”

“The risk associated with permitting facilitating payments are particularly great for companies that do some business in the U.K., because the Bribery Act prohibits such payments and has a broad jurisdictional scope.”

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As to the FCPA’s facilitating payment exception, I previously observed here [4] that some find facilitating payments to be corrupt payments under a different name. However, Congress did not agree, and the fact remains that the FCPA contains an express exception for facilitating payments. The enforcement agencies are obligated to enforce the statute that Congress passed, not a statute they wish they had. If Congress wants to remove the facilitating payment exception from the FCPA, let Congress do that, not the enforcement agencies through its charging decisions.