Once again, the FCPA Blog has served up some shallow commentary – this time regarding the facilitation payments exception to the FCPA’s anti-bribery provisions.
In this post, Richard Cassin talks about 2010 FCPA enforcement action against Noble Corporation based on payments to customs officials in Nigeria in which Noble agreed to resolve parallel DOJ and SEC for approximately $8 million. (See here for the prior post). According to the post, the resolution documents (not subject to any meaningful scrutiny) “set out legal intricacies of the facilitating payments exception.”
Not mentioned at all in the post is that certain individuals civilly charged by the SEC put the SEC to its burden of proof, the judge in an issue of first impression ruled that the SEC has the burden of negating the facilitation payments exception, and the SEC was unable to do so resulting in the SEC offering the defendants very lenient settlement in advance of trial.
As highlighted in this prior post, in the SEC’s enforcement action against Mark Jackson and James Ruehlen (individuals associated with Noble Corp). the defendants argued that the SEC had the burden of pleading the inapplicability of the facilitating payments exception, whereas the SEC argued that the defendants had the burden of pleading the inapplicability of the exception. In an issue of first impression, the judge held that the SEC “must bear the burden of negating the facilitating payments exception” and that the “exception is best understood as a threshold requirement to pleading that a defendant acted ‘corruptly.’”
During pre-trial briefing, defendants argued:
“Mr. Jackson was repeatedly advised by Noble management that Noble was entitled to those permits and extensions. He was advised by management and PricewaterhouseCoopers that as long as the rigs had contracts to drill oil for the benefit of the Nigerian government, the rigs could stay in the country to perform those contracts. He was advised and observed that legal and audit experts were reviewing Noble’s FCPA compliance and, specifically, compliance in its Nigerian operations. And he was advised that Noble’s Nigerian lawyer had counseled that the use of the so-called “paper process,” where rigs obtained new permits without leaving the country, was legal in Nigeria.”
Later in the pre-trial proceedings, even 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.”
As highlighted in this prior post, the transcripts evidence the following exchanges between the judge and 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.
On the eve of trial and facing the prospect of having to negate the facilitating payments exception and otherwise prove its case, the SEC agreed to settle the matter on very favorable terms for the defendants and defense counsel subsequently stated:
“Due to the settlement [in the case], the court never had the opportunity to rule on the fate of the FCPA’s facilitating-payments exception under the SEC’s newfound interpretation. But the SEC’s position on this issue signals a shift in policy toward the practical elimination of the exception. If the SEC continues down the road established in this case, it will be interesting to examine whether courts accept the SEC’s position eliminating the exception. However, since most FCPA cases are not litigated, the SEC may seek to push its novel interpretation into law, without approval by the courts, by including it in settlement agreements going forward.”
