The Walmart de Mexico case highlights the dangers of the facilitation payment loophole in the FCPA. Hiding bribes inside this U.S. loophole is no longer a legally sound strategy in the global enforcement environment.
Facilitation payments are now rejected by nearly all the important global powers enforcing anti-bribery laws. The U.K. Bribery Act does not recognize a facilitation payment exception.
The OECD formally criticized the U.S. in October, 2010, calling for an end to this exception. Only five OECD states ever permitted it (Canada, Australia, New Zealand, South Korea, and the United States). It appears likely that if the U.S. does not eliminate its facilitation payments loophole, the OECD will consider repeal of Commentary 9, which would put the U.S. in the very embarrassing position of violating the OECD Anti-Bribery Convention it worked so hard to create.
Three important surveys of business practices reveal that facilitation payments are not used by the vast majority of global capitalists. Fulbright & Jaworski’s 2008 survey found 80% of U.S. companies prohibited facilitation payments. KPMG’s 2008 survey showed similar results. TRACE International’s 2009 global survey showed over 70% of multi-national companies “never, or very rarely” used facilitation payments.
Prosecutions from the receiving country are also quite possible, with Nigeria being the most active enforcer to date. Most experts believe that there is no country that currently authorizes its officials to receive facilitation payments, although many nations do permit small gifts or entertainment of officials within specific guidelines. Ethixbase provides country specific information about written local laws authorizing gifts and entertainment expenses to local officials.
For Walmart de Mexico, the first key legal issue was whether Mexican laws or regulations authorized in writing the payment, gift or entertainment expense. Written laws or regulations create the legally binding standard under the OECD Convention and its enforcing member states. Unwritten allegedly customary practices are explicitly excluded from the local law provisions under the Convention, Commentaries 7 and 8, incorporated into the domestic laws of virtually every OECD Convention state including the U.S. and the U.K.
If the payment, gift or entertainment expense is authorized under written local law, the next key legal issue is whether the company correctly records the expense under the books and records provisions of the FCPA.
An excellent resource is Jon Jordan’s recent article, The OECD’s Call for an End to “Corrosive” Facilitation Payments and the International Focus on the Facilitation Payments Exception under the Foreign Corrupt Practices Act. Mr. Jordan is Senior Investigations Counsel with the SEC's FCPA Unit.