Clinton Blasts Facilitating Payments

Secretary Clinton in Lusaka, Zambia on June 10, 2011All bribes -- even grease payments to customs officials -- hurt economic growth, Secretary of State Hillary Clinton told her audience at last week's African Growth and Opportunity Forum in Zambia.

Inviting African leaders into "a very frank conversation about corruption," she said even common payments take a real toll.

"Every bribe paid to a customs official represents a hidden tax on the cost of doing business and a drag on economic growth," she said.

The FCPA contains an exception that allows bribes for “routine governmental action . . . which is ordinarily and commonly performed by a foreign official." See 15 U.S.C. §§78dd-1 (b) and (f) (3) [Section 30A of the Securities & Exchange Act of 1934].

But claiming a bribe is really a facilitating payment has always been risky. Prosecutors say that anyone relying on the exception should be prepared to defend it -- that is, the burden of proof is always on the one asserting the exception as a defense to an FCPA violation.

Last year, global logistics firm Panalpina and six of its oil-and-gas services customers paid $236.5 million to resolve FCPA-related charges based in part on payments to customs officials in Africa.

The new U.K. Bribery Act starts on July 1 and doesn't allow facilitating payments.

Clinton said corruption costs Africa about $150 billion a year. "It scares away investment, stifles innovation, and slows trade," she told the Africa forum last year.

"Every time an entrepreneur is forced to pay a bribe to start a business or ship goods across a border or open a new facility," she said, "economic progress shudders. As President Obama has said, Africa does not need strong men; it needs strong institutions. We have seen all over the world how vital the rule of law is to maintaining a successful market, attracting investment, and promoting sustainable development."

The FCPA allows grease payments for: obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; processing governmental papers, such as visas and work orders; providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or related to transit of goods across country; providing phone service, power and water supply; loading and unloading cargo, or protecting perishable products or commodities from deterioration; or the catch-all "actions of a similar nature." See § 78dd-2 (H)(4) et seq.

Playing Chicken With The Rule Of Law

The enforcement action against Tyson Foods announced yesterday by the DOJ and SEC contains some important lessons.

Here are three of them:

First, the cover up is often worse than the crime. From 2004 to 2006, Tyson paid around $90,000 to two veterinarian plant inspectors, and about $260,000 over ten years, either through phony invoices or through their wives’ no-show jobs. Chicken feed, excuse the pun, compared with some of the enforcement actions we've seen lately. But some Tyson people who should have known better learned about the bribes and didn't stop them. In fact, they formed a committee of top execs to think up ways to keep the bribes secret but still flowing. The SEC said: "It was not until two years after Tyson Foods officials first learned about the subsidiary’s illicit payments that its counsel instructed Tyson de Mexico to cease making the payments."

Second, public graft isn't a victimless crime. A myth peddled by opponents of compliance and fans of facilitating payments is that no one gets hurt and business keeps moving. Not true. As our friend Elizabeth Spahn has said about petty bribery, "Like it or not, we are all in this together. Everybody gets hurt." Last year, she delivered this prophetic message about graft and food and product safety risks:

If we get rich enough, maybe we could afford to personally avoid the avalanche of toxic products descending on clueless consumers of global products. Someone else’s puppies and babies get killed. We rich, educated very much First World Americans and Europeans can afford organic, locally grown slow food; children’s toys hand carved by hippies in Vermont or Tyrol. Caveat emptor, after all.

Third, companies deserve second chances. Although Tyson initially covered up its bribery, things changed. Somewhere along the line, some people at Tyson understood what the company had done. They self-reported the crimes to the DOJ and SEC. They cooperated in the investigation and the corporate clean up. And for that the company was rewarded with a two-year deferred prosecution agreement instead of the typical three-year deal. We believe in second chances for companies (and for people) who admit their crimes and try to make things right.

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The FCPA Blog on the road. We'll be speaking in Houston on March 10. More details here.

Best Anti-Corruption Ad

The Super Bowl commercials were great. Our favorites were VW's The Force and Bud's Tiny Dancer. 

What about anti-corruption ads? None made it to the Super Bowl this year. But there are some goods ones out there. 

Our current favorite comes from Georgia (the country) for the Advocacy and Legal Advice Center, an initiative by Transparency International Georgia.

We like the ad because (a) it's colorful (2) with snappy music (3) and easy visuals. We also like the simple message -- that most petty bribery (think facilitating payments) is really extortion. So what the victims need most is some clout to fight back. 

Apparently the ad worked. "Within a month," the Georgia Advocacy and Legal Advice Center said in February last year, "it received almost 100 calls and visitors and opened 22 cases. 31% of hotline users were invited for preliminary consultation with ALAC legal staff. So far the majority of corruption related complaints concern corruption in the judicial sector and property rights violations."

The UK Anti-Bribery Act: Let’s Cool Down the Hysteria

Michael Volkov believes UK prosecutors will act reasonably.By Michael Volkov

The year 2010 was another record-setting year for anti-bribery enforcement. Headline after headline reported yet another bribery scandal with the usual results: corporate fines, jail sentences, new and aggressive law enforcement strategies. Business anxiety is on the rise. Compliance is the new mantra for businesses.

The new year brings even greater concerns for businesses around the world – the UK Anti-Bribery Act is scheduled to become effective in April 2011.  Fear of the new Act is on the rise. Contrary to the current hysteria, when all is said and done, the UK enforcers will act reasonably, build a track record and focus on egregious cases of bribery, with the focus on UK-based companies. While the law literally can be stretched to cover a number of far-out scenarios, commentators and law firm marketing agents forget about the most important factor – prosecutorial discretion.

A careful look at the issues and a fair consideration of the risks will help to reduce anxiety and focus organizations on what really needs to be done – a commitment and execution of real compliance.

The top three myths are easily addressed:  (1) Extraterritorial Reach; (2) Strict Liability for Failing to Prevent Bribery; (3) The Absence of a Facilitation Payment Exception.

Extraterritorial Reach

Lawyers, consultants and others have pushed this issue to the extreme. In the common scare scenario, a business which is headquartered outside the UK but conducts business in the UK will be found liable under the Act for bribery conduct which occurs entirely outside the UK. While it is true that such conduct may fall within the ambit of the Act, this scenario is unlikely to occur for two reasons – first, the Serious Fraud Office (SFO) recognizes that it has the authority to prosecute such a scenario but will decline to do so for political and precedential reasons. When asked about this scenario, Richard Alderman, the head of the SFO, has suggested that they would not prosecute such a case; second, such a prosecution would raise political concerns and the SFO recognizes that the last issue it needs to contend with is political inquiries. In fact, I expect the SFO will initially enforce the Act conservatively against UK-based companies.

Strict Liability For Failing to Prevent Bribery

A second issue of great concern is the new corporate offense for failing to prevent bribery.  Under the Act, a company can raise a defense that it had “adequate procedures” to prevent the bribe.  The SFO is in the process of issuing guidance on what constitutes “adequate procedures.”  Commentator after commentator has been raising questions concerning this issue. But the answer boils down to a simple equation – if the company institutes a basic compliance program, which is designed to include the basic elements outlined in the United States Sentencing Guidelines, the organization will be fine. If the effort is half-hearted or disingenuous, then the organization will be in trouble. This is not rocket science and there is no need to try to characterize it any other way.  But those self-interested parties seeking to promote fear and possible liability will not tell companies what really needs to be done.

The Absence of a Facilitation Payment Exception

Another issue which companies have heard about is the absence of a facilitation payment exception. Under the Foreign Practices Act, there is an exception which allows companies to make payments to foreign officials for routine services which the company needs to provide the government with a good or service. This exception is rarely relevant given the scale of the government’s investigations and prosecutions. However, for some reason, there are some who believe that the absence of such an exception under the UK Anti-Bribery Act will lead to significant liability for such actions. Again, such claims ring hollow in the face of reality – does anyone really believe that the SFO will initiate prosecutions for such payments which are by definition made without the requisite intent to illegally influence the recipient of the payment? I find it hard to believe that the SFO will no be focused on more serious allegations of corruption and bribery, working in close coordination with other international regulators, including the Securities and Exchange Commission and the Department of Justice in the United States.

Conclusion

While I am tempted to join the chorus of doomsayers on the upcoming implementation of the UK Anti-Bribery Act, I consider it more important to adhere to a belief based on my own 17 years as a federal prosecutor in the United States – prosecutors will reasonably interpret the law, prosecute cases that are strong and appropriate, and exercise discretion in a way to minimize political interference or backlash.  My comments, however, should not be taken as to minimize or excuse companies from designing and implementing appropriate compliance programs.

Michael Volkov is a partner at Mayer Brown LLP in Washington, D.C. His practice focuses on white collar defense, compliance and litigation. He regularly counsels and represents clients on FCPA and UK Anti-Bribery Act issues. He can be contacted here.

Britain's FCPA Plus

Photo by Steve PunterBy Thomas Fox

The U.K. Bribery Bill, introduced in March 2009, is still on track to pass out of Parliament before the upcoming general election, expected to be in June. The Bribery Bill is a major shift in the U.K.'s overseas anti-corruption regime -- and it goes even further than the FCPA.

Because so many U.S. companies have offices or operations in the U.K., or employ U.K. citizens in their world-wide operations, this legislation exposes them to new risks of prosecution.

Unlike the FCPA, the Bribery Bill has no exception for facilitation payments. It creates strict liability for the failure of a corporate official to prevent bribery, prohibits bribery not just of government officials but also private citizens, and has criminal penalties of up to 10 years prison per offense (not 5 years as under the FCPA).

The Conservative Party tried to introduce amendments that would have allowed facilitation payments "reasonable in amount," "customary in the situation," or the "only reasonable alternative in the situation." Blogger Alan Holroyd reported that Clair Ward, the Parliamentary Under-Secretary of State for Justice, blasted the idea, saying the exceptions (which died in the debate) would have "driven a coach and horses through the policy objectives of the bill."

There's one affirmative defense for "adequate procedures." The defense would allow a corporation to put forward credible evidence that it had adequate procedures (i.e., an effective compliance program) in place to prevent its people from committing bribery offences. The Secretary of State for Justice will be required to publish guidance on "adequate procedures" when the Bill becomes law. And the Government has signaled that it will work with the U.K. business community to develop compliance standards.

Thomas Fox is an attorney in Houston, Texas, specializing in FCPA compliance, risk management and international transactions. He can be reached at tfox@tfoxlaw.com

More information about the Bribery Bill can be found here.