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Entries in Facilitating Payments (66)


Playing Chicken With The Rule Of Law

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

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Best Anti-Corruption Ad

What about anti-corruption ads? None made it to the Superbowl this year. But there are some goods ones out there. Here's our current favorite.

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

Fear of the new UK Bribery Act is overblown. UK enforcers will act reasonably, build a track record, and focus on egregious cases of bribery.

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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

More information about the Bribery Bill can be found here.


No Small Thing

Our subject in this space is commercial bribery. But other types of graft touch countless lives daily.

Often the most vulnerable people have to pay extra for public services they can't live without -- police protection, medical care, court decisions, water and electricity, and even their children's education.

Rochelle Meddoff's story about corruption in schools appears on the Global Graft Report here. It reminded us of the disturbing TV spot below. It's from Mozambique so the language is Portuguese. But the message is universal.

Here's the clip:


The Good Bribes

Lawyer and Fulbright Scholar Andy Spalding: The idea that deterring bribery must always be good is too simple.Yesterday's post about corruption's positive influence in poor, unfree countries brought the following comment from Andy Spalding. He's a lawyer on a year-long Fulbright Research Grant in Mumbai, India whose own view of anti-corruption laws has caused a stir.

Here's what he said:

Dear FCPA Blog,

I was delighted to read yet another article in our field written in the ever-important vein of constructive criticism.  For those of us who support the FCPA, it is tempting to categorically dismiss the suggestion that in some economies, some of the time, bribery may actually promote development.  But I'm not sure that this is the right response, for at least two good reasons:

1.  This idea has been around for a very long time.  As Carden and Verdon readily admit, theirs is a new permutation on an idea that has circulated in mainstream economics and political science for over forty years.  It grew out of the study of Soviet bureaucracy, and many of us lawyers who took undergrad majors in poli sci, econ, or history, may at least vaguely recognize names like Samuel P. Huntington.  This idea is not new, and it's not radical.  We would do well to see the FCPA, and the problem of corruption, in a broader context of human experience and intellectual inquiry.

2.  Hasn't the FCPA community understood this since 1988?  That was the year that we amended the FCPA to include the affirmative defense -- which some find counter-intuitive, or worse -- for facilitating payments.  How many of us have had the experience of describing this defense to non-lawyers in a compliance seminar, a meeting with clients, or around the dinner table, only to be met with chuckles of astonishment? The non-FCPA world believes that "a bribe's a bribe," and so did we when we originally drafted the FCPA in the mid-70s.  But ten years of experience taught us otherwise.  For those of us today who endorse the affirmative defense -- who do not believe it is a "loophole" that should be abolished, but instead strikes an important balance -- haven't we tacitly accepted at least some version of Carden and Verdon's thesis? 

We may tend to assume, perhaps unconsciously, that if bribery is bad, then deterring bribery must always be good; the logic is seductive in its simplicity.  But as Holmes taught, "the life of the law has not been logic; it has been experience."  Experience in bribery-prone countries, with all its irony and tragedy, teaches us that though bribery is indeed bad, the alternative may sometimes be worse.  Those who amended the FCPA in 1988, and myriad observers of the human condition dating much further back, understood this regrettable fact.  In today's prosecutorial zeal we may try to ignore it, but those who live and work under corrupt and inefficient regimes cannot escape it. 

With thanks,
Andy Spalding


The Real Price Of Petty Graft

Corruption may have been a cause of the night club fire last week in the Russian city of Perm that killed 113 people. Alexander Fridman, an entertainment producer there, told the Christian Science Monitor, “Fire inspectors found violations of the regulations a year ago, yet they didn’t come back to check whether corrections were made. Why was that? There were hundreds of people gathering at that club every night, yet they never closed it down. The basic lesson is that fire inspectors should not take bribes.”

Russia's red tape is terrible. The country ranked 182 out of 183 on the World Bank's 2010 Doing Business Index in the category of "Dealing with Construction Permits." It takes an average of 704 days to obtain the permits needed to build a warehouse in Russia; the OECD average is 157 days. Such extreme bureaucratic delays mean petty corruption is the only way to keep things moving.

The Christian Science Monitor said, "Amid Russia’s decaying infrastructure and often jury-rigged new construction, the potential for accidents [such as the nightclub fire] abound because laws are not enforced, experts say." A professor at Moscow's Institute of Architecture said most public buildings are hazards. “As long as we have this practice of paying bribes rather than making the needed improvements," he said, "nothing will change."

The story said 18,000 Russians die each year in fires, several times the rate in most developed countries. The U.S., with twice Russia's population, had 3,500 fire fatalities in 2008.

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More on the indictment of Joel Esquenazi and Carlos Rodriguez (reported here). The two Florida residents were identified by the DOJ as the president and a former vice president respectively of "Company X." The company is Terra Telecommunications Corp., formed in Nevada on July 1, 1996 and domesticated in Florida in 2002. A copy of its Florida business registration can be downloaded here. Thanks to the U.S. readers who provided this information.

*   *   *

Women in Kabul marched against corruption. As reported by the LA Times and others, hundreds of women on Wednesday held a peaceful but noisy street protest. They want President Karzai to remove from his government anyone connected to corruption and the drug trade. "These women are being very brave," said the protest leader, her face hidden by a burka. "To be a woman in Afghanistan and an activist can mean death. We want justice for our loved ones!" The protest group called itself the Social Association of Afghan Justice Seekers. A spokesperson said "our people have gone into a nightmare of unbelieving" because of the disputed election and the fact that "the culture of impunity" still exists despite Karzai's vow to eliminate it.


Dyncorp Reports Payments, Removes Compliance Officer

Virginia-based DynCorp International said payments by its subcontractors to speed up visas and permits may have caused the company to violate the Foreign Corrupt Practices Act. In its November 12, 2009 quarterly report (Form 10-Q here), it said it found about $300,000 in payments by subcontractors to "expedite the issuance of a limited number of visas and licenses from foreign government agencies." The company didn't include any details about the project involved or the subcontractors referred to in the disclosure. It said it had self-reported the payments to the Justice Department and Securities and Exchange Commission a week earlier and hired outside counsel to conduct an investigation.

On November 23, 2009, the company said in a further filing (Form 8-K here) that "Curtis L. Schehr’s employment as Senior Vice President, Chief Compliance Officer and Executive Counsel of DynCorp International LLC, DynCorp International Inc.’s wholly-owned subsidiary, was terminated without cause."

Schehr, 50, had been in the job since May 2009. Before that he was Dyncorp's Senior Vice President & General Counsel from October 2006.

The Foreign Corrupt Practices Act prohibits both direct and indirect corrupt payments to foreign officials to obtain or retain business. Indirect payments typically pass through the hands of an overseas partner, agent, or subcontractor, then end up with the foreign official for an unlawful purpose.

But the FCPA includes an exception for payments 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]. Examples in the statute of so-called facilitating payments include those for "obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country" and "processing governmental papers, such as visas and work orders."

Aren't those the payments Dyncorp disclosed? Maybe not. As we've said before, the facilitating payments exception won't apply if there was no legitimate routine governmental action pending for which a bribe was paid. Action obtained or sought to be obtained by subornation of the official’s duty is not an action ordinarily and commonly performed by a foreign official. So if the visas and licenses mentioned in Dyncorp's disclosure weren't already pending or set to be issued, payments "to expedite" them could be outside the exception. And while the FCPA doesn't limit the size of facilitating payments, the $300,000 disclosed by Dyncorp suggests a quid pro quo for something more than routine governmental action.

DynCorp International Inc. has about 14,000 employees worldwide and reported revenue last year of $3.21 billion. According to its website, the company has "recruited, trained, and deployed more than 6,000 highly-qualified civilian peacekeepers and police trainers to 11 countries, including Haiti, Bosnia, Afghanistan, and Iraq, for the [U.S.] Department of State." It provides "logistics and contingency support to the United States military around the world, including major contract task orders in Afghanistan and Kuwait to augment U.S. Army logistics capabilities, as well as support for Africa Union peacekeepers in Somalia."

After the Iraqi government refused to renew Blackwater's license to operate there, Dyncorp replaced it in a contact to supply helicopters for U.S. diplomats in Baghdad. The Wall Street Journal reported that the contract has been delayed "well into next year as DynCorp's aircraft weren't suited to the job."

DynCorp International Inc. trades on the New York Stock Exchange under the symbol DCP.


The Story Of Graft

Transparency International's Global Corruption Report 2009 is here. At 462 pages, it may be the most complete account of global corruption and anti-bribery efforts ever assembled. Reference books like this are both important and fun; you don't need to read from front to back, first page to last. Dive in anywhere -- at the country reports, narrative chapters, footnotes, tables, sidebars, illustrations or research, even the index. It's all worthwhile. Here, from a couple of random dives, is what we mean:

  • The Foreign Corrupt Practices Act "established the first comprehensive prohibition by any country against bribing foreign government officials for business purposes. The FCPA bans the use of bribery to obtain or retain business or to secure any other undue business advantage, and imposes strict record-keeping requirements for public companies. While enforcement in the early years was limited, it has increased markedly since the United States ratified the OECD Convention in 1998. From 2003 to 2007 the average number of new FCPA enforcement actions nearly tripled compared to the preceding five-year period."
  • "In France, Germany, the United Kingdom and the United States, all major foreign investors and exporters and more than 80 per cent of surveyed executives admitted to ‘not being familiar at all’ with one of the most important legal frameworks in global business, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Only a third or so of companies surveyed by other polls in the construction and power sector -- industries with high corruption risks -- had training programs for executives on how to avoid corruption."
  • "Almost 90 per cent of the top 200 businesses worldwide have adopted business codes, but fewer than half report that they monitor compliance. Although more than 3,000 companies have published CSR [corporate social responsibility] reports in 2007, fewer than a third were verified through independent assurance."
  • Enforcement of foreign bribery cases has increased in France, Germany and the United States. "[T]here is still little or no enforcement in . . . Canada, Japan and the United Kingdom." In 2008, France brought 19 enforcement actions and had 16 ongoing investigations; Japan brought one case and had an unknown number of ongoing investigations.
  • Globally, nearly forty percent of polled business executives have been asked to pay a bribe when dealing with public institutions. Half estimated that corruption raised project costs by at least 10 percent. Twenty percent claimed to have lost business because of bribes by a competitor. More than a third felt that corruption is getting worse.
  • "In developing and transition countries alone, corrupt politicians and government officials receive bribes believed to total between US$20 and 40 billion annually – the equivalent of some 20 to 40 per cent of official development assistance."
  • "When corruption allows reckless companies to disregard the law, the consequences range from water shortages in Spain, exploitative work conditions in China or illegal logging in Indonesia to unsafe medicines in Nigeria and poorly constructed buildings in Turkey that collapse with deadly consequences. Even facilitation payments -- the many, often small payments made by companies to ‘get things done’ -- are found to be harmful, as they are funneled up through the system and help nurture and sustain corrupt bureaucracies, political parties and governments."
Transparency International's Global Corruption Report 2009: Corruption and the Private Sector can be downloaded here.

Disclosure: We acted as a peer reviewer for this publication.


Will Graft Defeat Iraq?

We like to end our weeks around here with a light touch. But not today. We just read a disturbing story from Reuters' Aseel Kami in the Washington Post. He describes the "pandemic of corruption" now gripping Iraq. After all that's happened there, it's tragic news. The voices in Kami's story sound authentic and you can't miss the cruel side of what's going on -- even in the petty stuff. Here's a sample:

"I cannot move one step without bribing people," said Adel Hamza, who as head of public relations at a foreign construction company is responsible for getting contracts signed, stamped and authenticated by Iraqi authorities. "Everyone has got their mouths open as if I am feeding birds. . . ."

Haider Abdul-Muhsin says that when he needs to get Interior Ministry officials to sign identification documents, he has to spread money around like confetti.

"From the entry gate where a security guard stands till I get to the officer, I have to pay money to get my paperwork processed. This is not normal," said Muhsin. . .

Housewife Najat al-Azzawi said the lack of public services six years after the invasion made her nervous about the future.

"Security was previously the problem, now corruption heads the list," she said.

The story asks the chilling question: Will Iraq's corruption brew so much discontent that the insurgency will renew itself?

* * *
From Frederic Bourke's Trial. Bloomberg's David Glovin (who else?) reported here the testimony from Bourke's long-time lawyer. David Hempstead (Western Michigan BA, Wayne State JD), a tax partner in Detroit's Bodman LLP, said he "told Bourke the Azeris had paid for their interest because Kozeny's lawyer had told him as much."

Bourke is on trial in federal court in Manhattan for conspiring with Czech fugitive Viktor Kozeny to bribe Azeri officials in violation of the Foreign Corrupt Practices Act. Prosecutors allege Bourke knew Kozeny was paying bribes of millions of dollars in cash and a secret two-thirds interest in the venture Kozeny formed to buy the state oil company.

I went back to Ric [Bourke] and said, "They're saying the Azeris were putting in full value," Hempstead testified [Wednesday] in Manhattan federal court. Ric said, "Alright" . . . I certainly believed the government of Azerbaijan could come up with the money to invest with Kozeny, said Hempstead, Bourke's lawyer of 35 years.

Read David Glovin's reports on the trial here.

Read all our posts about U.S. v. Kozeny and the prosecution of Frederic Bourke here.


When Is It OK To Pay?

The Foreign Corrupt Practices Act doesn't prohibit all payments to foreign officials. It's not that broad. What it does prohibit are corrupt payments made to obtain or retain business.

Which means the application of the law isn't necessarily black and white. And that's why, more than 30 years after the FCPA's enactment, people still want to know -- When is it OK to pay a foreign official? Let's take a look.

First, it's OK to pay under the three exclusions written into the FCPA:

Local Law. Payments that are otherwise prohibited are permitted if the "payment, gift, offer, or promise of anything of value that was made, was lawful under the written laws and regulations of the foreign official’s" country. 15 U.S.C. §§ 78dd-1(c)(1), 78dd-2(c)(1) and 78dd-3(c)(1). The local-law defense was added to the FCPA in 1988. But it only works if the payment is legal under the written laws of the country in question. The absence of a law against the payment isn't enough; there has to be a written law allowing the payment. Really? That's right. And that's why this affirmative defense has very low mileage.

Promotional Expenses. The FCPA allows payments to foreign officials for expenses related directly to “the promotion, demonstration, or explanation of products or services" that are "reasonable and bona fide.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). This defense, however, is notoriously hard to use (and easy to abuse), mainly because no one is quite sure what reasonable and bona fide really means. More of the recent DOJ Releases deal with this topic than any other.

Grease Payments. It's OK to make facilitating payments for “routine governmental action . . . which is ordinarily and commonly performed by a foreign official." 15 U.S.C. §§78dd-1 (b) and (f) (3). The examples in the law show how narrow it really is -- obtaining permits and licenses, processing visas, getting police protection, mail and phone service, scheduling inspections, connecting power and water, loading and unloading cargo, and protecting perishable goods. This exception is a lot less useful than many people hope.

Something more? Are there any other ways to make legal payments to foreign officials? There are -- but they're always loaded with risk. Here's why:

Once again, the FCPA doesn't ban all payments to foreign officials. What it bans (subject to the exclusions above) are corrupt payments made in order to obtain or retain business for or with, or to direct business to, any person. See 15 U.S.C. § 78dd-2(a). That means some payments that don't fit within the exclusions might still be OK. But what are they?

Since enactment of the FCPA, companies and their lawyers have spent a lot of time trying to figure that out. Most of the early Justice Department FCPA Releases and many later ones tell the story of companies struggling to understand which payments to foreign officials might be permitted. For example,

  • The first Release, No. 80-01 from 1980, allowed an American law firm to provide about $10,000 in annual support to two adopted children of a government official in a country where the firm wanted to do business.
  • The DOJ's next Release, No. 80-02, allowed Castle & Cooke to continue to employ -- and pay -- a member of the local legislature.
  • Another Release from 1980, No. 80-04, allowed Lockheed to retain Suliman Olayan as an agent, even though he was also a director of the state-owned airline, Saudia.
Releases that followed on the same topic included 84-01, 86-01,94-01 and 95-02. All of them, by the way, set out strict conditions for the payments -- usually limiting very specifically the scope of the relationship with the foreign official.

Even with all that precedent, proposed payments to foreign officials under any circumstances are still enormously risky. The burden to show that a payment isn't corrupt or made with a quid pro quo in mind weighs a ton. No one should ever feel cocky in concluding that a payment to a foreign official is OK under the FCPA. The words of the law and the way the DOJ and the courts have interpreted it give some guidance -- but very little comfort.


A Blight On Their Lives

Dan Bilefsky of the New York Times is a roving reporter with a knack for revealing the heart of things. He's done that now for the problem of petty corruption in Romania. His story is about the human consequences of the countless little bribes so often ignored and unreported, and categorized as those pesky and insignificant facilitating payments. Here's how he starts:

BUCHAREST, Romania — Alina Lungu, 30, said she did everything necessary to ensure a healthy pregnancy in Romania: she ate organic food, swam daily and bribed her gynecologist with an extra $255 in cash, paid in monthly installments handed over discreetly in white envelopes.

She paid a nurse about $32 extra to guarantee an epidural and even gave about $13 to the orderly to make sure he did not drop the stretcher.

But on the day of her delivery, she said, her gynecologist never arrived. Twelve hours into labor, she was left alone in her room for an hour. A doctor finally appeared and found that the umbilical cord was wrapped twice around her baby’s neck and had nearly suffocated him. He was born blind and deaf and is severely brain damaged.

Now, Alina and her husband, Ionut, despair that the bribes they paid were not enough to prevent the negligence that they say harmed their son, Sebastian. “Doctors are so used to getting bribes in Romania that you now have to pay more in order to even get their attention,” she said.

Romania, a poor Balkan country of 22 million that joined the European Union two years ago, is struggling to shed a culture of corruption that was honed during decades of Communism, when Romanians endured long lines just to get basics like eggs and milk and used bribes to acquire scarce products and services.

Alarm is growing in Brussels that Romania and other recent entrants to the European Union are undermining the bloc’s rule of law. The European Commission, the European Union’s executive body, published a damning report last month criticizing Romania for backtracking on judicial changes necessary to fight corruption. And Transparency International, the Berlin-based anticorruption watchdog, ranked Romania as the second most corrupt country in the 27-member European Union last year, behind neighboring Bulgaria.

Those who have faced corruption allegations in recent years have included a former prime minister, more than 1,100 doctors and teachers, 170 police officers and 3 generals, according to Romanian anticorruption investigators.

Romanians say it is the everyday graft and bribery that blights their lives, and nowhere are the abuses more glaring than in the socialized health care system.

Interviews with doctors, patients and ethicists suggest that the culture of bribery has infected every level of the system, sometimes leaving patients desperate.

One doctor said a patient recently offered him a free shopping trip to Dubai . . . .

Dan Bilefsky's article is well worth a trip to the New York Times here.

The EU's February 12, 2009, "Interim Report from the Commission to the European Parliament and the Council" on Romania's progress to remedy judicial shortcomings and fight against corruption can be downloaded here.