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FCPA Blog Daily News

« What's The Count? | Main | Charting The FCPA »
Thursday
Oct092008

After Kay, Another Warning About Grease Payments

Responding to our post, Case Closed For Kay And Murphy, reader Jon May has asked a great question: Isn't there a danger that the grease exception will lull businesses into the very conduct that is proscribed by Kay?

Yes, there's a danger of that happening, but it's not new.

Before Kay, the DOJ already had an expansive view of FCPA enforcement. Prosecutors were looking beyond bribes intended to help land business directly from overseas government customers. Enforcement scrutiny extended to any overseas public bribery that might create a commercial advantage, and Kay didn't change that.

So what bribes have been fair game for prosecution? The list in our prior post about Kay mentioned payments to reduce taxes or speed up tax refunds, jump customs queues, obtain favorable product inspections, manipulate business registrations, alter rates or delivery times of national carriers, reduce utility costs, and enhance property usage, among others.

And here's Jon's point: Those examples sound a lot like facilitating payments. And doesn't the FCPA allow facilitating payments? Then what's going on?

The facilitating payments exception permits 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]. That seems clear enough. But according to the statute, facilitating payments can relate only to an action which is ordinarily and commonly performed by a foreign official.

The clear implication of the language -- and the view adopted by the Justice Department years ago -- is that the exception will not apply if there was no legitimate routine governmental action pending and for which the payment was made. Anything 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 it's outside the scope of the exception.

For example, paying a customs clerk to inspect goods already in the customs queue and awaiting inspection may be permissible. But paying a customs clerk to jump the queue, or paying for positive inspection results, may be outside the exception. Think of it this way: Any time an official is asked to do something more -- something beyond the scope of his or her normal duty, the facilitating payments exception is unlikely to apply.

The FCPA itself lists these examples of facilitating payments: (i) obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country; (ii) processing governmental papers, such as visas and work orders; (iii) providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country; (iv) providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or (v) actions of a similar nature.

But here's the catch. No matter how hard you try to make a bribe fit into one of those examples, the facilitating payments exception won't apply if there was no legitimate routine governmental action pending and for which the bribe was paid. Again, 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. Therefore, it's outside the scope of the exception.

If this sounds like a difference without a distinction, like another piece of linguistic linguine -- well, that's right. It's confusing. Which is why the facilitating payments exception, to use Jon's word, is filled with danger.

As he says, companies can be lulled by the exception into illegal behavior. More often than not, bribes first identified as permitted grease payments do not fall within the exception after all. Sometimes it's the purpose of the payments that makes them unsuitable -- there's no underlying legitimate routine governmental action. Sometimes the recipient's identity or role spoils the exception. The so-called clerk who's collecting the bribe turns out to be a real decision maker. And sometimes the timing or size of a payment isn't consistent with a payment for mere routine governmental action. Why pay big money for something you're already entitled to receive?

Prosecutors say that anyone relying on the exception should be prepared to defend it. They warn that dollar thresholds alone aren't reliable, which means bribes aren't facilitating payments just because they're small. And, say the feds, an issuer’s books and records must accurately reflect facilitating payments, making clear to an outside observer the actual purpose for the bribe. That sort of disclosure -- which amounts to a signed confession in the public domain -- is terrible publicity. It also creates a further risk of prosecution in host countries where the grease payments were made.

In other words, a lot can go wrong with facilitating payments, and when it does the downside can be . . . a long way down.

That's why plenty of compliance-minded companies now ban all bribes. Grease payments, companies have decided, are just too hard to control and account for. They might have to be publicly disclosed, they might violate local laws, and they might promote a culture of corruption that will spoil the company's effective compliance program. And what about the ethics and morality of grease payments? After all, they harm local economies and honest citizens and perpetuate corrupt regimes. Should any corporate citizen promote that outcome? So even though the FCPA permits them, grease payments are getting a well-deserved boot.

Thanks, Jon, for the great question. And for giving us another chance to sound the alarm about facilitating payments.

.

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