July 26, 2012

George Martin Explains Hazards of Facilitation Payments in The FCPA Report

Although the Foreign Corrupt Practices Act prohibits U.S. companies from bribing foreign officials when conducting business internationally, the statute does allow facilitation payments, according to the article, "Designing a Facilitation Payments Policy to Minimize Liability and Retain Flexibility (Part One)" in The FCPA Report.

"A facilitation payment is made to a foreign official in order to expedite or secure the performance of routine, non-discretionary governmental action," said George Martin, a partner at Faegre Baker Daniels. "This usually means obtaining services such as unloading cargo, processing paperwork for visas, permits or licenses, or activating telephone, mail delivery services or the like. They key is that the foreign official involved was not exercising any discretion in taking, or refraining from taking, any action in exchange for the payment."

Martin also noted that while the size of the payment is not determinative, facilitation payments tend to be smaller while prohibited bribes tend to be larger. "It is generally expected that a facilitation payment is very modest in magnitude," Martin told The FCPA Report. "The larger the payment, the more likely it is that an inference will be drawn that something more than routine, non-discretionary governmental action was involved."

For example, Martin said, "A permissible facilitation payment would be paying $25 to a customs clerk in a foreign country in order to incent him or her to process the paperwork sooner rather than later in order to extract goods from customs. It would not be permissible to offer or pay the same clerk the same sum of money in order to incent him/her to favorably perform a discretionary act, such as re-characterizing and lowering the import tariff applicable to those goods."

Although facilitation payments are permissible under the FCPA, they may violate local law in many cases, according to The FCPA Report

Martin noted, "Most countries outlaw bribery in any form and very few would have a law that expressly made it permissible for their government officials to receive bribes of any kind. I think it is fair to assume that all payments made in order to secure some benefit, including what we would characterize under U.S. law as expediting or facilitation payments, would be prohibited. Even if a payment is made in Sri Lanka that is permissible under the FCPA as a facilitation payment, if Sri Lankan law prohibits such payments, the company and the individuals involved in making and authorizing such payments would have culpability for violating Sri Lankan law."

Because of the hazards involved in making facilitation payments, such as violating local law or the payment being viewed as a bribe under the FCPA, "most multinational companies today are trending toward banning facilitation payments outright," Martin told The FCPA Report.

Read a summary of Part Two of this article. The full article is available by subscription only.

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