DOJ Details "Facilitation Payment" Exception to FCPA Anti-Bribery Rules

(DOJ and the Securities and Exchange Commission (SEC) jointly enforce the FCPA, generally with DOJ investigating and prosecuting the FCPA's anti-bribery violations and the SEC enforcing the accounting provisions. The anti-bribery provisions to the FCPA make it unlawful for a U.S. person, and certain foreign issuers of securities, and foreign firms and persons in U.S. territory, to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business.

The accounting provisions require U.S. and foreign companies whose securities are listed in the U.S. to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.)

Payments to Foreign Officials to Obtain or Retain Business Violate FCPA

According to the DOJ official, FCPA enforcement focuses on the purpose of a payment instead of the particular responsibilities of an official receiving the payment, offer, or promise of payment. The FCPA's anti-bribery provisions prohibit companies and people from paying, promising, offering, or authorizing the payment of anything of value to a foreign government official to get that official to misuse or abuse their official position in aneffort to obtain or retain business.

This specification that payments made for "obtaining or retaining business" are prohibited is called the "business nexus" of the FCPA. The official states the business nexus is broad and consequently, DOJ's FCPA enforcement covers payments to influence foreign officials for a broad range of actions aimed at securing an improper advantage.

But FCPA Allows Small Facilitation Payments to Expedite Routine Gov't Actions

The FCPA contains an exception to the anti-bribery provisions for payments to facilitate or expedite performance of a "routine governmental action." DOJ views this as a very narrow exception due in part to various treaty obligations that require DOJ to discourage people from paying facilitating payments.²

The official states that from the government's perspective, the facilitation payments exception from the FCPA anti-bribery provisions only covers small payments made to secure routine governmental action, to government officials that do not relate to obtaining or retaining business, and that do not have an element of discretion on the part of the foreign official.

While there is no minimum value or threshold for the value of payments to be considered facilitation payments, DOJ will consider the size (including the aggregate of the payments), the per capita income of the country, and the frequency of payments in determining whether the payments are in fact illegalbribes.

(The FCPA states that "routine governmental action" means actions ordinarily and commonly performed by a foreign official in:

• 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 inspections 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; and
• actions of a similar nature.

The FCPA notes that “routine governmental action” does not include any decision to award new business or to continue business with a particular party.)

DOJ Issues Opinions on Whether Payments for "Similar" Actions Are Exceptions

As noted above, actions "similar" to those listed as routine government action under the FCPA can also be allowed under the facilitating payments exception to the anti-bribery provisions. DOJ states that if a company or individual has questions about whether a payment falls within the exception, they should consult with counsel or utilize the DOJ's FCPA Opinion Procedure.

Through the Opinion Procedure, any U.S. company or national may request a statement on DOJ's present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. The Attorney General will issue an opinion in response to a specific inquiry within 30 days of the request. If DOJ issues an opinion stating that the conduct conforms with current enforcement policy, that conduct will be entitled to a presumption, in any subsequent enforcement action, of conformity with the FCPA.

Payments by Public Companies Not Accurately Recorded also Violate FCPA

Issuers of publicly traded companies found in violation of the anti-bribery provisions for making certain payments may also be found in violation of the accounting provisions of the FCPA, if such payments are not recorded accurately.

The FCPA requires issuers of publicly traded companies to keep their books, records and accounts to accurately and fairly reflect the transactions and the disposition of their assets. This means that companies cannot hide illegal bribe payments or facilitation payments in their books and records by calling them "special handling fees," "local processing fees," "commission," etc.

Failure of issuers to accurately record facilitation payments would also constitute a violation of the Securities and Exchange Act of 1934, which requires that facilitation payments be recorded accurately regardless of whether the payment itself is lawful under local law³ or quantitatively immaterial. According to the official, to follow the provisions of the FCPA, companies should record illegal bribe payments as "bribes," (making it difficult for companies to make such payments) and to record facilitation payments as "facilitation payments."

FCPA Enforcement is a Priority, Penalties Can be Reduced thru Self-Disclosures

The DOJ official also noted that FCPA enforcement is a high priority across the Administration, and there has been an increase in DOJ's prosecution of individuals violating the FCPA.

The official added that DOJ learns about a small portion of FCPA-related cases occurring in foreign countries by companies voluntarily disclosing to DOJ. Companies that voluntarily disclose information are given credit by DOJ, such as through a reduction in penalties, a decision not to prosecute the company, etc. DOJ also learns of FCPA violations from whistleblowers, competitors, foreign law enforcement, U.S. embassy personnel abroad, non-governmental organizations, media reports, etc.

¹National Customs Brokers and Forwarders Association of America Annual Conference

² Following the enactment of the FCPA in 1977, Congress became concerned that U.S. companies were operating at a disadvantage compared to foreign companies who were not subject to such laws. The U.S. worked with the Organization of Economic Cooperation and Development (OECD) to persuade other countries to adopt similar legislation, and in 1997, the U.S. and 33 other countries signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which required Parties to enact laws to criminalize the bribery of foreign public officials to obtain or retain business or other improper advantage in the conduct of international business.

The OECD's 2010 Convention states that small facilitation payments have a corrosive effect, and has recommended that its Member countries periodically review their policies and approach on small facilitation payments, and encourages companies to prohibit or discourage the use of such payments in their internal company controls in order to stop the solicitation and acceptance of small facilitation payments.

³The only countries that permit facilitation payments are the U.S., Canada, Australia, New Zealand and South Korea.

(See ITT's Online Archives or 12/06/10 news, 10120627, for BP summary of DOJ testifying before the senate that FCPA enforcement is increasingly focused on the prosecution of individuals.

See ITT's Online Archives or 10/05/10 news, 10110504, for BP summary of Panalpina and related companies paying $236 million to resolve FCPA violations.)

DOJ Lay-Person's Guide to FCPA's Anti-Bribery provisions is available here.