Another Look At Facilitating Payments

As the lone exception written into the U.S. Foreign Corrupt Practices Act, facilitating payments have a reputation for being safe and practical. In truth, grease payments are often dangerous and potentially damaging.

The facilitating payments exception allows bribes to be paid 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 that a bribe is really a facilitating payment risks intense scrutiny from the U.S. Department of Justice and, for issuers, the Securities and Exchange Commission. 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. They warn that dollar thresholds alone aren’t reliable, which means bribes aren’t facilitating payments just because they are small. And, they say, an issuer’s books and records must accurately reflect facilitating payments, so that the actual purpose for the bribes is clear to an outside observer. That amounts to a signed confession, creating a further risk of prosecution in foreign countries where there may be violations of local anti-corruption laws.

More often than not, bribes first identified as permitted grease payments do not fall within the exception after all. Sometimes it is the purpose of the payments that makes them unsuitable, or the recipient’s identity or role, or even the timing or size of the payments. In other words, a lot can go wrong. And then there is the requirement for issuers to disclose grease payments through their SEC filings. Corrupt dealings overseas, no matter how petty, aren’t something investors will cheer about.

The facilitating payments exception is a lot trickier than often assumed. No wonder, then, that so many companies are deciding to ban the use of facilitating payments entirely.

See, for example, SEC Today, Volume 2006-57, Friday, March 24, 2006 (“DC Bar Panelists Discuss Developments in Foreign Corrupt Practices Act Cases”), beginning at page 1.