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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

Looking Through The FCPA

Legal loopholes, the conventional wisdom goes, expand over time, until there’s more hole than donut. But is that true of the Foreign Corrupt Practices Act? Have its three Congressionally created loopholes — two affirmative defenses and one exception — gotten bigger over time?

The answer is no. In fact, there’s never been much wiggle room in the FCPA, and what’s there hasn’t grown (it might have shrunk a bit, though). Here’s why.

The facilitating payments exception sounds more important than it is. Yes, it allows bribes– grease 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 include 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. There’s even a catch-all for “actions of a similar nature.”

But here’s the problem. Most so-called grease payments don’t fall within the exception after all. The only protected payments are those intended to facilitate legitimate routine governmental action. So bribing an official to do anything outside his or her assigned duties isn’t legal. For example, paying a customs clerk to schedule an inspection of goods already in the customs queue is OK, but paying to leapfrog the queue or pass an inspection isn’t. Grease payments only work when you pay for something you’re already entitled to, and that’s not a common need.

The government has always taken a narrow view of facilitating payments, so there’s no reason for optimism when approaching the subject. But still, the idea persists that this exception is broader than it really is. Our guess is that at least a third of all internal investigations today are triggered when companies discover illegal bribes that someone first mischaracterized as facilitating payments. No wonder 80% of U.S. companies now ban grease payments entirely.

How about payments related to product promotions? Has this loophole grown over the years? Do companies use it to pass buckets of money to foreign officials? Not a chance.

The FCPA says payments to foreign officials are permitted 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). If a payment to a foreign official is reasonable and bona fide, however, it can’t be corrupt. And if it’s not corrupt, it’s not prohibited by the FCPA. If it’s not prohibited by the FCPA, what’s the point of the affirmative defense? Well, no one knows.

Congress created loads of uncertainty about this exception through its inartful language (thanks, William Safire). So compliance-minded companies have to approach it with extreme caution. They adopt elaborate guidelines to prove their payments are reasonable and bona fide. No new business can be brought before the officials being comped. No advance funds or reimbursements in cash. No expenses for spouses, family, or other guests. No entertainment or leisure activities. No side trips. No golf (yikes!). No walking-around money. No give-away hats or tee shirts that don’t sport the host’s name or logo. Everything has to be reasonable and bona fide. Which means this exception isn’t threatening the structural integrity of the FCPA. But it is making U.S. companies look cheap, stingy and inhospitable.

Finally, there’s the local law defense. The FCPA allows otherwise prohibited payments that are “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). This affirmative defense was added to the FCPA in 1988. It sounded promising then because most people misunderstood what Congress intended. They thought that if a payment wasn’t criminalized by local law, it was permitted under the FCPA. But that idea was seriously wrong.

Unlike its snafu with promotional payments, Congress was clear on this. It said that only payments permitted by the written laws of the official’s country are immunized under the FCPA. Which means the defense only works if the local law says the payment is permitted. But do governments enact laws to declare things legal? No, they enact laws to declare things illegal. Laws usually tell people what they can’t do, not what they can do. With very few countries rushing to pass laws that permit their officials to accept bribes, it’s safe to say this exception won’t be expanding much any time soon.

So there they are — the FCPA’s three little loopholes. They really are tiny. Nothing Joe the Plumber could drive his truck through, that’s for sure.


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