Facilitating Payments (De)mystified (Part I)

I’ve got a five-year-old daughter on a big synonym/antonym/homonym kick. If you don’t like talking about these things, you won’t like talking to her. But I love it, so let me give you a little quiz: in the FCPA context, are ‘ease’ and ‘facility’ antonyms or synonyms? Nope, you’re wrong; here, they’re antonyms. There’s nothing easy about facilitation payments.

Even among the editors of this Blog, you’ll find widely diverging views on the merits of the FCPA’s facilitating payments exception. And within the broader FCPA commentariat, we’re bound to see such differences come to a head when the Wal-mart de Mexico reporting flares up again; many of the alleged payments there would appear to fall under the exception. But be that as it may, and for better or for worse, the exception is plain, thrice codified at §§ 78dd-1(b), 78dd-2(b), and 78dd-3(b).

The OECD Convention is different. The text of the Convention makes no mention of any such exception. This has led many (including myself, for some time) to believe that the Convention omits the exception as a matter of principle — that it went further than the FCPA and outlawed these payments as well.

Not quite so. Again, for better or worse, the exception does indeed exist under the Convention. Problem is, it’s in the fine print; we’ll blame that on the lawyers. If you go to the OECD’s publication of the Convention, available as a pdf here, scroll down through the entire text of the Convention and, buried beneath an Annex on OECD nation exports, you’ll find a series of “Commentaries.”  Go to page 15, and there, at Commentary 9, one discovers the following text:

Small “facilitation” payments do not constitute payments made “to obtain or retain business or other improper advantage” within the meaning of [the Convention] and, accordingly, are also not an offence. Such payments, which, in some countries, are made to induce public officials to perform their functions, such as issuing licenses or permits, are generally illegal in the foreign country concerned. Other countries can and should address this corrosive phenomenon by such means as support for programmes of good governance. However, criminalisation by other countries does not seem a practical or effective complementary action.

We’re struck by the Convention’s seeming reluctance — embarrassment? — to just come out and say what it thinks. It provides some unexpectedly strong language — “does not seem [] practical or effective” — but it’s buried.

The Commentary makes clear that some countries will prohibit these payments and some will not (or even, should not). This raises an interesting question: of the Convention’s 39 signatories, how many allow facilitating payments? We’ll provide that data next post.

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Andy Spalding is the senior editor of the FCPA Blog. A former Fulbright Senior Research Scholar in Asia, he’s Assistant Professor at the University of Richmond School of Law.