An excellent post on the FCPA Blog last week from Matthew McFillin and Amanda Rigby of KPMG talked about Covid-19-caused government shutdowns, and delays companies are experiencing obtaining permits, licenses, visas, and the like. “They may feel dramatically increased pressure to pay facilitation payments to expedite these processes,” the authors said. The post reminded me of a particular compliance risk from the FCPA’s grease payments exception: temptation.
The DOJ and SEC have addressed this temptation head-on. The two agencies — not known for their dry wit — included in their FCPA Resource Guide this nearly cheeky statement: “Labeling a bribe as a ‘facilitating payment’ in a company’s books and records does not make it one.”
What’s (literally) notable about that quote is that it’s footnoted. The footnote (number 170) cites a 2010 FCPA enforcement action against Noble Corporation based on payments to customs officials in Nigeria. Noble settled the FCPA allegations with the DOJ and SEC for about $8 million in penalties and disgorgement.
The feds alleged that the company used the facilitating payments exception to approve bribes to the customs officials. The bribes resembled facilitating payments but weren’t. Even after Noble’s audit committee confirmed the exception didn’t apply, the alleged misuses continued anyway.
For today’s Covid-impacted companies and their compliance groups, the DOJ’s fact statement in Noble and the SEC’s civil complaint are valuable documents. They set out legal intricacies of the facilitating payments exception. They describe the cascading consequences when the exception is misused. And the two documents illustrate the complex “behavioral” aspect of compliance, and why temptations created by the grease payments exception can be so hard to resist.
Briefly, Noble needed temporary import permits for its drill rigs operating in Nigeria. When the temporary import permits expired, Noble was supposed to move the rigs out of Nigerian territory, apply for a new permit or an extension, and then re-import the rigs. Moving the rigs was costly. Instead of moving them, Noble submitted false paperwork to customs officials showing that the rigs had been moved outside Nigeria. The company (via an agent) bribed customs officials with about $74,000 to approve the false paperwork. Noble saved more than $4 million in costs.
During a compliance review, Noble’s audit committee learned about the “paper process,” as it was called, and determined that it violated the FCPA. A foreign official’s approval of false paperwork is never “routine governmental action,” so the facilitating payments exception couldn’t apply. Executives allegedly assured the audit committee that the “paper process” had stopped and wouldn’t be used anymore. But when the executives looked again into the costs of physically moving the rigs, they allegedly decided to keep using the “paper process.”
Noble Corporation said in its non-prosecution agreement with the DOJ that it “admits, accepts, and acknowledges responsibility for the conduct of its employees, agents, and subsidiaries” described in the fact statement. The DOJ didn’t charge any of the Noble executives.
The SEC charged Noble with violating the FCPA’s anti-bribery, books and records, and internal controls provisions. It also sued three current or former Noble executives. One of them paid $35,000 to settle charges that he aided and abetted Noble’s FCPA violations. The other two settled with the SEC without paying any penalties. All three settled without admitting or denying the SEC’s findings.
The Noble enforcement action demonstrates the real-life temptation when a nearby loophole can save enormous amounts of money. The compliance problem is magnified when the loophole is narrow, like the facilitating payments exception, but is the only plausible way to justify a bribe.
During this ever-lengthening season of government shutdowns and long bureaucratic delays, the Noble case is a good reminder that, as the DOJ and SEC smartly said, “Labeling a bribe as a ‘facilitating payment’ in a company’s books and records does not make it one.”