In a number of our articles on the Foreign Corrupt Practices Act (FCPA), we have touched on several exemptions and “affirmative defenses” in the law. (An affirmative defense is a defense where the defendant proves a set facts that mitigate or excuse otherwise unlawful behavior.) The two affirmative defenses permitted by the FCPA are very straightforward, but the major exemption- “facilitating payments”- warrants its own article.
The first affirmative defense is the “local law defense”, which essentially makes a bribe legal if it is expressly permitted by local laws. In practice, however, this defense is rarely used because few countries have written laws legalizing bribery of public officials. In one of the rare instances a defendant attempted to use this defense, the US vs. Kozeny, a federal court ruled that the defendant could not use the local law defense- even though Azerbaijan’s laws forgive those who bribe officials if they report the bribe, the US court ruled this is not tantamount to legalizing bribes.
The second affirmative defense available to FCPA defendants is “reasonable and bona fide expenditures”. The FCPA permits companies to cover “reasonable and bona fide” travel expenses for foreign officials conducting business with the company. It is legal to pay for the travel expenses of an official for things like conferences, negotiations, product demonstrations, sales pitches, training, and the like. Reasonable and bona fide expenses would include airfare, food and lodging, and a small per diem for other expenses. (See our article FCPA & Bribery: Travel Expenses Neither “Reasonable” Nor “Bona Fide” for a more detailed explanation of Department of Justice guidelines.) Keep in mind that this is an affirmative defense, so there would be a presumption that the travel constituted an FCPA violation, and the defendant would have to prove the expenses were reasonable and bona fide, rather than the burden of proof being on the government.
Facilitating payments are an exemption to the FCPA, NOT an affirmative defense. This means that the accused company can claim an alleged bribe was a facilitating payment and the burden of proof is on the government to prove otherwise. But, as the DOJ’s Guide to the FCPA helpfully points out, “Labeling a bribe as a ‘facilitating payment’ in a company’s books and records does not make it one.” The DOJ calls facilitating payments a “narrow exception” that “applies only when a payment is made to further ‘routine governmental action’ that involves non-discretionary acts.” Furthermore, one should note that while the FCPA permits these payments, they may be illegal under local law- and the OECD has urged member countries to prohibit their government officials from accepting facilitating payments.
OK, but what actually is and is not a facilitating payment? Let’s tackle the latter half of the provision first- “non-discretionary acts”. A non-discretionary act means that the government official does not have any decision-making authority over the act. For example, the clerk at the Department of Motor Vehicles does not have any discretion in deciding if you can renew your car’s registration. If you meet all the requirements laid out by law and/or agency policy, the clerk must renew your registration- he or she has no discretion in the matter. But maybe the clerk works very slowly and it takes days or months for your registration renewal to be approved… unless you pay him or her a small fee to “grease the wheels”. While this would blatantly be misconduct if it occurred in the US, in many foreign countries it is an accepted practice. Such a payment might be considered a facilitating payment and therefore legal under the FCPA. At the least, it clearly meets the standard of “non-discretionary” acts.
On the other hand, consider a military officer in charge of procuring rifles for his country’s army. Presumably the officer has a choice of rifle manufacturers to select from. Giving the officer a cash payment would absolutely be considered a bribe and not a facilitating payment because selecting a supplier from multiple sources is a discretionary act. However, if the payment was a reimbursement for legitimate travel expenses- i.e. flying to a sales presentation- that could fall under the “reasonable and bona fide” expenses as discussed earlier in this article.
Now that we’ve covered “non-discretionary”, let’s look more closely at what the FCPA considers “routine governmental action”. The DOJ Guidebook lists the following examples:
- 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 pickup 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
The law also distinguishes between paying an official to perform his duties and paying him to misuse his position. For example, while you could pay customs officials to inspect your cargo promptly rather than make it sit in port for weeks, you could NOT pay the same officials to forgo inspection of your cargo in violation of their official duties. The former might rise to the level of an FCPA violation, while the latter would clearly be a violation under the Foreign Corrupt Practices Act. Because of the subtle differences in these situations, whistleblowers should consider either of these circumstances worthy of being brought to the attention of the SEC and its relatively newly-formed Office of the Whistleblower.
Additionally, the law makes a point to note that the awarding of new business or renewing of contracts is never considered routine governmental action. Even if your company has been doing business with a country for many years and renewing the contract is perfunctory, facilitating payments are prohibited.
The size of the payment can obviously influence how the government categorizes it as acceptable or not- large and disproportionate payments obviously raise eyebrows. However, the DOJ guidelines make a point that the purpose of the bribe is more important than the amount. Even large facilitating payments may be acceptable if the other requirements we have discussed are met. A perfect example of this is US vs. Duran. In 1989 the government charged Duran for involvement in making facilitating payments to officials in the Dominican Republic to secure the release of an aircraft owned by his company. The plane had been seized under the pretense that it was used for smuggling narcotics, but there was no case and Dominican officials made it clear that the only thing holding up the release of the plane was a facilitating payment. After paying about $15,000 to various officials, the plane was released, but Duran and his associates found themselves facing criminal charges under the FCPA. While the others made plea bargains, Duran elected to go to trial. In a pre-trial motion for acquittal, the defense claimed Duran had made legal facilitating payments:
“The Defendant had been told by an undercover government informant that there was no legal holds upon the aircraft. He was led to believe that neither the Dominican Republic nor any other government held any legal claim to or right in the aircraft. He understood that it was simply a straightforward matter of expediting the release of an aircraft on behalf of the owner. Any intended payment was simply for the purpose of hurrying along a bureaucratic process. The purpose of the alleged intended payment was to expedite a routine governmental action. “
The judge accepted the argument and acquitted Duran.
Also worth noting is that the motion specifically pointed out that facilitating payments were not an affirmative defense: “[If] Congress intended the ‘facilitating or expediting payment exception’ to be an affirmative defense, it would have placed it [in the affirmative defense provisions].” The motion further argued against the government’s claim that recovering the airplane would help Duran’s company facilitate new business and was therefore prohibited.
The takeaway from US vs. Durant is that while facilitating payments may constitute a narrow exception, the courts have strongly supported defendants when the payments were for legitimate purposes. At the same time, however, it is important to remember that facilitating payments must be properly accounted for as such, or one can run afoul of FCPA’s accounting provisions.
Whistleblower Justice Network Can Help You
Whistleblower Justice Network partners with whistleblowers worldwide to expose worldwide bribery schemes that violate the Foreign Corrupt Practices Act. Facilitating payments which are merely bribes in disguise are a clear violation of the FCPA. Utilizing the SEC Whistleblower Program, we aid whistleblowers in bringing corporations that expand their business interests through bribery to justice.
If you have meaningful information regarding corporate bribery that you believe is in violation of the FCPA, Whistleblower Justice Network can help. Working alongside world-class legal counsel, we will ensure you are protected to the fullest extent of the law and that you receive credit for the information you bring to the U.S. government. Partnering with whistleblowers is all we do. Visit us at www.whistleblowerjustice.net, or call us at 844-WJN-4ALL, to learn if we can help you.