The FCPA’s “Facilitating Payments” Exception: Mostly Harmless

The U.S. Foreign Corrupt Practices Act (FCPA) contains a sweeping prohibition on paying bribes to foreign officials—but also contains an exception for so-called “facilitating payments” (also sometimes called “grease payments”) meant to secure non-discretionary “routine government action.” The exception was included in the FCPA to respond to complaints by representatives of the U.S. business community that it was impossible to do business in certain countries without making these “grease payments” to low-level bureaucrats. The exception has been criticized—occasionally by those who think that the exemption is too narrow and should be expanded (or, to use their preferred euphemism, “clarified”), but more recently by a growing chorus of voices that has called for the elimination of the FCPA’s facilitation payments exception. This chorus has included, perhaps most prominently, the OECD’s Working Group on Bribery (responsible for the peer-review process under the OECD Anti-Bribery Convention), along with several of the OECD’s senior officials. And, notably, more recent foreign bribery legislation—most prominently the UK Bribery Act—contains no exception for facilitating payments. Possibly for this reason, at several recent international anticorruption conferences I’ve attended, participants (especially from outside the U.S.) have asked whether (or when) the U.S. will eliminate the grease payment exemption.

I’m sympathetic to the opposition to the grease payment exception. But I don’t think it has much practical importance, and it would probably be a mistake to attempt to amend the FCPA to eliminate it at this time (for reasons that have nothing to do with the merits of the exemption itself). Let me first say why I think the grease payments exemption is (mostly) harmless, then why I think it would be a mistake to try to amend the FCPA to eliminate it, then conclude with a couple of important caveats.

The first thing to understand about the grease payment exemption is that, as the FCPA is written, it is exceedingly narrow. It applies only to non-discretionary actions, like processing visas or permit applications (which, by law, should be granted as a matter of course), or securing things like regular mail delivery or telephone service. Very few foreign bribery cases of importance involve these sorts of payments. Second, the U.S. Department of Justice has interpreted this language to make the exception, if anything, even narrower—in some cases securing FCPA settlements with corporate defendants where the payments could have plausibly been characterized as facilitation payments. Because corporations are generally reluctant to litigate FCPA cases—particularly over the fine distinction between discretionary and non-discretionary official action—the grease payments exception is not much of a defense for most corporations.

On top of that, even if a grease payment is exempt from the FCPA’s anti-bribery provisions, if that payment were not accurately recorded as a facilitation payment in the company’s books, then the company would be in violation of the FCPA’s accounting provisions–and if the mischaracterization in the books was “willful and knowing,” this would also be a criminal violation. On the other hand, if the company were to accurately record facilitation payments in its books, it would be officially confessing violations of the host country’s anti-bribery laws, as well as the laws of other countries that might have jurisdiction over the transaction (such as the UK) that lack any exception for facilitation payments in their foreign bribery laws. It is perhaps for this reason that I’m not aware of any company that today formally records facilitation bribes accurately in its books.

For all of the above reasons, I don’t think the FCPA’s facilitation payments exception is all that consequential. The case against amending the FCPA to eliminate it turns partly on that observation, and partly on the fact that opening up the FCPA for amendment on the facilitation payments issue could lead to other changes to the statute that might not be so attractive. This is particularly the case given that elimination of the facilitation payments exception could be characterized politically by the business lobby as a concession, in return for which they might succeed in weakening the statute in some other way. (Of course, one of the U.S. Chamber of Commerce’s high priorities is a “compliance defense,” which I think — and will argue in a future post — wouldn’t have very much practical impact. So if I’m right on both points, I suppose trading the addition of a compliance defense for the elimination of the facilitation payments exception would amount to a trade of nothing for nothing.)

All that said, I can see two plausible arguments as to why retention of the grease payment exception might be a problem. First, the narrowness of the exception is not always appreciated, and insofar as the FCPA serves as a model for other countries to emulate, it might be a bad model to copy—particularly if the countries doing the copying interpret the facilitating payments exception much more expansively. Second, and relatedly, the continued existence of the exception may undermine the United States government’s moral leverage when attempting to shame or cajole other countries into doing more to address foreign bribery. The exception does make the U.S. look a bit behind the times.

It’s important to keep those caveats in mind. Still, it seems to me that in practice the facilitation payments exception doesn’t matter much, and trying to eliminate it might lead to other changes that might not be so good for the fight against international bribery.

2 thoughts on “The FCPA’s “Facilitating Payments” Exception: Mostly Harmless

  1. I disagree with Matthew’s conclusion that facilitation payments are “mostly harmless”. Such payments are bribes by another name and they are always harmful for three reasons. Firstly, when US or other companies make these payments, they become complicit in helping to perpetuate corruption and frustrate anti- corruption reforms in the host countries. A company may think it is making a harmless, ‘small’ payment to a petty official but, often, there are senior officials (possibly even corrupt ministers) who receive their shares of the bribes paid as part of system that makes corruption endemic in entire institutions – for example, port authorities, customs and excise, and transport ministries. Secondly, companies that make facilitation bribes become vulnerable to demands for much larger bribes. On the other hand, those who refuse to pay are eventually left alone by corrupt rent seekers. Thirdly, by making facilitation bribes, US companies gain a competitive advantage over companies incorporated in jurisdictions where anti-bribery legislation does not exempt such payments. I therefore believe it is high time for the US and other jurisdictions that grant this exemption to amend their legislation in order to close this loophole. Fears that business lobbies will exploit such a process to press for changes to weaken anti-bribery legislation should not be a pretext to maintain a policy that is impractical, morally indefensible and unfair.

    • Respectfully, I think you misunderstood the point I was trying to make in my post. I was most definitely NOT arguing that facilitation payments (aka petty bribery) are mostly harmless. I generally agree with you that even petty bribery can have serious negative consequences. Rather, I was arguing that the facilitation payments exception contained in the FCPA is “mostly harmless” — because in practice this exception is almost never actually available, for the reasons I elaborate in my post.

      It seems to me your comment commits precisely the fallacy I meant to critique in my post: jumping immediately from the (likely correct) premise that facilitation payments are harmful to the (probably incorrect) conclusion that the FCPA must be amended to eliminate the exemption for such payments. If I saw any evidence that corporations were actually able to take advantage of this nominal exception to avoid FCPA liability for petty bribery, I’d agree with you. But I haven’t seen any such evidence. Thus, it seems to me that the fixation on eliminating the facilitation payments exemption is mostly a waste of attention and energy.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.