Facilitation payments ? Combating bribery in the front line (PART 1)

* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

Michelle Witton is a Lawyer and Corporate Ethics and Compliance Consultant, specializing in advising companies on Bribery Act 2010 Compliance. Former clients include AstraZeneca plc and Anglo American plc. Michelle can be contacted via LinkedIn or on 0044 7950 932070

Facilitation payments are exempted as bribes from U.S.’s Foreign Corrupt Practices Act (FCPA). However, under UK’s Bribery Act 2010 they are illegal.  Though UK companies and organisations operating in the US have been required to have anti-bribery compliance in place since 1977, the UK Act’s stance on facilitation payments is new for UK companies and is an aspect of the Act about which businesses have many questions, on the eve of the Act’s introduction on the 1^st July, 2011.  This article outlines the Serious Fraud Office’s approach to facilitation payments post 1^st July 2011 and surveys practical approaches which can be adopted by companies to combat facilitation payments.

Facilitation payments are unofficial payments made to public officials to secure or expedite the performance of a routine or necessary action – to which they are legally entitled. They are sometimes referred to as ‘speed’ or ‘grease’ payments. Situations in which facilitation payments may be demanded are for the issuing of visas, the speedy passage of goods through Customs and the connection of gas, electricity and water services.

Between a rock and a hard place

Facilitation payments are part of the daily reality of “doing business” in many countries, particularly those in the developing world. They represent a ‘second economy’.  Getting perishable goods through customs is often contingent on paying facilitation payments. UK companies are between “ a rock and hard place” faced with the business reality of having to pay facilitation payments and the new UK Bribery Act – for which there is no upper limit for fines for the Corporate Offence of “failing to prevent bribery”. How can these realities be reconciled?

The Government realises the significant challenges to business in combating and eradicating facilitation payments. Its March 2011 Guidance to the Act acknowledges,

“ The Government does, however, recognise the problems that commercial organisations face in some parts of the world and in certain sectors. The eradication of facilitation payments is recognised at the national and international level as a long term objective that will require economic and social progress and sustained commitment to the rule of law in those parts of the world where the problem is most prevalent. It will also require collaboration between international bodies, governments, the anti-bribery lobby, business representative bodies and sectoral organisations. Businesses themselves also have a role to play....through the selection of bribery prevention procedures...”

The Serious Fraud Office’s response

Prosecution under the Bribery Act 2010 is the domain of the Serious Fraud Office and the Director of Public Prosecutions. In prosecuting cases of facilitation payments, as other cases of bribery, prosecutors must satisfy two tests:

1. Whether there is enough evidence to secure a conviction
2. Whether prosecution is in the public interest.

The law firm, Pinsent Masons, has sought clarity from the SFO about the SFO’s approach to facilitation payments post 1^st July 2011. The firm recently published an Advisory Note on the SFO’s response. It appears here. Richard Alderman, the Director of the SFO, has said,

“...I do not expect facilitation payments to end the moment the Bribery Act comes into force. What I do expect though is for corporate who do not yet have a zero tolerance approach to these payments, to commit themselves to such an approach and to work on how to eliminate these payments over a period of time.

I have also said that these corporate should come and talk to the SFO about these issues so that we can understand that their commitment is real. This also gives the corporate the opportunity to talk to us about the problems that they face in carrying on business in the areas in which they trade. It is important for us to know this in order to discuss with the corporate what is a sensible process.”

The Six Step Approach

The SFO have advised that, following the 1^st July, when considering the activities of a company which continues to make small facilitation payments, the SFO look to see the following:

1. Whether the company has a clearly issued policy on facilitation payments,
2. Whether written guidance is available to relevant employees as to the procedure they should follow when they are asked to make such payments,
3. Whether such procedures are being followed by employees,
4. If there is evidence that all such payments are being recorded by the company,
5. If there is evidence that proper action (collective or otherwise) is being taken to inform the appropriate authorities in the countries concerned that such payments are being demanded,
6. Whether the company is taking what practical steps it can to curtail the making of such payments.

If the answers to these questions are satisfactory, then the corporate should be shielded from prosecution.

Duress

Further, the March 2011 Government Guidance says, “it is recognised that there are circumstances in which individuals are left with no alternative but to make payments in order to prevent against loss of life, limb or liberty. The common law defence of duress is very likely to be available in such circumstances.”  Duress is actual or threatened violence or imprisonment to force a person to do something against their will.

A company’s Anti-corruption Policy should advise employees not to pay facilitation payments. However, the safety and well-being of employees should be paramount to a company. The Policy should further advise that if payments are demanded in circumstances of duress where employees feel that their safety or liberty is threatened, they should make the payment and immediately report it to their line manager. The Guidance supports that facilitation payments made under duress will be availed the common law defence of duress.

Recording and reporting on facilitation payments

Facilitation payments should, if paid, be:

-          Reported immediately to the line manager

-          Recorded as facilitation payments (guarding against allegations of concealment)

-          Each the subject of an individual report setting out:

1.  the circumstances in which the payment took place (date, time, country, office )
2.  those involved in the interaction
3. whether there was duress and its nature
4. alternative steps to payment that were attempted
5. the sum paid
6. to whom the payment was reported and when
7. remedial steps which might be taken, for example, approaching foreign national or regional government to highlight instances of demands for facilitation payments or further training for employees.

Although initial instincts may be not to record facilitation payments or to enter them under a less specific heading, companies should record facilitation payments “by their name” in order to:

-           demonstrate to the SFO best endeavours in combating facilitation payments,

-          guard against allegations of concealment and mis-reporting and

-           be able to accurately record and respond to the incidence of payments.

Writing a report on each payment demonstrates a company’s commitment to concertedly and systematically working towards their elimination. Analysis may identify trend - whether facilitation payments are routinely demanded by particular offices and/or individuals. This information can then be the subject of approaches to foreign governments to highlight the reoccurring issue.

Part 2 of this post (due out next week) will set out some practical steps that companies and individuals can use to combat facilitation payments.