The FCPA Facilitation Payments Exception: What it Means When Dealing With Foreign Officials
The Foreign Corrupt Practices Act is pretty stringent when it comes to prosecuting companies for taking part in bribery. Employees or company agents caught bribing foreign officials can be fined, as can the company. On top of that, they’ll have to give up any profits made from the deal and their stock can take a hit when the news is reported. All in all, an FCPA bribery violation can cost a company millions. Obviously, you’d like to avoid hiring or working with employees, contractors, vendors, or partners who engage in or expect bribery.
However, there is an exception for bribery provisions under FCPA. Specifically, there’s an FCPA facilitation payment exception which companies may be able to claim if the payments made are for a good reason.
Facilitation payments are different from bribes because they are not a payment to gain a contract. A facilitation payment is usually a payment made to cover licensing or fees related to the project. This can get tricky though, as bribes can be labeled as facilitation payments to cover up the violation. As such, someone making a facilitation payment needs to follow some strict procedures to ensure that it won’t be mistaken for a bribe.
The Difference Between a Facilitation Payment and a Bribe
Facilitation payments often blur the line between legal and illegal, as they can be interpreted as bribes. They’re such an issue that many companies outright prohibit making them. However, those companies usually don’t have to do a lot of work in foreign markets where these payments are common, accepted, and may be the difference between being able to do business there or being put on a massive waiting list.
It can be difficult to differentiate a facilitation payment from a bribe, but generally, a facilitation payment is made to cover a routine government action. A routine government action might be inspecting a site or securing a license to work in certain areas. This action is one which needs to be completed for work to begin, but for whatever reason, the government is unable to complete it. Generally, the routine action is one which covers one of these areas:
- Processing governmental papers– If you’ve ever filled out a government form, you know there’s always a fee. Things like visas, permits and licenses all cost money. Those fees occur in foreign governments as well and are considered facilitation payments.
- Securing government services– Services like police protection and mail delivery are often needed, but not covered, for foreign workers and worksites. As such, paying to create a budget for these services is common. (And clearly, you also want to avoid insider threats of violence, extortion, and IP theft from bad actors who infiltrate services to access your operation.)
- Providing water, electricity and infrastructure services– If you’re setting up a call center in an out-of-the-way area, then you’re going to need electricity, water, and more. These will need to be set up by the local government but will be done at the company’s expense.
Essentially, if it’s a necessary payment to do business in the area, it’s considered a facilitation payment. However, if the payment is made simply to get the decision maker to decide in a company’s favor, that’s a bribe. The line is there, but it can often be blurred. This is why often, when accused of an FCPA violation, the company may use the facilitation payment exception as an affirmative defense. That only works if they can prove it was truly a facilitation payment. That’s where proper processes come in.
Maintaining Your Affirmative Defense When Making Facilitation Payments
An affirmative defense is one which, when used, shows there was no wrongdoing on the part of the accused and that no illegal action took place. When accused of a bribe, a facilitation payment defense is an affirmative defense. But this defense can only be used if the company shows clear evidence that the payment was made to cover routine government services. Companies can manage this by having strict protocols, including:
- An approval process for all facilitation payments over a certain amount– No employee or third party should be able to autonomously make the decision to deliver a large payment to a foreign official. Instead, the company should set a dollar figure and make it clear that anything over that amount must be reviewed by upper management.
- Proper reporting and records keeping for facilitation payments– Facilitation payments need a paper trail. If a payment needs to be made for any reason, get it in writing. The more expensive the payment, the more detailed that record needs to be.
- Use an automated system for tracking payments– Facilitation payments should be flagged in the system, regardless of the amount, as there is a common tactic that some will use to get around the approval process. They simply break a very large amount into several smaller chunks. That eliminates the approval process and allows the person to sidestep management. This is not something you want and is something you need to regularly screen and monitor for, as failure to catch these issues eliminates your affirmative defense.
Thorough investigations are needed when you’re monitoring your company’s dealings overseas. Our Remote Risk Assessment® (RRA) technology is a great tool for this, as it allows you to interview employees and third parties to ensure that facilitation payments are being used for their intended purpose.
RRA is also used in insurance and other industries to identify risk, reduce fraud and build trust.