The vanishing "facilitating payments" exception in the FCPA: Is relying on it worth the risk?

July 30, 2015

Government Contracts Alert

Author(s): Emily Crandall Harlan

Companies doing business in foreign countries must weigh the pros and cons of relying on the FCPA’s exception to the general prohibition on bribery of foreign officials. This alert discusses what companies need to know about the facilitating payments exception.

Intended to acknowledge the realities of doing business in foreign countries where “grease” payments are a matter of course, the facilitating payments exception to the Foreign Corrupt Practices Act (“FCPA”) is an opaque and arguably diminishing exception to the general prohibition on bribery of foreign officials. Sometimes referred to as a “bribery loophole,” the reality is that the exception is a narrow one, and relying on it can trigger a host of other legal and compliance issues. Indeed, companies often must rely on the exception at their own risk, both with regard to how U.S. authorities will view the payments, and how to handle payments that may be permitted under the FCPA, but illegal under local and/or other applicable laws.

The facilitating payments exception in the FCPA provides that “any facilitating or expediting payment to a foreign official . . . the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official” is a permissible payment.[1] The statute defines “routine governmental action” as:

  1. obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country;
  2. processing governmental papers, such as visas and work orders;
  3. providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country;
  4. providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or
  5. actions of a similar nature.[2]

Notably, even if a payment satisfies this provision, it may still violate the accounting provisions of the FCPA if it is not explicitly and properly recorded. That task can be difficult to accomplish, even with the best of intentions, when payments are typically made in cash and not accompanied by a receipt.

In 2012, the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) released a joint Resource Guide regarding the FCPA.[3] In that guidance, the DOJ and SEC confirmed the narrow scope of the facilitating payments exception. A “true” facilitating payment, the Resource Guide states, is one that can result only in a non-discretionary action (i.e., a “routine” government action). While the size of the payment can be indicative of its purpose, size alone is not determinative. Rather, according to the Resource Guide, it is the purpose of the payment that controls. A payment of any value will fall outside of the exception if the reason for giving it is to induce a foreign official to perform an act that involves the exercise of discretion.

Recent statements by the SEC suggest that companies may not be able to rely on purpose alone to determine whether a particular payment will meet the exception. In an enforcement action in the U.S. District Court for the Southern District of Texas involving executives of international oil and gas company Noble Corporation, the SEC argued to the court that “the touchstone of a facilitating payment is a lack of discretion on the part of government officials to deny the outcome sought by the payment.”[4] In other words, in the SEC’s view, it is not the purpose of the payment or the intent of the payor that controls, but rather whether, as a matter of local law, the local foreign official possesses discretion in carrying out the duties associated with his or her position. A company seeking to make a facilitation payment thus would need to make this determination as to each recipient of a payment, which could be burdensome to the point of impracticality, if not altogether impossible.[5]

Other issues with facilitating payments arise even when the “routine governmental action” prong of the exception is satisfied. As the Resource Guide notes, a payment that satisfies the facilitation exception is legal only under the FCPA (and, even then, only if properly recorded in the company’s books). Yet that same payment may be illegal under the local laws of the foreign country where the payment is made. It also may be forbidden by other applicable laws, such as the U.K. Bribery Act, the Brazil Clean Company Act, and Canada’s Corruption of Foreign Public Officials Act, none of which contain an exception for facilitation payments. The list of countries that prohibit facilitation payments is likely to grow in light of the fact that the Organization for Economic Cooperation and Development (OECD), the driving force behind global corruption reform, has officially recommended that OECD nations ban facilitation payments or, at minimum, strongly discourage them.

The possibility of payments that are permitted by the FCPA but illegal under other laws raises an interesting issue concerning the interplay of the FCPA accounting provisions and other countries’ anti-corruption laws. To satisfy the FCPA, the payment must both meet the facilitation payments exception, and be properly documented in the company’s books and records. Proper recording, however, could mean explicitly disclosing payments that violate other anti-corruption laws, and could create exposure for the company under those laws as a result.

Because the majority of enforcement actions that involve the facilitating payments exception result in settlements before trial, companies seeking to understand the contours and limitations of the exception are hamstrung by the limited judicial interpretation of it. Notably, earlier this year, the United States Court of Appeals for the Eleventh Circuit had occasion to consider the meaning of “routine governmental action” in an appeal brought by a former director of a telecommunications company owned by the Haitian government. The director, Jean Rene Duperval, was alleged to have taken bribes from private telecommunications companies in connection with ongoing government contracts.[6] On appeal, Duperval argued that the lower court had wrongly denied his request for a jury instruction regarding the facilitating payments exception. The Eleventh Circuit affirmed the lower court, rejecting Duperval’s argument that his work administering the contracts was “routine governmental action” within the meaning of the exception. Citing a Fifth Circuit decision from 2004 (the only other circuit court decision directly addressing the exception), the court noted that the actions protected by the exception are “largely non-discretionary, ministerial activities performed by mid- or low-level foreign functionaries,” to whom money is paid “to expedite the receipt of routine services.”[7] Routine governmental action, the court said, does not include administration of contracts: “The text of the [FCPA] refers to the government providing a service to a person or business, not to the government administering contracts with companies that provide telephone service.”[8]

As these examples show, reliance on the dwindling “facilitating payments” exception can be a risky proposition for a number of reasons. Companies that intend to permit their employees and agents to make facilitating payments must take steps before any payments are made to ensure that all criteria of the exception will be met. Even then, the Company may not ultimately prevail in its position if an enforcement action arises. At a minimum, companies must ensure that all individuals involved in making the payments understand the limited circumstances under which such payments are permissible. Furthermore, taking the SEC’s statements in the recent case against Noble Corporation into account, companies may be obligated to make determinations about what constitutes discretionary action by local foreign officials under local law. Separately, to satisfy the FCPA’s accounting provisions, companies must ensure that they can document and track all facilitating payments, both to verify proper purpose and to properly record the payments in the company’s books and records. Finally, in addition to ensuring compliance with the FCPA, for each facilitating payment, companies must determine whether the payment violates any local law or any other applicable international law.

  1. See 15 U.S.C. § 78dd-2(b).
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  2. Id. § 78dd-2(h)(4)(A). 
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  3. “A Resource Guide to the U.S. Foreign Corrupt Practices Act,” released November 2012, available here.
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  4. Motion for Partial Summary Judgment on Inapplicability of Facilitating Payments Exception, filed by SEC in SEC v. Jackson and Ruehlen, No. 12-cv-563 (S.D. Texas, Mar. 28, 2014) (Dkt. No. 142 at 25-26; see also Dkt. 176, Reply in Support of Motion, filed May 16, 2014, at 6 (“The FCPA’s routine governmental action exception only applies if the governmental benefit sought is objectively proper and non-discretionary”)(emphasis in original).
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  5. See Krakoff, D., et al., “Writing the Facilitating Payments Exception Out of the FCPA,” Corporate Counsel Business Crimes Bulletin (Feb. 9, 2015).
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  6. United States v. Duperval, 777 F.3d 1324, 1334-35 (11th Cir., Feb. 9, 2015).
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  7. Id. at 1334-35, citing United States v. Kay, 359 F.3d 738, 750 (5th Cir. 2004) (internal citations omitted).
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  8. Id. at 1335.
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The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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