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Analysis: Navigating the Legal Pitfalls of the 'Facilitation Payments' Exception By SEVERIN IAN WIRZ Published: March 30, 2012 © 2012 Main Justice

When the Senate Subcommittee on Multinational Corporations began investigating

the corporate corruption scandals in the 1970s that would captivate the country, it

uncovered foreign bribes both small and large. Companies disclosed payments that ranged

from the routine exchange of envelopes to secure police protection in Italy, to the more

worrisome multi-million dollar payments directly to political campaigns in Korea.

When Congress eventually passed the Foreign Corrupt Practices Act in 1977

outlawing corporate bribery of foreign public officials, the drafters made an exception for a

narrow group of bribes that they termed “facilitation payments, " small payments meant to

grease the wheels of corrupt foreign bureaucracies.[i] Under the statute, the FCPA’s

criminal anti-bribery provisions do not apply to payments made “to expedite or to secure

the performance of a routine governmental action by a foreign official,” i.e., so-called

facilitation or grease payments.[ii]

Thirty-five years later, companies and their counsel are still trying to figure out


what activity falls under the exception and what liability they may still face for making such

payments. We were reminded of this problem just this past month when several Noble

Corporation executives were charged by the SEC for FCPA violations for participating in a

bribery scheme with Nigerian customs officials to obtain permits for oil rigs there.

Apparently, even though the company treated the payments as “facilitation payments”, (or

at least booked them as such out of a special account entitled “facilitation payments”), the

DOJ and SEC weren’t buying it.[iii] And while most companies officially outlaw all forms of

facilitation payments,[iv] navigating the fine line between a bribe, a facilitation payment,

and a legitimate government levy can be a very delicate balance.

The Story of the Hapless Widget Company

In determining what activity falls under the exception, it helps to consider an

example: the scenario of the hapless U.S. widget company. The company exports goods

around the world (widgets being in particularly high demand right now), until one day a

low-level customs official in a foreign country informs the company that its shipment is

being held at port because of a clerical error in the company’s paperwork. The company

can resubmit the paperwork, but it will take weeks to reprocess and release the shipment

from port, costing the company hundreds of thousands of dollars in losses. The company

knows that it can follow a common, unofficial practice and pay the customs official a

thousand dollars to “jump the queue” in line and release the goods earlier, which it does.

Years later, an internal audit reveals that this has become a regular activity, and that over a


period of 6 years the company has paid over $25,000 in small payments to customs officials

to expedite the customs process. Is this cause for concern for the company’s legal team, or

would it qualify under the facilitation payments exception?

Before deciding whether the payments fit under the exception, a legal adviser would

do well to first ask whether the company has properly recorded the payments on its books.

While the FCPA makes an exception for facilitation payments under its criminalization

provisions, no such exception exists under its record-keeping provisions. When BJ Services

Company made a 10,994 peso payment (roughly $3,700) to an official employed by

Argentina's Secretary of Industry and Commerce in order to expedite equipment that it was

importing into the country, for example, the SEC had no problem both identifying the

payment as a facilitation payment as well as penalizing the company for having improperly

recorded the payment on its books.[v] Helmerich & Payne, Inc. made the same mistake in

2009 by concealing the true nature of more than $10,000 in facilitation payments made to

Argentine and Venezuelan customs officials over a five-year period.[vi] All payments – even

small ones – must be recorded on the company’s books.

But assuming that our company dutifully recorded these payments on its books and

records, what next? Aren’t a few thousand dollars here or there to pass customs what

Congress had in mind when it carved out the exception? In its own words, Congress said

that it wanted to distinguish between “payments which cause an official to exercise other

than his free will in acting or deciding…and those payments which merely move a

particular matter toward an eventual act or decision or which do not involve any

discretionary action.”[vii] Unlike bribes that fall under the statute, facilitation payments are


made to “government employees whose duties are essentially ministerial or clerical”[viii]

and include such payments as expediting shipments through customs, securing required

permits, obtaining adequate police protection, and transactions which involve the “proper

performance of duties”.[ix] Congress was explicit, however, that it would not allow

payments “made to influence the passage of law, regulations, the placement of government

contracts, the formulation of policy or other discretionary fundamental functions.”[x]

Congress amended the FCPA in 1988, in part to further clarify the facilitation

payments exception, noting that the exception only applied to payments meant to procure

“routine governmental action”.[xi] “In short,” wrote the Fifth Circuit Court of Appeals

in United States v. Kay in interpreting the statute, “Congress sought to prohibit the type of

bribery that (1) prompts officials to misuse their discretionary authority and (2) disrupts

market efficiency and United States foreign relations, at the same time recognizing that

smaller payments intended to expedite ministerial actions should remain outside of the

scope of the statute.”[xii]

So where does our hapless U.S. company come out now? Small payments to low-

level government employees? Check. In order to expedite shipments through customs?

Check. Not influencing any laws or regulations? Check. We should be in the clear, right?

Unfortunately, we’re not out of the woods yet and probably shouldn’t be fooled by these

superficial distinctions. In truth, the facilitation payments exception is quite narrow and

any practitioner needs to be aware of the peculiar pitfalls that arise when trying to fit

within its limited parameters.

Considerations and Criteria Under the Exception


• Payment Amount. Unfortunately for our widget company, the amount of the payment has

almost no bearing on its legality. Take, for example, the kind of small payments that are

commonly thought to fall under the exception: greasing the customs official. In looking at a

sampling of cases, defendants have been charged with violating the FCPA for payments to

customs officials ranging from as little as $30,000, to payments as high as $2.1 million. (See

Table below). Most recently, three employees from Noble Corporation were charged for

making $50,000 worth of payments to Nigerian custom officials over a four year period.

Even payments for a few hundred dollars can be aggregated together over a period of

several years, and the SEC and DOJ have prosecuted both large and small amounts equally.

• Identity of the Recipient. While the FCPA’s pre-1988 legislative history distinguishes

between “foreign officials” and “government employees whose duties are essentially

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ministerial or clerical”, the SEC and DOJ, in practice, have not made that distinction. Those

companies caught bribing heads of state and senior officials have unsurprisingly been

found liable,[xiii] but so too have many companies that only bribed relatively mid-level and

low-level officials.[xiv]

• Discretionary Authority of the Recipient. Perhaps, then, our best indicator for liability lies

in the distinction drawn by the 1988 amendments between 1) small payments meant to

induce the recipient to bend the rules, and 2) those payments intended to get the foreign

official to provide a service that he already is responsible for doing (i.e., to “move a

particular matter toward an eventual act”). At first glance, this seems promising. In past

cases, companies that have made payments to customs officials to get them to forge

documents,[xv] ignore tax laws,[xvi] avoid health regulations,[xvii] and otherwise act

improperly,[xviii] have predictably not received the benefit of the exception. But

unfortunately neither have companies that are forced to pay governments in order to get

them to perform even basic governmental functions.

Take, for example, Vitusa Corporation, a New Jersey company that pled guilty in

1994 under the FCPA. In October 1989, Vitusa entered into a lawful contract to sell milk

powder worth about $3.3 million to the Dominican Republic’s government, but as of 1991

the government still owed Vitusa large amounts of money in principal and interest for late

payments on the contract. Vitusa made various unsuccessful efforts to collect the amount

due, including contacting the U.S. Embassy in Santo Domingo, until eventually a middleman

informed the company that the only way it would receive its balance is if it paid a senior


official of the government of the Dominican Republic a “service fee” to release the

funds.[xix] When Vitusa paid the $20,000 “service fee” in order to recover the $163,000

that it was owed, the company was rewarded for its trouble with a DOJ investigation, a

guilty plea, and an extra $20,000 fine.[xx]

It’s easy to question why Vitusa didn’t fit within the FCPA’s facilitation payment

exception. The company clearly wasn’t looking for preferential treatment given that the

Dominican Republic already had a contractual obligation to pay Vitusa. In the words of the

FCPA’s drafters, wasn’t Vitusa simply intending to effect the “proper performance of

duties”? Nor does a payment of twenty thousand dollars seem so large either, especially

compared to most FCPA payments. It appears, then, that the only explanation is that the

DOJ fixated on the seniority of the recipient, who is only described in the government’s

statement of facts as an “unnamed senior official”.[xxi] But if this is the case, then the

government clearly resorted to the same false distinction between senior and lower

government officials that the FCPA’s 1988 amendments were meant to clarify. Perhaps the

lesson here is that while we know that the DOJ has never given a company the benefit of the

doubt based on a government official’s lack of seniority, paying someone higher up in the

governmental hierarchy is seemingly sufficient to convert an otherwise pure grease

payment into a bribe, even when the senior official is not abusing any of his discretionary

authority.

And so, like most companies faced in this situation, perhaps our hapless widget

company would be better off assuming that the facilitation payment exception does not

apply to them. Our example demonstrates the high cost that careless clerical errors can


cost in the eyes of unscrupulous customs officials. Even in such murky waters, though,

company counsel would be smart to tread carefully and assume that the facilitation

exception is simply not an option.

State of Play

That the facilitation payments exception has gotten progressively smaller in the

United States over the years makes sense when looking at the world-wide trend. The

Organization for Economic Co-operation and Development (OECD) and several NGOs,

including Transparency International, have called for an end to facilitation payments. The

United Nations Convention Against Corruption (UNCAC) also does not differentiate

between bribery and facilitation payments, and lawyers from the law firm of Skadden,

Arps, Slate, Meagher & Flom have dubbed the facilitation payments exception “a remnant of

another era”.[xxii]

The international scorecard is less one-sided: many countries, including Canada,

Germany, Norway, Australia, New Zealand, South Korea, and Switzerland still allow for the

exception, while others, like Mexico, Poland, Russia, France, the United Kingdom, Italy and

Spain, do not.[xxiii] French authorities have apparently brought charges against a

defendant for as little as trying to speed up the procedure for obtaining a residence

card,[xxiv] and Australia’s Attorney-General’s Department released a consultation paper

last November stating that it is now considering repealing the facilitation payments

exception.[xxv] Commentators will probably continue to argue back and forth on the value

of the exception, but those companies operating in multiple jurisdictions would be better

off trying to eliminate the custom altogether. And for all those widget companies out there


that still allow for facilitation payments, remember to properly track all payments in

accordance with the FCPA’s accounting provisions, lest even those ephemeral expenditures

that do fit within the exception become cause for liability.


Appendix: Cases Pertaining to the Facilitation Payment Exception*

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Severin Ian Wirz is a member of the New York bar and former associate at Hughes Hubbard & Reed LLP,

where he worked on FCPA matters.

[i] See 15 U.S.C. § 78dd-1(b), -2(b), -3(b) (2010)

[ii] Id.

[iii] See Non-Prosecution Agreement, In re Noble Corp., at ¶¶33-36 (Nov. 4, 2010).

[iv] A 2008 study published by the international law firm of Fulbright & Jaworski found

that 80% of U.S. companies and 61% of U.K. companies officially prohibit facilitating

payments. See Fulbright & Jaworski, 2008 Litigation Trends Survey shows U.S. Companies

Preparing for Rise in Litigation Following Two Years of Declines, BUS. WIRE, Oct. 14, 2008.

[v] In re BJ Services Co., SEC Cease and Desist Order, Sec. Exchange Act Release No. 49390,

at ¶9 (March 10, 2010).

[vi] Non-Prosecution Agreeement, U.S. v. Helmerich & Payne, at ¶16 (July 29, 2009); see

also, SEC v. Chiquita Brands Intn’l., Accounting and Auditing Release No. 1464, (Oct. 3, 2001)

(sanctioning Chiquita for improperly recording on books and records payments to acquire

renewal of Colombian import license).

[vii] H.R. Rep. No. 95-640, at 6 (1977)

[viii] H.R. Rep. No. 95-640, at 8 (1977)


[ix] S. Rep. No. 95-114, at 10 (1977)

[x] H.R. Rep. No. 95-640, at 8 (1977)

[xi] 15 U.S.C. §§ 78dd-1(b) & (f)(3)(A).

[xii] United States v. Kay, 359 F.3d 738 (5th Cir. 2004).

[xiii] See e.g., Plea Agreement, U.S. v. KBR, Statement of Facts at ¶3 (Feb. 11, 2009) (pleading

guilty to having paid bribes to “top-level executive branch officials” and “high-level

Petroleum Ministry officials”).

[xiv] See e.g., Plea Agreement, U.S. v. Vetco Gray Controls, Inc., (Feb. 6, 2007) (describing

payment scheme to Nigerian customs officials); SEC v. Nature's Sunshine Products, Inc.,

Douglas Faggioli and Craig D. Huff, Case No. 09CV672 (D. Utah, Filed July 31, 2009)

(describing scheme to bribe Brazilian customs agents).

[xv] Non-Prosecution Agreement, In re Noble Corp., at ¶18 (Nov. 4, 2010).

[xvi] See In re Helmerich & Payne, Sec. Exchange Act Release No. 60400 (July 30, 2009)

[xvii] See Kay, 359 F.3d at 738 (5th Cir. 2004).

[xviii] See generally Appendix found below.

[xix] Plea Agreement, U.S. v. Vitusa Corp., Information at ¶11 (Oct. 1994).


[xx] Id.

[xxi] Id. at ¶7.

[xxii] John Carrol & Lisa Marino, The Incredible Shrinking FCPA Facilitation Payment

Exception, N.Y. L. J. (Oct. 13, 2009).

[xxiii] It should also be noted that the UK’s Serious Fraud Office has taken the public

position that making a grease payment is unlikely to give rise to a prosecution. In a

statement to the Daily Telegraph, published on September 23, 2010, Robert Amaee, the

head of anti-corruption enforcement at the UK Serious Fraud Office, stated that: “We

certainly don’t condone facilitation payments and never will . . . But whether we prosecute

depends on whether it falls within our criteria. Is it significantly serious?” Richard Tyler,

SFO to prosecute ‘serious’ overseas bribes, Telegraph, Sept. 23, 2010 (available

athttp://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8019024/SFO-to-

prosecute-serious-overseas-bribes.html).

[xxiv] See OECD: FRANCE: PHASE II REPORT 5 (2004) (discussing Act No. 2000-595 of June

30, 2000) (citing Cass. Crim., 12 January 2000).

[xxv] Available at http://www.ag.gov.au/foreignbribery.

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http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8019024/SFO-to-prosecute-serious-overseas-bribes.html�

http://www.ag.gov.au/foreignbribery�

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