Archive for the ‘Guest Posts’ Category

Mid-Year Review of Anti-Corruption Law North of the 49th Parallel

Wednesday, August 20th, 2014

A guest post  from Mark Morrison (Blake, Cassels & Graydon) the Canada expert for FCPA Professor, and Blake attorneys Michael Dixon and James Reid.

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Canadian authorities have not slowed down since 2013, which marked the most active year to date in Canada’s anti-corruption law enforcement history. This post discusses law enforcement proceedings in Canada so far this year under Canada’s equivalent to the FCPA, the Corruption of Foreign Public Officials Act (CFPOA).

Recent Enforcement Proceedings

Canadian authorities continue to demonstrate their willingness to enforce Canadian anti-corruption laws. While we do not expect enforcement activity to reach the level of our good neighbor to the south, Canadian enforcement continues at a moderate pace, which is a significant change from the historic total lack of enforcement.

This year has seen authorities focus on pursuing individuals under the CFPOA, which included the first jail sentence being handed out. The current trend of increased sanctions and enforcement against individuals is worth noting for corporate officers.

Notable enforcement proceedings are discussed below.

Chowdhury – Five individuals were jointly charged with one count of bribing a foreign public official. The alleged purpose of the bribes were to obtain a contract to provide consultancy services for the building of the World Bank funded Padma Bridge Project in Bangladesh. One of the individuals charged, Abdul Hasan Chowdhury, was a Bangladeshi citizen and resident. Chowdhury was formerly the Minister of State in Bangladesh and had never been to Canada. The allegations against Chowdhury were that he had exerted influence over the selection committee for the Padma Bridge Project.

All of the conduct in relation to the alleged bribery scheme was said to have occurred in Bangladesh.

Justice Nordheimer of the Ontario Superior Court conducted an analysis on the different bases on which states exercise jurisdiction over offences with transnational or international aspects. In doing so, Justice Nordheimer distinguished jurisdiction over an accused from jurisdiction over an offence and held that the CFPOA does not give the Court jurisdiction over foreign nationals who do not reside, or are not otherwise present (such as through extradition or otherwise), in Canada. The court held that the mere fact Chowdhury was a party to the offence was not sufficient to give Canada personal jurisdiction over him unless he either physically came to Canada or Bangladesh offers to surrender him to Canada.

Karigar – On May 23, 2014, Nazir Karigar was sentenced to three years in prison for offering to bribe foreign officials. This is the first time that a jail term has been handed out to an individual convicted under the CFPOA. This case will likely stand as a precedent for sentencing in future corruption cases.

Karigar was convicted on August 15, 2013 for his role in a plan to bribe Indian officials, including a government minister. The case concerned an agreement to pay approximately US $450,000 in cash as well as certain shares to Air India officials and the Indian Minister of Civil Aviation to secure a contract for the provision of facial recognition software and related equipment. At the time, Karigar was acting for Cryptometrics Canada. Karigar was convicted despite Cryptometrics not being successfully awarded the contract or there being any evidence the bribe was actually paid to Indian officials.

In sentencing, Justice Hackland of the Ontario Superior Court took Karigar’s age, his cooperation and the fact the scheme was unsuccessful into account as mitigating factors. However, since the bribery scheme was viewed as a serious crime, the principles of denunciation and deterrence were placed at the forefront in administering the sentence.

It is also important to note, that at the time Karigar was charged, the maximum prison sentence was only five years. Since then however, the CFPOA has raised the maximum penalty from five years to 14 years. This sentencing reflects the continuing trend of significant judicial denunciation when it comes to offences under the CFPOA.

Ongoing RCMP Investigations –Following the Karigar sentencing in May, on June 4, the Royal Canadian Mounted Police (RCMP) charged US nationals Robert Barra (former Cryptometrics CEO) and Dario Berini (former Cryptometrics COO) for bribery offences under CFPOA. UK national Shailesh Govindia, an agent for Cryptometrics, has also been charged with bribery under CFPOA and with one count of fraud contrary to the Criminal Code of Canada.  Canada-wide warrants have been issued for all three accused.

Conclusion

Canada has continued to focus on anti-corruption compliance and enforcement in the first half of 2014. A notable trend in enforcement from last year is the RCMP’s current focus on individuals involved in corruption schemes. Canadian courts have also made it clear that offences under the CFPOA are unlikely to receive leniency.

Hong Kong Court Rules on Extraterritorial Limits to the Territory’s Anti-Corruption Law

Wednesday, August 13th, 2014

Today’s post is from Philip Rohlik and Sebastian Ko (both attorneys in the Hong Kong office of Debevoise & Plimpton LLP).

Hong Kong Court Rules on Extraterritorial Limits to the Territory’s Anti-Corruption Law

By Philip Rohlik and Sebastian Ko

Hong Kong has a very strict and successful anti-corruption regime that has made it one of the cleanest jurisdictions in the world.  Hong Kong serves as a model for many other jurisdictions seeking to eradicate corruption and the Hong Kong Independent Commission Against Corruption has been copied in a number of jurisdictions and provides training to anti-corruption police from dozens of countries.  Despite being an international role-model, there has long been a question as to whether and to what extent the Prevention of Bribery Ordinance (POBO) extends beyond the borders of Hong Kong.  In the recent case of HKSAR v. Krieger & Anor. (06/08/2014, FAMC1/2014), the Court of Final Appeal (CFA) (the highest court in Hong Kong) confirmed that the extraterritorial reach of the law is limited.

Anti-Corruption Law in Hong Kong

The POBO dates from the 1970s, when the then-British colony was notoriously corrupt.  The ordinance defines a number of offenses including: giving bribes, receiving bribes, bribing a public servant, specific offenses relating to public tenders and the crime of “possession of unexplained property” by certain high-ranking public servants.  Section 4 prohibits bribing a “public servant.”  “Public servant” is defined to include only Hong Kong public servants.

Hong Kong is not a party to the OECD Convention and the POBO contains no explicit prohibition on bribing foreign officials.  However, bribing a foreign official could still meet the standards of Section 9(2), the offense most applicable to private bribery.  Under Section 9(2) it is an offense to offer an advantage to an “agent” with the intent of encouraging the agent to act against the interest of his or her principal’s affairs.  In the case of bribery of a foreign official, the official would be the agent and the foreign government or instrumentality would be the principal.

Section 4 contains explicit extraterritorial language, making it an offense to offer a bribe to a “public servant” “whether in Hong Kong or elsewhere.”  Section 9 contains no such explicit extraterritorial language.  The question before the court was whether a conspiracy to offer a bribe to a Macau official, in Macau, [1] violated Section 9(2) in a case in which most of the underlying acts of the conspiracy took place in Hong Kong.  The Court of Appeal held that the operative provision of a charge of conspiracy to bribe was Section 9(2) of the POBO through the “making of the offer.”  Since the offer was communicated outside of Hong Kong and the provision did not have extraterritorial application, there was no offense.  The CFA refused to grant leave to appeal against this ruling.

HKSAR v. Krieger

The defendants were two executives of a Macau waste management company that was a joint venture between Hong Kong and Macau companies.  They were also board members of the Hong Kong parent.  They were accused of conspiring with a Macau-based ex-director of the joint venture to offer a bribe to the then-Secretary of Transport and Public Works of Macau.  (The ex-Secretary and the Macau-based ex-director were convicted of bribery in Macau and are serving prison sentences.)  The evidence at trial was that the defendants and their co-conspirator came to agreement on offering the bribe while in Hong Kong.  The wife of the Macau-based co-conspirator had a Hong Kong company, into which the defendants (while in Hong Kong) transferred funds (by means of checks and wire transfers drawn on a Hong Kong bank) to be used to pay a bribe in Macau.  The District Court convicted both men and sentenced each to more than three years imprisonment.  In doing so, the District Court noted that the men could also be seen as “victims” as the ex-Secretary solicited bribes from them and “the jobs of some 500-odd employees” of their joint venture were threatened by the prospect of losing the contracts. [2]

The defendants appealed and the Court of Appeals quashed the convictions.  An important question on appeal was whether the operative act was the agreement between the conspirators to offer the bribe or the offer itself.  Defendants were charged under Section 159A of the Crimes Ordinance allowing multiple individuals to be charged where they have an agreement to commit a crime.  Section 159A does not, however, create a separate offense; Section 9(2) provided the underlying offense.  The court held that, under the POBO, an offer of advantage is not made until it is communicated to the “agent.” [3]  Although the proposal to bribe was hatched in Hong Kong and numerous steps were taken in Hong Kong after the offer was made, the offer was “made” when the then-Secretary received the proposal from the defendants’ Macau-based co-conspirator in Macau.

The court compared Section 9(2) with its public bribery equivalent provision, Section 4(1).  Section 4(1) specifically defines the bribery of a public official as offering an advantage “whether in Hong Kong or elsewhere.”  Section 9 contains no such language.  The Court of Appeal cited the English case of Cox v. Army Council [1963] AC 48, invoking the doctrine of statutory interpretation presuming that criminal offenses are not extraterritorial unless specifically provided in the offense-creating provisions (comparable with the U.S. doctrine of presumption against extraterritoriality). [4] Because it lacks the extraterritorial language, the court held, Section 9(2) is limited to offers made in Hong Kong, regardless of the fact that the defendants were Hong Kong residents and acted mostly in Hong Kong, through Hong Kong companies, ultimately for the benefit of their Hong Kong employer.

The Hong Kong Government applied to the CFA for leave to appeal the Court of Appeal’s decision.  Appeal of the decision in the CFA was not as of right, and the Government and the defendants submitted arguments in an application hearing to test whether an appellate hearing before the CFA’s full bench was merited.  The Government argued that the Court of Appeal took too narrow a view of “offer” as defined in the POBO.  Section 2(2) of which provides that “a person offers an advantage if he, or any other person acting on his behalf, directly or indirectly gives, affords or holds out, or agrees, undertakes or promises to give, afford or hold out, any advantage to or for the benefit of or in trust for any other person.”  The Government, while not disputing the lack of extraterritoriality, argued that Section 2(2)’s definition of “offer” was broad enough to encompass acts short of the communication.  The CFA held that under Section 9(2), the offer had to be made “to any agent,” which can only occur upon communication, regardless of the language of Section 2(2).  The CFA held that the Government’s case was not “reasonably arguable” (the standard for a grant of appeal) and denied a full appellate hearing.

Conclusion

HKSAR v. Krieger clarified the extraterritorial reach of the private bribery offense in the POBO, which had been used to prosecute bribery of foreign officials in Hong Kong.  As the POBO lacks an explicit offense of bribing a foreign official, the use of the private bribery provisions to create one would have been a stretch where the operative conduct occurred outside of Hong Kong.  It should be noted, Section 9(2) will continue to apply to offers made to foreign officials in Hong Kong and, as the Court of Appeal took pains to point out, the prosecution had limited its arguments by focusing on a narrow set of facts at trial.  Finally, prosecutors in Hong Kong, like prosecutors elsewhere, have a number of arrows in their quiver (for example, anti-money laundering laws) to potentially criminalize much of the activity underlying bribery.

The above summary was prepared for general information purposes and does not constitute legal advice and should not be acted on as such.


[1] Hong Kong and Macau are part of the People’s Republic of China (PRC), although they enjoy high autonomy as special administrative regions and are separate jurisdictions.  For most practical purposes, Macau and the PRC are treated as if they were “foreign” jurisdictions under Hong Kong law.

[2] HKSAR v. Krieger & Anor. (Feb. 29, 2012, DCCC316/2010) at ¶¶ 6-7.

[3] HKSAR v. Krieger & Anor. (Dec. 18, 2012, CACC99/2012) at ¶¶ 101-102.

[4] Ibid. at ¶¶ 79 and 96.

What Zhou Yongkang and a Disgruntled Cab Driver Illustrate About China’s Anti-Corruption Campaign

Monday, August 11th, 2014

Today’s post is from Russell Menyhart (Taft Stettinius & Hollister).  Prior to joining Taft, Menyhart served nine years as a diplomat with the U.S. State Department.  He was Political Unit Chief at the U.S. Consulate in Shanghai from 2011-2014, and also served in Beijing, Buenos Aires, and Washington DC.

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What Zhou Yongkang and a Disgruntled Cab Driver Illustrate About China’s Anti-Corruption Campaign

By Russell Menyhart

China’s anti-corruption campaign is back in the headlines with the announcement that former Politburo Standing Committee member and Communist Party strongman Zhou Yongkang is under investigation for corruption.  Traditionally, Party elders are considered untouchable, but in this case I doubt any of the Communist Party’s 86 million members were surprised by the announcement.  Rumors have flown about Zhou being a target since General Secretary Xi Jinping started the campaign in late 2012.

One view is that China’s anti-corruption campaign is simply a means for Xi to pursue political vendettas, as previous anti-corruption campaigns have been used in this way. But during the last three years I spent talking to people in East China, I became convinced that the new Communist Party leadership—especially Xi and Politburo Standing Committee member Wang Qishan—realized that corruption undermined their claim to legitimacy and had become an existential threat to the Communist Party.

I first believed the anti-corruption campaign was more than just politics not when a Vice Governor or PLA general was taken down, but when a cab driver in Hangzhou, a prosperous provincial capital, complained to me about the campaign in January 2013.  He explained that January was usually his most profitable month, as he was kept busy delivering expensive Chinese New Year gifts from hotels and restaurants to government offices all across town.  “But now they aren’t sending gifts anymore, so I don’t have any work!” he complained.  An entire industry of corruption was being undercut by the campaign.  Shortly thereafter a contact told me a tourism bureau official complained that he hadn’t been taken out to dinner for months, and Communist Party members told me of officials being forced to reach into their own pockets to pick up the tab at a sumptuous banquet after a warning phone call from Beijing.

This campaign absolutely should not be mistaken for an inclination towards real rule of law in China.  It is a political move to tighten the Party’s internal controls and consolidate power (and sadly has been accompanied by a brutal anti-rule of law crackdown on political activists).  But it appears to be a long-term change attempting to solidify Communist Party control, not just a short-term wiping out of select opponents.  In the long run it should benefit U.S. companies, who already have strong internal anti-corruption controls due to the need to adhere to the FCPA.  In fact, in some ways it validates the views of those who argued for passage of the FCPA 37 years ago on grounds that it would actually increase U.S. competitiveness abroad.  If you are feeling the need to reinforce or double-check your company’s anti-corruption policies, imagine how much your counterpart at a Chinese state-owned enterprise is scrambling to get up to the same standard!

One hot topic for discussion has been whether China’s anti-corruption campaign is targeting foreign companies.  The main state-run English language paper in Shanghai published an article in April entitled “Anti-corruption net has no holes for foreigners.” Domestic media cannot publish anything without Communist Party approval, and publishing such an article in the English-language paper showed intent to warn foreign companies.  But my contacts maintain that the intent is to pursue prominent entities—foreign or domestic—to send the message that no one is immune.  Major state-owned enterprises and powerful Chinese businesspeople have also been pursued.  That said, investigating a foreign company with wide-spread brand recognition is a powerful symbol to other businesses—just as investigating a former top leader like Zhou Yongkang sends the message within the Communist Party ranks.  So foreign companies are well-advised to tighten their own internal controls—and keep checking the screws at regular intervals.

U.S. companies should also anticipate how to handle the requirements of both Chinese law and the FCPA, particularly if they have operations outside of the main cities.  Lawyers who feel comfortable dealing with an investigation by officials in Beijing or Shanghai blanch at handling the same case in Lanzhou or Bengbu, because local Administration for Industry and Commerce (AIC) officials are said to sometimes allege violations of anti-bribery and other laws (such as false advertising) without always stating clearly the legal and factual basis.  Chinese lawyers have told me local AIC officials are used to Chinese companies negotiating reduced fines as a quick way to resolve such cases.  But foreign companies must be careful to avoid payments that could be seen as bribing local officials to close an investigation, and thereby possibly violating the FCPA.

Companies with operations in China should also increase due diligence of local partners and localized training on domestic Chinese law.  FCPA compliance is not enough.  Chinese law has criminal and administrative penalties for commercial bribery, so dealings with private entities need to be examined as carefully as those with state officials.  Ideally a compliance program will not complicated things for local staff by asking them to determine if they are dealing with a state official—just focus on making them aware of what actions are defined as bribery and are therefore illegal.  Have rules that make it easy for your employees.  For example, some companies have completely banned the use of gift cards—whether to suppliers, customers, or inside the company—because they are such a common form of bribery in China.

Xi may be using China’s anti-corruption campaign to consolidate power and eliminate other factions in the Communist Party (which he appears to be doing very effectively), but the campaign is broader than that.  While unfortunately it does not appear to indicate an interest in adopting the rule of law, it ultimately should result in a cleaner business environment.  That will benefit U.S. companies that already have strong FCPA compliance schemes.

Are We Carelessly Inviting Corrupt Behavior?

Thursday, August 7th, 2014

Today’s post is from Dr. Roger Miles.  Dr. Miles (PhD, Risk) is Behavioral Risk Lead at Thomson Reuters and he develops human factor analyses for Conduct Risk governance and compliance solutions.  His academic research focus is the “what actually happens” gap between designed systems and enacted human behavior.

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Are We Carelessly Inviting Corrupt Behavior?

By Dr Roger Miles

As regulators wrestle to assert new controls over corruption (and of course various other abuses), we’re reminded that the wider history of regulation resembles a trail littered with the carcasses of well-intended initiatives that failed.  Regulatory controls tend to fail because the people who design them often ignore how real people respond in practice, often contrarily, to having a control imposed on them.

A function of effective risk leadership in senior management – including compliance officers – should therefore be to pause to consider human aspects of control failures.  Where are the human-factor hazards brewing?  Do we know enough about these to keep ahead of them and head off problems early?

One way to overtake this hazard is to familiarize oneself with “dark side” research among people who game the rules (my special research interest as it happens).  This insight will rapidly rid us of the faulty assumption that rulebooks (whether in the context of the Foreign Corrupt Practices Act or otherwise) describe, or prescribe, what actually happens in organizations.  The reality of what actually happens is always something different, usually that the rulebook doesn’t foresee.  Once we make a habit of questioning the gap between what the rulebook says should be happening, and our observations of how people behave in reality, we become better both at spotting the early signs of “creative compliance” and at preventing all kinds of troublesome behavior.  A few examples make the point:

What Groups Do…

Formal demands (including the top-down introduction of rules and sanctions) often provoke ‘informal groups’ of work colleagues to respond in unorthodox local ways that create conditions for the control to fail later on.  The alert manager will watch for signs that ‘game-playing’ is becoming accepted as normal behavior, such as meaningless box-ticking (in response to quality control questionnaires); and filtering of inconvenient incident reports.  Also be alert for the many ways of massaging statistical reports, such as cherry-picking only the most favorable test results, re-basing of a reporting index, or redefining the thing that we’re reporting on.  Informal groups also like to ridicule anyone who dissents from their view of “how we do things here” – even (perhaps especially) when this contradicts what the rules require.  For the FCPA compliance leader, therefore, the first question should always be “who’s really in charge in this organization?”

What Individuals Do…

At a personal level, gaming responses include ‘presenteeism’ (physically turning up for work but leaving your motivation at the front door) and seeking to shift onto others any blame for failures.  Watch for early warning signs such as a person disengaging from routine involvement in work activities, disowning their own presence in management processes, or ignoring the legitimate authority of others.  Consistent with informal groups’ “how we do things”, individual rule-gamers will be active at making alternative sense of how rules apply (or don’t apply) locally to them.  They will be adept at coping, workarounds, and writing creative reports.  Alternatively they may retreat into fatalism, rationalizing that “it’s OK not to care because either nothing will change if I do, or I’ll only be labelled a trouble maker”.

In the Organization’s Structure

Sometimes we inadvertently design an organization to encourage rule-gaming responses.  To prevent this effect we need to become more skilled at spotting these preconditions for bad behavior, and design them out.  The preconditions include:

  • Lack of any coherent challenge from outsiders (advocacy groups, regulators, government)
  • A regulator who depends on regulatees for information (“enforced self-regulation”)
  • No apparent penalties for delay in responding to a question
  • Risk-taking uncoupled from consequence, with short-term rewards
  • Little required interaction with shareholders or other funding sources
  • The full Board meets only rarely; executive committees hand-picked by the Chairman
  • Power concentrated narrowly with CEO, Chairman, or Head of Sales
  • Penalties for non-compliance reported as a “normal friction cost of business”
  • An except reporting (whistleblowing) procedure exists but gets no explicit support from managers – it may          even be the  target of jokes

There is a large and expanding research field examining the gaps between control systems as designed and “what actually happens” when real people are told to use the controls.  A new approach to regulatory design intended to deal with this in the FCPA context and otherwise, behavioral regulation, is still in its infancy.  We should watch for developments.

“Countering Small Bribes” – Nice Words, We’ve Heard Them Before, But They Are Wrong

Monday, July 14th, 2014

Today’s post is from Professor Bruce Bean (Michigan State University College of Law).  Prior to academia, Bean had a diverse practice career including at various law firms and in-house counsel positions.

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As FCPA Professor recently highlighted, Transparency International UK released a new publication, “Countering Small Bribes – Principles and Good Practice Guidance for Dealing with Small Bribes including Facilitation Payments.” (See here.)  For once, TI has it all wrong!

This publication focuses on “grease,” “tea money,”  “facilitation payments.”  These terms describe small payments, and while no one knows how small these may be, such payments are common in the real world.  “Countering Small Bribes” discusses these in 44 pages and prescribes how such “bribes” can be eliminated.

TI begins by repeating a mantra regularly heard by those of us who deal in this area:

“[P]aying small bribes feeds a climate of corruption, which creates an unstable operating environment for companies. It destroys trust in government and public administration, undermines the rule of law, damages human rights and distorts business transactions. Small bribes are not confined to demands made to companies, as there are no boundaries for officials and others who demand bribes.”

Nice words.  We have heard them before.  They are wrong.

Small bribes do not “[create] an unstable operating environment,” “[damage] human rights” or “[distort] business.”  Rather, small bribes are one of the results of being in a jurisdiction where the rule of law has not been established and locals already do not trust government.  Facilitation payments do not create and do not corrode public and business standards; they are the result of an existing culture of corruption.

While the goal of eliminating corruption is a noble one, punishing the alleged “bribe” givers while ignoring the officials, high level and low, who extort such payments has proved to be fruitless.  Small and large bribes are more often extorted from businesses.  After all, no legitimate business hopes to give a bribe.  Such extortion is practiced by experts who have developed techniques very difficult to resist.  Fighting corruption by punishing the victims of such extortion is equivalent to pushing on a rope.  It gets us nowhere.  Given the 37 years of experience we have had with the FCPA, we cannot escape the conclusion that approaching bribery in international business solely from the bribe payers’ perspective has not, does not, and will not work.

Consider the prescription contained in “Countering Small Bribes.”  The TI approach is based upon ten unobjectionable principles.

“Effective countering of small bribes – including facilitation payments – will be based on the following principles.

1: There is a supporting culture of integrity

2: The company commits to eliminating small bribes

3: Risk assessment is the basis for designing the strategy and programme to eliminate small bribes

4: The company implements a programme to counter small bribes

5: Communication and training are provided to employees

6: Attention is given to countering third party risks

7: The internal accounting controls are designed specifically to counter small bribes

8: Appropriate actions are taken if small bribes are detected

9: The company monitors the effectiveness of its programme to counter small bribes

10: The company acts strategically to influence the corruption environment in which it operates.”

These principles already underlie many companies’ in-house anti-bribery compliance programs.  But these Ten Principles, or any principles, cannot be effective in eliminating bribes, large or small, in a corrupt environment.  The corruption problem in my experience (eight years in Moscow) will never be eliminated by focusing solely on the bribe payer, as the FCPA and the U.K. Bribery Act do.

TI-UK’s “Countering Small Bribes” focuses on small bribes.  Fine.  Consider an employee driving home from work in a foreign city, late at night.  This is a common scenario if the client’s home office in the US opens for business at 3:30 PM or later Moscow time.  Leaving the office in Moscow at 10 PM is not unusual.  A local police officer, lying in wait on the street opposite the office parking lot, flags down the employee and suggests that, because of the late hour, he must have been drinking.  This faithful public servant demands a blood test and displays a not-very-sanitary syringe.  Which of the Ten Principles applies?  (After a payment of less than $20, I was no longer deemed inebriated.)

“Countering Small Bribes” also explains why the FCPA exception for “facilitation payments” is wrong.

“The US Foreign Corrupt Practices Act (‘FCPA’), which was passed in 1977, introduced in 1988 the concept of facilitating (also commonly referred to as ‘facilitation’) payments with an exception from prosecution for such payments. This was to recognise a type of intractable bribery confronting US businesses when operating abroad. Since then, this form of bribery has attracted considerable debate and controversy.

Facilitation payments are illegal in most countries, although a small number including Australia, New Zealand, South Korea and the USA provide exceptions, in certain circumstances, for facilitation payments when paid abroad. They remain illegal in their own domestic law.

There is growing international recognition that facilitation payments are not easily separated from other forms of small bribes and more and more companies are following a no-bribes policy throughout their global operations, with no exemptions for facilitation payments.”

The “growing recognition” referred to in the final quoted paragraph doubtless refers to UK’s Bribery Act 2010, which criminalized all bribes, no matter how small.  The Bribery Act was the UK’s long delayed response to the OECD Convention on Combating Bribery of Public Officials in International Business Transactions first signed by the British in 1997.  At that time, the official Commentary addressed facilitation payments as follows:

“Small “facilitation” payments do not constitute payments made “to obtain or retain business or other improper advantage” …  and, accordingly, are also not an offence. Such payments, which, in some countries, are made to induce public officials to perform their functions, such as issuing licenses or permits, are generally illegal in the foreign country concerned. Other countries can and should address this corrosive phenomenon by such means as support for programs of good governance. However, criminalization by other countries does not seem a practical or effective complementary action.”

Note the final sentence: “Criminalization by other countries does not seem a practical or effective complementary action.”  Obviously the U.K. Parliament disagreed when, after much debate, it explicitly criminalized facilitation payments.  Governmental hypocrisy is normal in every U.S. administration and is perhaps a necessary aspect of today’s democracies.  Our British cousins exemplify this with this statement describing facilitation payments which is found in the Guidance to the UK Bribery Act 2010:

“As was the case under the old law, the Bribery Act does not (unlike US foreign bribery law) provide any exemption for such payments.”

This carefully crafted statement is precisely accurate.  It explains that neither the Bribery Act enacted in 2010, nor the superseded earlier anti-bribery laws in England and Wales dating back to 1886, exclude facilitating payments from the definition of crime of bribery.  Absolutely true – the law of England and Wales has never excepted such payments.  On the other hand, in the century plus of British foreign trade under their prior trio of anti-bribery laws, and in the three years since the new Bribery Act became effective, there has also never been a prosecution for foreign facilitating payments.  Not one!  Perhaps this is why Parliament had no problem criminalizing something they believed was not going to be prosecuted.  Whatever one might think about the wisdom of the grease payment exception in the FCPA, as readers of FCPA Professor are aware, the Department of Justice does actively ignores this exception in bringing enforcement actions.

TI-UK’s “Countering Small Bribes,” unfortunately, does nothing to advance the fight against corruption. TI does very valuable work, the results of which we all rely upon.  But “Countering Small Bribes” does not advance this fight.  To combat bribery, national prosecutors must actually bring cases.  To be meaningful, such cases should involve actual bribes, not small facilitation payments.  And if we are sincerely interested in effectively reducing bribery, we must enhance our efforts to punish the extortionate government officials who demand bribes, rather than continue to punish only the victims of extortion.

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Note – contrary to TI’s suggestion, facilitating payments were always exempted in the FCPA originally though a carve-out in the “foreign official” definition (i.e. a “foreign official” did not include an individual with ministerial or clerical duties).  In 1988 this exemption became the stand-alone facilitation payments exemption currently found in the FCPA.