Wednesday, September 29, 2010

Thinking About The FCPA's Facilitating Payment Exception?

The Foreign Corrupt Practices Act specifically states that its anti-bribery provisions "shall not apply to 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 ...".

The term "routine governmental action" means an action "which is ordinarily and commonly performed by a foreign official in," among other things, "obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country."

The 1988 Conference Report (here), which ironed out the differences between House and Senate bills creating the exception, states:

"The Conferees wish to make clear that 'ordinarily and commonly performed' actions with respect to permits or licenses would not include those governmental approvals involving an exercise of discretion by a government official where the actions are the functional equivalent of obtaining or retaining business for or with, or directing business to, any person."

This is what the FCPA says and the DOJ acknowledges, at least on paper (see here), that "there is an exception to the anti-bribery prohibition for payments to facilitate or expedite performance of a 'routine governmental action.'"

However, corporations tend to be risk averse.

Thus, against the backdrop of enforcement agencies seemingly incapable of recognizing that the FCPA does indeed contain a "facilitating payment" exception, a risk averse corporation may just say the heck with it, why risk making a payment exempted from the FCPA's anti-bribery provisions if enforcement agencies are likely to nevertheless conclude that the payment violates the FCPA.

It is against this backdrop that the recent SEC filing (see here) of Transocean, the world's largest offshore drilling contractor, caught my eye.

It states, in relevant part, as follows:

"We are currently involved in several investigations by the DOJ and the SEC involving our operations and whether or not we or any of our
employees have violated the FCPA."

"Our current investigations include a review of amounts paid to and by customs brokers in connection with the obtaining of permits for the temporary importation of vessels and the clearance of goods and materials. These permits and clearances are necessary in order for us to operate our vessels in certain jurisdictions. There is a risk that we may not be able to obtain import permits or renew temporary importation permits in West African countries, including Nigeria, in a manner that complies with the FCPA. As a result, we may not have the means to renew temporary importation permits for rigs located in the relevant jurisdictions as they expire or to send goods and equipment into those jurisdictions, in which event we may be forced to terminate the pending drilling contracts and relocate the rigs or leave the rigs in these countries and risk permanent importation issues, either of which could have an adverse effect on our financial results. In addition, termination of drilling contracts could result in damage claims by customers."

Based on the above disclosure, it is difficult to analyze whether Transocean is legitimately entitled to the permits and clearances it is seeking.

Let's assume this is the case, but that a low-level government bureaucrat with a hand out is demanding a payment to do what he otherwise has a legal obligation to do - and that is grant licenses and permits pursuant to the applicable governing rules and regulations.

If this is the case, it is unfortunate that a company feels no other option than to breach contracts and materially restructure its operations because the enforcement agencies are seemingly incapable of recognizing that Congress specifically authorized companies subject to the FCPA to make facilitating payments such as those that perhaps Transocean would have to make in order to secure the permits and clearances at issue.

While some find facilitating payments to be a corrupt payment under a different name (see here) and while the soon-to-be implemented U.K. Bribery Act contains no such exemption, the fact remains that the FCPA contains an express exception for facilitating payments and it is this statute that the enforcement agencies are obligated to enforce.

1 comment:

  1. Sadly the UK position is in reality extremely unclear. While the position under English law is clear. Facilitation payments will be and always have been illegal.

    Mixed messages being sent about the likely enforcement. The Director of the SFO has said that all businesses must have a policy of prohibition.

    On the other hand businesses worry that while the law may be black and white real life is more shades of grey.

    The SFO appear to acknowledge this elsewhere noting that they shall be targeting the real criminals and not those guilty of "technical violations".

    Other comments have been made along the lines that they understand that a move to total prohibition is unlikely to take place overnight and that they understand this and want to see companies doing their best when the new law comes into force.

    So, while the US position is unclear, the application and enforcement of the UK new law is equally unclear.

    We are pushing for more helpful clarification. But the reality is that, in the UK at least, there will be a bedding down period where both regulators and companies are to some extent feeling their way.

    We are following developments and to the extent that we hear useful information which would help organisations in their approach posting it to our site,