Is It Bribery or Facilitation?

International business often requires dealing with foreign government officials. In the US, determining when a government official is asking for a bribe in exchange for helping your company get business is fairly cut and dried, that isn’t always the case abroad. The line between a bribe and a “grease payment” moves depending on the country you are working in.

Complying with regulatory changes—both at home and in a host country—can be a major challenge. Among the regulatory challenges, the Foreign Corrupt Practices Act (FCPA) is well known to US businesses, and those that do business with them, as an inevitable stumbling block when engaging in cross-border trade and investment with American companies. The FCPA addresses transparency issues related to securities trading and the more commonly known anti-bribery provisions, which make it unlawful for a US person—and certain foreign issuers of securities—to make a payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person.

While the act has been successful in helping to curb corruption and bribery, it has also served to place many US businesses at a distinct comparative disadvantage in the global marketplace: The FCPA can make it more difficult for US companies and individuals to be competitive internationally. While anti-corruption legislation has either been adopted, or is in the process of being adopted, in a number of other countries, many countries do not have such requirements, and in some countries, bribes are even tax deductible. It is important for US companies or persons doing business abroad to understand the FCPA.

Bribery vs. Grease Payment

The Act draws a distinction between bribery and facilitation or grease payments, which may be permissible under the FCPA, but may still violate local laws. This can be problematic because the line between what constitutes bribery versus a grease payment is often unclear.

The FCPA generally prohibits US or non-US persons from offering, giving, paying, or promising to pay money or anything of value to any foreign government official, foreign political party, or candidate funds for the purpose of influencing them, gaining improper advantage, or retaining or directing business. Anything of value can mean: gifts, product discounts, meals, entertainment, travel expenses, company shares, or benefits extended to family members of foreign officials. The act defines corruption as an illegal or wrongful motive or purpose, intent to wrongfully influence a recipient, or a violation of local or international law. You can be held responsible if you had knowledge of wrongdoing, either as actual knowledge, conscious disregard, or willful ignorance. While proving you did not know of wrongdoing is burdensome, it generally can be done. The real challenge is in defining what constitutes facilitation payments—those gray areas that are difficult to navigate.

Facilitation payments can include gratuities given to government officials to perform “routine” actions that do not involve the exercise of discretion, as well as reasonable expenditures related directly to the performance of a contract with a foreign agency or government, the promotion of products or services, business relationships with foreign officials, and third-party relationships (i.e., with consultants, agents, distributors, or other parties acting on your behalf). It may also include service relationships (e.g., conducting clinical trials or research services for your company), charitable donations, and marketing and promotional practices, so US businesses must be cognizant of the need to comply with FCPA almost at every turn.

The penalty for violating the FCPA can include civil or criminal fines of up to $2 million (or two times the gross gain to the organization), forfeiture of assets, and imprisonment and fines for individuals. Collateral penalties may include disbarment from government contracting or loss of export privileges.

Avoiding a Violation

Many US investigations tend to take an industry focus (such as with oil and gas, medical device or pharmaceuticals, and telecommunications). Going forward, other industries are likely to be in the cross-hairs, such as airlines and financial services.

There is increased cross-communication by governments about violations, and prosecution of individuals remains an enforcement priority. The expectations of governments when evaluating compliance programs have risen. All businesses are required to keep detailed records that accurately reflect transactions.

Internal accounting procedures should ensure that accounts and financial records are accurate for external reporting purposes. Books must be audited at reasonable intervals. Failure to comply with local law can be perceived as an indication of corrupt intent, however, compliance with local law does not by itself ensure compliance with the FCPA. Lawyers familiar with FCPA compliance—both at home and abroad—are your best source for guidance here.