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Reality of Facilitation Payments

Matt Kelly | July 22, 2013

My acquaintance at the other end of the phone was complaining to me about facilitation payments. I won't identify him by name for this column and, frankly, what's the point? Every compliance executive complains to me about facilitation payments, and rightly so.

“The situation is preposterous,” my friend said. “At least in the United States the law pays lip service to the reality of facilitation payments, as ham-handed and confusing as the language might be. Now I've got the Bribery Act to worry about in the U.K., and a bunch of other laws all over the world that all say, ‘No facilitation payments, ever, for anyone,' and it's ludicrous. Facilitation payments happen. And sometimes it's OK that they do.”

Bold words from my acquaintance, the chief ethics and compliance officer at a global corporation based in North America. And this conversation happened early last week, before I noticed that Canada too has now amended its anti-bribery laws to phase out facilitation payments. I considered calling my friend back and humming “O Canada,” but figured he might have a conniption.

The anti-corruption purists will tut-tut my friend to no end, lamenting that facilitation payments are often the first step down the slippery slope to a bribe. They will say that facilitation payments support dysfunctional and corrupt bureaucracies, because the low-level bureaucrat demanding the payment—and then getting it—will have little incentive to change a system that lets him line his pockets. The Organization for Economic Cooperation and Development likes to warn of the “corrosive effect of small facilitation payments, particularly on sustainable economic development and the rule of law.”

Here's the thing, though: facilitation payments are a fact of life in global business. Nobody likes them, and no compliance officer wants to pay a bribe disguised as a facilitation payment. But when the transaction truly fits the definition of a facilitation payment—money paid to a government official, to speed up some job duty he would normally perform anyway—there shouldn't be any ethical or legal crisis in paying it.

After all, we have facilitation payments domestically in the United States. If you want a passport from the State Department, you pay $165 in fees. If you want an expedited passport, you pay an extra $60 fee and get your passport in half the usual time. That's a facilitation payment, pure and simple. Other countries have all sorts of facilitation payments as well, say, to get a visa processed quickly or to clear goods through customs rather than let them rot on the docks. Urgent needs happen in business, and facilitation payments get you through them. That's life.

As my compliance executive friend says, the U.S. Foreign Corrupt Practices Act at least pays lip service to the real world and allows genuine facilitation payments to proceed. The rest of the world, however, seems to be struggling as countries adopt no-nonsense anti-corruption laws and then find the laws don't work very well. Most famously, the U.K. Bribery Act of 2011 banned facilitation payments—and now voices in the British government now want to revisit the wisdom of that idea.

Likewise, Canada last month amended its Corruption of Foreign Public Officials Act, which previously had allowed facilitation payments, to phase them out “at a future date.” When, exactly? Nobody knows. Brazil adopted its own tough law that does ban facilitation payments, but considering that the nation was convulsed with riots about bad governance at the time, lawmakers were ready to approve the strictest measure they could.

Meanwhile, out in the front lines of doing business around the world, companies are still being swept into compliance maelstroms thanks to the general confusion about how to handle facilitation payments. Take my compliance officer friend from above as one example; his own company spent millions in recent years unraveling allegations of misconduct in Kazakhstan. No corruption was ever confirmed, but regulators had come knocking because of questions about facilitation payments his business was making to Kazakh officials. Then came more questions from business partners, customers, and non-governmental organizations, all worried that my acquaintance's company had “a Kazakhstan problem.”

“Please. I'm in the oil business,” my friend quipped. “We all have problems with Kazakhstan.”

Less funny, however, was what he said next. “It really can be a struggle for people to understand how business happens. Under certain situations, if a facilitation payment is legal and necessary, we'll pay it,” he said. “Unfortunately we have too many people taking a zero-tolerance approach to all payments, and that gets to be very problematic. We need regulation that's more realistic.”

You know, he's right.