Facilitation payments now illegal in Canada

It’s official: Facilitation payments under Canada’s anti-corruption law are now illegal, portending a new enforcement threat for Canadian companies operating abroad, as well as for multinational companies with operations in the country.

First implemented in 1999, the Corruption of Foreign Public Officials Act (CFPOA)—Canada’s equivalent to the U.S. Foreign Corrupt Practices Act—makes it a crime for Canadian companies and individuals to give or offer a bribe to a foreign public official to obtain or retain a business advantage. Subsection 3(4) of the CFPOA, however, expressly excluded facilitation payments, also called “grease payments,” from the bribery offense.

Facilitation payments are small payments made to expedite or secure the performance by a foreign public official of any act of a routine nature that is part of that official’s duties or functions—such as the issuance of a government permit, license, or other document. They differ from bribes, which are typically meant to entice foreign officials to commit acts they might otherwise not do, such as awarding a contract.

In 2013, the Canadian government amended the CFPOA in response to criticisms that it needed to toughen its stance against bribery and corruption. Among those amendments, the government committed to phase out the “facilitation payment” exemption. The repeal of the “facilitation payment” exemption officially came into force on Oct. 31, 2017, and applies to payments that occur in Canada and abroad.

The intent behind the delay was to give Canadian companies adequate time to adjust their internal controls accordingly. Compliance departments of Canadian companies that have not already done so should immediately review their anti-bribery compliance policies and procedures, ensuring that they explicitly prohibit employees and third-party agents from making facilitation payments. Relevant personnel should further be trained on these changes.

Canadian companies found in violation of the CFPOA could now face criminal liability for making a facilitation payment. Under the CFPOA, bribery offenses are punishable by up to 14 years imprisonment for individuals and unlimited fines for companies.

Similar laws

The Canadian government’s ban on “facilitation payments” further aligns it with that of most other countries that also expressly prohibit such payments. “A lot of times, paying a facilitation payment in a country is usually a violation of the laws of that country,” says Pat Pericak, a senior managing director in the forensic and litigation consulting segment at FTI Consulting.

“Worldwide, many countries are cracking down on bribery. The message is that countries are not willing to tolerate bribery at any level.”
Pat Pericak, Senior Managing Director, FTI Consulting

Many member countries of the Organization for Economic Co-operation and Development (OECD), for example, have embraced recommendations made by the OECD. In its guidance, the OECD describes facilitation payments as “corrosive” and recommends that member countries “encourage companies to prohibit or discourage the use of small facilitation payments.”

“Worldwide, many countries are cracking down on bribery,” Pericak says. “The message is that countries are not willing to tolerate bribery at any level.” 

In the United Kingdom, for example, although the U.K. Bribery Act does not address facilitation payments, guidance issued by the U.K. Serious Fraud Office makes clear that such payments are prohibited. “A facilitation payment is a type of bribe and should be seen as such,” the SFO stated. “Facilitation payments were illegal before the Bribery Act came into force, and they are illegal under the Bribery Act, regardless of their size or frequency.”

The United States is just one of few remaining countries that have maintained the facilitation payment exemption. The U.S. Foreign Corruption Practices Act, contains an express, but narrow exception, allowing for a “facilitating or expediting payment to a foreign official, political party, or party official” to expedite or to secure the performance of a routine governmental action. “It doesn’t happen a ton in the real world that you can pay a legitimate facilitation payment under the FCPA,” Pericak says.

As stated in the FCPA Resource Guide, “like the FCPA’s anti-bribery provisions more generally, the facilitating payments exception focuses on the purpose of the payment rather than its value.” Enforcement authorities caution in the FCPA Guide that the size of the payment, however, “can be telling, as a large payment is more suggestive of corrupt intent to influence a non-routine governmental action.”

These newly divergent models between Canada and the United States means that U.S. companies with either a Canadian subsidiary, or those cross-listed on its stock exchange, must review their compliance policies and procedures. Although implementing a single facilitation-payment policy is possible concerning these two countries, the more stringent Canadian standard will have to be adopted for that approach to work.

Corporate policies

As a best practice, many multinational companies—including companies headquartered in Canada—already prohibit facilitating payments worldwide in their anti-corruption compliance policies and business codes of conduct.  Canadian global automotive supplier Magna International, for example, “prohibits facilitation payments, as they are illegal in many countries where Magna carries on business,” its code of conduct states.

Help for Canadian businesses re: facilitation payments

A “facilitating payment” is a payment made to expedite an administrative act of a routine nature, such as processing government papers, scheduling inspections, or providing phone, water or power service, which are performed by a government official but do not involve discretionary action under the law. Facilitating payments expedite actions that should be performed by an official in any event, and do not involve discretionary action by the government official.
Facilitating payments are easily misunderstood by employees. It is important to remember that payments made to induce a government official or employee to ignore his or her lawful duty or exercise discretion are not facilitating payments. For example, an official decision whether to award new business continue business with a particular party, or to grant a discretionary licence or permit, is not a routine governmental action. Payments made to cause an official to disregard local law are likewise not facilitating payments. A small gratuity to an official to expedite the processing of a visa, or to a clerk to perform a ministerial function, generally falls within the definition of facilitating payment.
Source: Global Compact Network Canada

Canada-based engineering and construction giant SNC-Lavalin also “strictly prohibits the payment, authorization of payment, or the promise to pay, directly or indirectly, of any facilitation payment,” its anti-corruption policy states.

Canadian National Railway’s anti-corruption policy also expressly prohibits facilitation payments, as does Canadian national telecommunications company TELUS: “We do not support any form of dishonesty, including facilitation payments or other types of bribery, kickbacks and extortion, either directly or indirectly through an agent or third party,” the company’s code of ethics and conduct states. “Facilitation payments are bribes and are strictly prohibited, even where they may not be illegal in a particular jurisdiction.”

Even among companies that explicitly prohibit facilitation payments, however, many make exceptions for situations that put one’s physical health and safety in harm’s way. One example is global engineering giant Rolls-Royce, which has operations in Canada. In its facilitations payment policy, Rolls-Royce directs employees to first obtain help and guidance from Rolls-Royce security, a local line manager, or a member of the compliance team—but if that option is not possible, the policy directs employees to “make the payment, and promptly report the payment and the circumstances” to Rolls-Royce Security or a member of the compliance team.

Moreover, a guide published by Global Compact Network Canada—the Canadian network of the UN Global Compact—states that “payments extorted under duress or threat of violence are distinct from facilitating payments.”

Compliance cautions

Eliminating small bribes, including facilitation payments, throughout a global company can be a difficult undertaking. Aside from threatening situations, small payments are sometimes requested in urgent situations where employees must make crucial judgments on the fly. And refusing to pay even a small bribe can result in delays in moving goods through customs or holding up entire shipments at ports and canals, bringing a company’s operations to a grinding halt.

The foundation for eliminating small bribes begins with a proper risk assessment to identify where the problematic areas lie within the company: What employees are most likely in a position of paying small bribes and facilitation payments? What factors are causing those payments to be made? What controls should the company put in place to mitigate them?  

If employees must pay a small bribe for whatever reason, the company should document these payments, so that compliance can better assess and address where potential issues exist.

Compliance should provide communication and training to employees on the company’s policy regarding small bribes and facilitation payments, what to do if they encounter such a situation to pay a bribe, and how to identify what constitutes a bribe. “To ensure understanding by local employees, training should also be offered in local dialects, and explain clearly legal and regulatory terms,” the Global Compact report states.

For example, whereas the term “facilitation payment” may be widely understood in North America, it may be less common in other regions that define the same concept as a “grease payment.” Understanding such nuances will be critical to the efficacy of a training program, the report states.