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Ryan McConnell
The U.S. government says in its 2012 guidance for the Foreign Corrupt Practices Act that a facilitation payment is a payment made to further "routine governmental action" that involves non-discretionary acts. Many governments around the world characterize these payments as bribes.
The OECD working group on bribery advises countries to encourage companies to prohibit facilitation payments. Even the Canadians are considering amending their anticorruption law to eventually eliminate the facilitation payment exception. The buzz is that facilitation payments are out of fashion. In 2012, how many times did we hear at CLE conferences that companies were quietly prohibiting facilitation payments? After the UK Bribery Act was released with no facilitation payment exception, it seemed like a foregone conclusion.
As part of our annual review of codes of conduct from Fortune 500 companies, we wanted to test conventional wisdom. The results are interesting. 
In 2012, roughly a third of the Fortune 500 updated their codes of conduct. We found that the number of companies that prohibited facilitation payments roughly doubled, and the number strongly discouraging these payments dropped in half, with many companies that strongly discouraged the payments moving to an outright ban. What does this mean?
Assume for a moment that companies that address facilitation payments in their codes reflect a general trend, and that companies with no facilitation payment policy in their code have an underlying facilitation policy as part of their FCPA compliance program that is not public. If the 121 companies that address facilitation payments in their codes are reflective of an overall trend, the increase in the number of companies prohibiting facilitation payments is quite significant.
The other way to view the increase in facilitation payment prohibitions is viewing the code of conduct as the overarching compliance document that captures significant company risks that should be addressed. Assuming facilitation payments were viewed as a significant risk for the company based on its geographic footprint, you expect to see the company addressing this risk in its code of conduct. With this approach, companies that are inclined to bar facilitation payments (1) will address them in their code, and (2) within our statistics are likely the same companies that allowed, but discouraged, such payments in 2011.
In other words, the 2012 data shows that companies that discouraged facilitation payments last year simply strengthened their facilitation payment policy by shifting from strongly discouraging the payments to a complete prohibition. If this view is accurate, is the message that companies are moving towards barring facilitation payments legal folklore?
It's hard to tell. Another interesting observation was the shift by a small minority of companies (three, in our study) to prohibit facilitation payments but allow so-called "expediting payments"—adding hopeless confusion to the facilitation payment concept. These three company codes define expediting payments as payments made directly to a government agency (such as a local embassy), as opposed to a particular official, and allow such payments while still banning facilitation payments. Clearly, companies continue to struggle with how to define facilitation payments in their codes of conduct in a meaningful way. Calling them “legal bribes,” for instance, does not send the right message, but finding the right words to explain this difficult concept is a challenge.
A few companies rely on the size of the payment as a benchmark. The 2012 FCPA guidance states that whether a payment falls into the facilitation payment exception is not dependent on the size of the payment. Instead the focus should be on the purpose of the payment. Only five codes set specific dollar amount limits on what constitutes a "nominal" payment—four set the limit at $100 and one at $250. One outlier code that sets a $100 limit notes that the $100 limit is per instance per official—but up to $1,000 can be paid to the same official per year.
Finally, the difference between a facilitation payment and extortion is noted in both the UK Bribery Act guidance and the FCPA guidance. Extortion payments—made to safeguard the health and safety of an employee—fall outside the realm of facilitation payments entirely and are not prohibited. Fourteen of the facilitation payment policies carve out this distinction between facilitation payments and extortion payments. Thirty of the policies mention accurate recording in the company's books and records as an additional requirement for facilitation payments.
Next year we will see if the "expediting payment" language becomes popular. Our bet is: no. But unlike style setters watching from the front row of the Mercedes Benz fashion show in New York City, lawyers are notoriously bad forecasters. And as hard as we try, we cannot set compliance trends simply because we hold a view about a particular compliance model or risk forecasting technique. But we are trying to become better forecasters by understanding how to collect and use data. This process is critical to a risk-based approach. Companies that do not adjust their approach and think creatively about risk assessments are going to have some difficult questions to answer from regulators when faced with a compliance failure.
Ryan McConnell is a partner at Morgan Lewis and former assistant United States attorney in Houston. Charlotte Simon is an associate at Morgan Lewis and former law clerk to the Honorable Keith P. Ellison in Houston. Their code of conduct database for 2011 is located on Corpedia's website, and the 2012 data will be up on the site soon. The dataset will also be used at the University of Houston's Ethics and Compliance Conference on June 6 in Houston, Texas.
