Two Senior Executives Convicted In Haiti Teleco Bribes Case

Following a two week trial, on August 4, 2011, a federal jury convicted Joel Esquenazi and Carlos Rodriguez, former executives of Terra Telecommunications Corp. (“Terra”), on all counts for their roles in a scheme to pay bribes to Haitian government officials at the state-owned Telecommunications D’Haiti S.A.M (Haiti Teleco).  The DOJ’s press release is here.

Conduct

• Esquenazi was the president and Rodriguez the vice president of Miami-based Terra.  Both were convicted of one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and wire fraud, seven counts of FCPA violations, one count of money laundering conspiracy, and 12 counts of money laundering.

• According to the DOJ, Esquenazi and Rodriguez “authorized more than $800,000 in illegal bribe payments to Haitian officials in exchange for business advantages” in violation of the FCPA."

• Per DOJ, the purpose of these bribes “was to obtain various business advantages from the Haitian officials for Terra, including the issuance of preferred telecommunications rates, reductions in the number of minutes for which payment was owed, and the continuance of Terra’s telecommunications connection with Haiti.”

• The DOJ also said they “used shell companies to pay $890,00 in bribes from 2001 through 2005 to "successive directors of international relations" at Haiti Telco, and “created false records claiming that the payments were for “consulting services,” which were never intended to be performed or actually performed.”

Penalties

• The defendants face a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost on the FCPA conspiracy charge. Each of the seven FCPA counts carries a maximum penalty of five years in prison and a fine of the greater of $100,000 or twice the value gained or lost.

• The money laundering conspiracy counts carry a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transactions.

• The government is seeking forfeiture against all defendants.

Notes

• This is just the latest entry of the DOJ's extensive FCPA enforcement action regarding bribes allegedly paid to Haitian government officials at Haiti Teleco.  The jury verdicts rendered in this case were based upon indictments filed in December 2009.  Multiple individual defendants had already pled guilty to FCPA violations and related money laundering charges. 

• Esquenazi and Rodriguez are unique in the Haiti Teleco prosecutions in that they contested the DOJ’s charges at trial and also challenged the DOJ’s definition of “foreign official” under the FCPA.  Esquenazi and Rodriguez almost certainly will appeal both the Court’s pre-trial ruling and their convictions. 

• Additionally, whether the Court’s jury instruction on what constitutes an “instrumentality” of a foreign government under the FCPA survives appellate scrutiny is worth watching and should be instructive as to the limits of the FCPA’s jurisdictional reach.

Conduit to Compliance or First Line of Defense – the Local Compliance Point Person

As compliance programs mature, it is becoming increasing clear that one size does not fit all. Moreover, there may be several different approaches to creating the most effective compliance program for your organization. This past week I attended the ACI FCPA Boot Camp in Houston. Many of the presentations dealt programs, procedures and process companies had developed specifically for the compliance issues they have faced around the globe. One of these was in a session entitled “Compliance Programs 2.0” where one of the subjects discussed was who to embed as a local compliance representative in an international business unit.

On this discussion panel were two lawyers, Rick Chapman, Assistant General Counsel at Halliburton and John Lewis, Sr. Managing Counsel – Compliance Global Anti-Bribery Counsel, they presented two distinct views on utilizing local compliance point persons in their company’s respective international anti-corruption and anti-bribery efforts. I found that each company’s approach had merit and that they are both models which you can review to determine which might be best suited for implementation in your organization.

Conduit
Rick Chapman described the structure that Halliburton utilizes as a conduit to the compliance department. The local compliance resource is named as the “Local Compliance Advocate (LCA)” and is generally not an attorney or in the company’s Legal Department. The employee is a local business unit employee who Halliburton embeds within the compliance function. Initially the compliance group will identify a person who can handle this role and will then  provide them with specialized compliance training.
Mr. Chapman remarked that two of the main roles of the LCAs are to provide compliance training to other employees in the business unit and also to listen to the compliance concerns of Halliburton employees on the ground. As the local eyes and ears of the compliance group, they can bring day-to-day concerns back to the home office for review and assessment. In this manner they are viewed as a conduit to the compliance group, headquartered in Houston.

First Line
John Lewis contrasted the Halliburton conduit approach with that of Coca-Cola regarding local compliance resources. Coca-Cola utilizes regional counsel from the Legal Department to act as “Legal Ethics Officers (LEOs).” While these LEOs are lawyers, Mr. Lewis made clear that they are employed in the Legal Department and not in the local business unit. In their role, LEOs have authority to make preliminary compliance assessments regarding day-to-day compliance issues. The company views them as the first line of compliance.
Mr. Lewis said that one of the key reasons that the company takes this approach is in dealing with foreign governmental officials. LEOs have authority to make contact directly with foreign government officials and present the company’s position on compliance issues. He stated that this brings one additional level of review and assessment to the company’s compliance regime and that this could be important if a regulator reviewed any decision made by the company in the context of the Foreign Corrupt Practices Act (FCAP), UK Bribery Act or other anti-corruption laws.
I found both of these methods to create and utilize a local compliance representative creative and economically efficient. They are systems to help embed the concept of compliance within the local and international culture of an operation. By utilizing such resources, whether they be in the “conduit” format or the “first line of defense” format, I believe that a company can drive home, on a daily basis, how to conduct business ethically and within the parameters of anti-corruption laws.


© Thomas R. Fox, 2012

Trinidad and Tobago to pass new Public Procurement Legislation

On 25th June 2010 the Public Procurement and Disposal of Property Bill 2010 and the National Tenders Board Bill 1997 were laid in the Parliament of Trinidad and Tobago.  The bills were forwarded to the newly established Joint Select Committee for Public Procurement Reform and on December 6th 2010, the said Committee issued a Call for Submissions from Stakeholders. This paper was submitted in response to this Call in February 2011. Public Procurement Reform Trinidad and Tobago 2011

Improving Compliance Performance in Your Supply Chain

One of the important but often neglected areas in a best practices compliance program is that of effective supply chain management. While many companies have focused significant compliance program effort towards the sales chain, the supply chain is now being recognised as an area which requires compliance scrutiny. One of the questions routinely raised is how to endow vendors in your supply chain with the same urgency of compliance initiative that is present in your company.

The winter 2012 issue of the MIT Sloan Management Review in an article authored by Erica Plambeck, Hau Lee and Pamela Yatskoentitled “Improving Environmental Performance in your Chinese Supply Chain” has provided some guidance on this issue and explores the wider implications for improving compliance not only in the supply chain but also in the sales chain arena of a company.

The authors break their analysis down into two general areas. The first is “Getting to Know Your Supply Chain” and the second is “Act on Knowledge from Improved Chinese Transparency”.

Getting to Know Your Supply Chain
In this section, the authors suggest five activities which can help your company to foster identification and visibility of compliance into your supply chain.

1.    Provide incentives for identifying, disclosing and addressing problems. The authors note that many companies will audit suppliers, which they term “the checklist approach” but that such an approach does little to change behavior. The authors believe that incentivizing suppliers to do business in a more compliant manner will yield more significant compliance performance.

2. Collaborate with NGOs to facilitate compliance education and monitoring. You should encourage suppliers to work with non-governmental organizations (NGOs) in the anti- corruption area so that your suppliers will take greater responsibility towards compliance. This can be done by working with TRACE International, Transparency International or a NGO which works towards a global business ethic of anti-corruption and anti-bribery.

3. Make use of changing governmental attitudes towards corruption. Just as the Chinese government has changed its tune on environmental issues, it has recently done so regarding anti-corruption. This change can be used as a signal to Chinese companies of the need for increased awareness and importance.

4. Work with multi-brand forums to standardize compliance audits. This is an interesting concept which would allow a supplier to receive a compliance audit which could then be used as a reference point in the compliance due diligence portion of your supplier approval process.

5. Encourage anti-corruption transparency as an efficiency tool. While many believe that transparency means additional costs and slows down a sales or production cycle, many have found the opposite to be true. Companies which operate with greater compliance transparency not only do so more efficiently but also in a more cost effective manner.

Act on Knowledge from Your Supply Chain
With visibility into the five areas identified above, your company is now poised to improve performance. Once again, the authors are focusing on improving environmental performance, but I believe that their seven listed action steps work in the compliance arena as well; they are as follows:

1. Encourage training of compliance professionals. US companies can work towards training Chinese compliance professionals at their home companies. I realize that many out there will proclaim that such training cannot be done but several US companies provide such training to their third party business partners.

2.    Put skin in the game. Prospects for the greatest compliance improvements and conducting business in an ethical manner come from locations where both the US Company and Chinese supplier have a stake in the outcome. Not only is training a key, as noted above, but insert a compliance component into the financial of the relationship. Also work with the Chinese company to improve its compliance function through audits and assessments.

3. Learn from your suppliers and facilitate learning among your suppliers. US companies need to confront directly the cultural differences between both cultures. Additionally, a successful compliance program does not simply ram a US law, here the Foreign Corrupt Practices Act (FCPA), down the throats of local suppliers. Learn the nuances of local culture regarding gifts and entertainment from your suppliers and incorporate that knowledge into your training.

4. Collaborate with other US companies to drive change across suppliers. Work with industry groups to mandate that any supplier conducts business in an ethical manner.

5. Build collaborative training centers. This will not require your company to violate the Sherman Anti-Trust Act. Be a leader in your company and set up collaborative learning or training centers for compliance. Just as compliance is the most open business function within the US business community in terms of sharing best practices, use this compliance community to lead to ethical business in local suppliers.

6. Use your suppliers to train Tier 2 suppliers. This is a key component of the authors’ thesis. You should be able use your direct suppliers to train their suppliers. By creating such multi-stakeholder approaches, the DNA of compliance will be driven further down the supply chain.

7.    Tailor programs to local realities. Similar to step 3 above, you must tailor your message to your local audience. This includes your message roll out. Your compliance program roll out must take into account both human resources constraints and other local conditions while providing incentives to suppliers to take ownership of compliance.

This program may not be easy. However, the authors have provided a framework from which you can design an overall approach to inculcating compliance in your supply chain. I believe it portends a growing trend towards partnering with your business relationships to ensure compliance with not only international anti-corruption and anti-bribery regimes, such as the FCPA and UK Bribery Act, but also local anti-corruption laws. The article is well worth a look.

Excerpts © Thomas R. Fox, 2012

The Power of Documentation : Transparency Inconsistent with Criminal Intent

Documentation of decision-making provides critical protection from individual or corporate criminal liability.  In the absence of a contemporaneous record of why an individual/ company made a decision, such an entity may be exposed to allegations of improper actions and intent and particularly if the allegations are untrue, would have lost a critical opportunity to provide a robust defence to such allegations.  Having a culture of documentation can also hinder and stymie a potentially corrupt employee from pursuit of below the board intent.

Adequate documentation is said to be a powerful instrument in any effective Anti-Corruption Compliance Programme. 

Michael Volkov, Partner, Mayer Brown in his paper on "Anti-Corruption Compliance : Drilling down on Documentation" describes the documentation process as requiring the following three (3) specific steps:

1. A Documentation Protocol -- As part of a compliance program, the company needs to define exactly when and what type of documentation is required, and how documents should be created and preserved. This will be an important (but small) part of the company's document retention policy.

2. When Should A Company Create A Document? -- Documentation should be required in two situations: (1) issues identified at the senior management level; and (2) issues which come up vertically through the organization. Some issues will be delegated to legal and compliance officers below the senior management level. These issues should be identified in advance (e.g. gifts, meals, entertainment pre-clearance; hiring of former government officials ore relatives of government officials). Some discretion will reside in the senior management level but this is where the chief compliance officer, general counsel and internal auditing offices need to collaborate and coordinate so that information is shared, and decisions are coordinated.  Timing of the record could serve to strengthen or weaken a company's defence.  As a rule of thumb, documents should be recorded contemporaneously.

3. What Type of Documentation is Needed? When addressing a legal issue, the general counsel and chief compliance officer need to develop prescribed formats for describing the circumstances and the specific compliance issue and how the issue was resolved. The basic requirements for such documentation include:
(a) a description of the surrounding facts and circumstances;
(b) the legal and compliance policy issues;
(c) the resolution of the issue(s); and
(d) a brief statement as to the analysis and reasons for the decision. A record of review of the memo should identify who was involved in the decision-making process. The memorandum does not have to be lengthy, and the reasons do not have to be exhaustively explained. Some of the legal background paragraph(s) can be copied into each memorandum. The reasons for a decision are the important part of the memorandum.

By documenting the decisions reached by company officers and employees, a company acts with transparency which is inconsistent with criminal intent. The open consideration of a legal issue demonstrates good faith and negates a potential claim by prosecutors of corrupt intent.

Adequate documentation is of overwhelming importance particularly in the area of public procurement decision-making which is an area statistically demonstrated to be most vulnerable and attractive to potentially corrupt intent and actors. Documentation of the justification for the following decisions in a procurement process is critical:

(a) Reason(s) for the decision to acquire a particular good, work or service. This should include details of the requesting/recommending department or entity (eg, Ministerial or Board motivated)
(b) Reason(s) for the decision to buy/outsource as opposed to lease or handle in-house?
(c) Reason(s) for the choice of tender call format (eg., ITT, RFP, RFI, Sole Source, Negotiated, Limited, Open etc)
(d) Reason(s) for selection of winning bid/proposal. This should include who took the final decision and the process which was followed in Evaluation.
(e) If intentional, reason(s) for failures throughout the process (eg failure to sign contract prior to initiation of work)
(f) Reason(s) for changing project scope, variations, change orders etc.,

Establishing a Documentation Protocol is not the end of the matter and is certainly not an absolute guarantee.  Corporate leaders must demonstrate a commitment to such protocols by ensuring that employees are provided with adequate and effective training and by conducting random audits to ensure compliance. 

One potential danger exists where, there is a Documentation Protocol in place which is not faithfully followed. Failures in such a situation may serve to strengthen a case of impropriety against a company or individual.  If the company records some but fails to record a particular aspect of a matter which is subsequently deemed to be important, or seriously misstates the facts, or only makes a record some time after allegations are made, it may be aggressively argued that such conduct was deliberately subvertive and evidenced a criminal intent to deceive. Such a claim is very hard to rebut, especially when the documentation policy, and the other documents themselves can be cited as evidence of the company's good faith intent to comply.

That being said, to throw out the 'baby with the bathwater' cannot be a tenable solution as overwhelmingly, adequate documentation does serve to protect the documentor from claims of irrational (and potentially corrupt) decision-making. The benefits of a documentation policy far outweigh the possible risks and any effective compliance program must include a specific Documentation Protocol and Programme.


Excerpts from article by Michael Volkov, Partner, Mayer Brown in his paper on "Anti-Corruption Compliance : Drilling down on Documentation"

The Anatomy of Corruption in Public Procurement

Public procurement presents significant risk under the U.S. Foreign Corrupt Practices Act (FCPA). Cases like Siemens Argentina, Siemens Venezuela, Johnson & Johnson, and Tenaris highlight the risk. Large amounts of money are at stake when the government procures things like roads, computer systems, oil extraction services, medical equipment, power stations, and textbooks. Companies must interact directly with government officials. And government officials have pockets of discretion that can give rise to manipulation of the process. When corruption is involved, procurement decisions are no longer based on price, experience, and quality.

I investigated corruption and fraud for The World Bank for several years in multiple countries known for high corruption risk. Almost every one of these investigations involved an expensive public procurement that The World Bank was financing in whole or in part. This financing is what gave The World Bank the jurisdiction to investigate and proceed against companies and businesspeople that we had found to have engaged in wrongdoing.
Public Procurement is Common
Government procurement is more common than one might think. It has been estimated to account for 14 to 20 percent of a country’s GDP, which would be between $8.16 trillion and $11.65 trillion worldwide each year. In Mexico, for example, the federal government spent about $53 billion in 2008 on public procurements, constituting about 18.4 percent of Mexico’s GDP. In 2009, it spent about $78 billion.
Common Corruption Schemes in Public Procurement
Through my experiences in private practice and at The World Bank, I have seen several common corruption schemes in public procurements. Internal compliance officers should be especially vigilant when their companies engage in this area of work. Here are some common issues to watch for.

Sometimes procurement officials require that bidders hire “consultants” as a way to funnel money back to the officials. This formed the basis of one Baker Hughes action and several of the Siemens actions.
Sometimes companies will disguise direct payments to procurement officials as something else. In the Johnson & Johnson case, the company funneled money to procurement authorities at state-owned hospitals by using sales agents to award “civil contracts” to doctors, purportedly to conduct trainings for the company that never actually happened.
Sometimes companies hire “experts” that, with or without the company’s knowledge, previously worked for the procurement agency itself. These individuals still have contacts in the procurement offices. Maybe they even designed the actual specifications of the tender at issue.  As former officials, they know how to game the system.
Sometimes improper payments, if made during the project design phase, will influence procurement authorities to narrowly design a project’s specifications to benefit the company making the payments.
Sometimes project designers proactively seek to include complicated technical features in the tender. The more technical, the more room an official has to use discretion in the selection process to favor one bidder over another.
Sometimes companies gain access to confidential information, such as getting to see the tender specifications before they are officially released. In the Tenaris case, the company obtained access to competitors’ confidential bid information and then revised its own bids accordingly to win.
Sometimes procurement officials might choose to fully vet the bid of one company while giving a less rigorous review to the bid of another. In this way, companies that are unable to show appropriate qualifications and experience or the ability to deliver the appropriate product are still able to win the contract.
Sometimes companies will learn early on that a government is considering the procurement of goods and will then seek to “entertain” procurement officials before the tender process even begins. During these periods, actors are able to develop complicated schemes to transfer improper payments and direct contracts in return.
The World Bank does a good job in its publication, “The Most Common Red Flags of Fraud and Corruption in Procurement,” of highlighting other red flag in procurement. For example, when a procurement authority does not select a lowest bidder, repeatedly awards contracts to the same bidder, or changes the contract terms and values after the process concludes, investigators know to take a closer look.

High Alert Needed
Compliance officers should be on high alert when dealing with procurements. The above themes can help in structuring their own compliance measures to respond to risk.
In addition to being mindful of these corruption schemes, companies should also be mindful of the books and records and internal controls violations that can be associated with them. They should put mechanisms in place to ensure that management authorizes any use of agents, third parties are fully vetted and trained, transactions are accurately recorded in the books, backup documentation is maintained to justify expenses, and justification is maintained for the amount of fees paid to agents.
Companies should also make sure they know and follow the rules of public procurements. Almost every country has in place detailed rules that govern this activity. The World Bank requires countries to follow Procurement Guidelines for projects it finances. Companies should understand when they can and cannot interact directly with officials. They should know when it is appropriate to revise or clarify their bids. They should know and comply with timelines for submitting their bids, submitting clarification questions, and expecting procurement decisions.

 
@2012 Matteson Ellis Law, PLLC

Author: Matt Ellis

Another BRIC in the Anti-Corruption Wall (Brazil considers foreign bribery law overhaul)

The Brazilian Congress is now considering Draft Bill 6.826/2010 that would dramatically strengthen its foreign bribery law. This is a significant development – the result of years of effort by Brazilian authorities working closely with their OECD, United States, and other counterparts. It is also timely. Sophisticated Brazilian-based multinationals are quickly expanding internationally, and encountering corruption risk. At the same time, Brazil is grappling with corruption on the domestic front: the President’s administration has lost six Ministers to corruption allegations since June 2011, and the country consistently ranks high on corruption risk indices.
Brazil’s effort is part of a broader movement. Countries that have adopted the OECD Anti-Bribery Convention, the United Nations Convention Against Corruption and other treaties are working to strengthen their anti-corruption laws. The FCPA Professor summarized Turkey’s recent progress in an earlier post. The Brazilian bill should improve its treaty implementation status with the OECD. (Brazil’s gaps were highlighted in the OECD’s Country Monitoring Reports for Brazil.) Moreover, as a significant effort by a major economy and regional leader, this bill may have impact outside of Brazil.
These provisions constitute dramatic changes in the Brazilian legal system. According to Carlos Henrique da Silva Ayres, one of the attorneys heading the Anti-Corruption and Compliance Committee of the Brazilian Institute for Business Law (Ibrademp):

The new law still requires some adjustments; however, it should be more easily applied than current laws. It introduces features that are relatively new or non-existent in the Brazilian anti-corruption arena, such as the credits corporations will get for compliance programs, self-disclosure and cooperation with authorities.

Key Provisions in Brazil’s Draft Legislation
In addition to penalizing domestic bribery, Brazil’s draft bill prohibits bribery of foreign public officials, defining the act in a way that appears consistent with the OECD Anti-Bribery Convention. Some provisions are particularly relevant:
Corporate Liability. The draft bill establishes the direct civil liability of corporations (also known as “legal persons”) for bribery of foreign public officials. It also makes corporations liable for the acts of their directors, officers, employees and agents under the theory of respondeat superior. These are dramatic developments in a country where the notion of corporate liability has received only limited recognition.
These changes bring Brazilian law closer to the U.S. Foreign Corrupt Practices Act (FCPA). Why not extend criminal liability to corporations, like the FCPA does? The answer is reflected in Brazil’s civil law system. Unlike common law jurisdictions, civil law systems generally do not apply criminal liability to legal persons. Civil law typically considers corporations to be abstract, intangible entities that have no capacity for the mens rea (intent) required to establish criminal conduct.
The OECD Antibribery Convention recognizes this variation in legal systems and compensates for it. Article 3(2) provides:

In the event that, under the legal system of a Party, criminal responsibility is not applicable to legal persons, that Party shall ensure that legal persons shall be subject to effective, proportionate and dissuasive non-criminal sanctions, including monetary sanctions, for bribery of foreign public officials.

Tightened Sanctions. The draft bill would establish harsh consequences for bribery of foreign officials. Fines would range between 1% and 30% of the company’s gross revenue. In addition, the bill would make prosecutions public, potentially creating reputational risk. Companies can be debarred from public contracts based on bribery violations.
These steep penalties appear responsive to the requirement of sanctions that are “effective, proportionate and dissuasive.” If the legislation is enacted, it will be important to watch how Brazilian courts apply these sanctions. The OECD Working Group on application of the convention is certain to review that question (see a previous review here).
Voluntary Disclosure, Cooperation, and Compliance Programs. The draft bill provides that the government should take into account voluntary disclosure, cooperation with government investigations, the existence of pre-existing and effective compliance programs, and other factors when determining sanctions. Specifically, Article 9 states:

The following will be taken into consideration at the application of the sanction:
I. the seriousness of the offense;
II. the advantage obtained or sought;
III. the accomplishment or non-accomplishment of the offense;
IV. the extension of the breach or the danger of injury;
V. the negative result caused by the injury;
VI. the economic status of the company;
VII. the cooperation in investigating the facts, through practices such as reporting violations to public authorities before a legal proceeding is initiated and the promptness in providing information in the course of investigations; and
VIII. the existence of internal integrity mechanisms and procedures, audits, and incentives to report violations, as well as the effective application of codes of ethics and conduct within the company.

This also makes the Brazilian approach similar to that of the FCPA. In fact, many of the provisions in the Brazilian bill appear to be directly lifted from the U.S. Department of Justice’s McNulty Memorandum and Chapter 8 (Sentencing of Organizations) of the 2010 United States Federal Sentencing Guidelines. But the bill goes further than the FCPA by incorporating considerations of such factors into the law. Under the FCPA, such factors make up enforcement policy and practice.
The difference, again, flows from Brazil’s civil law system. As a general principle of law, prosecutors and public authorities do not have discretion to seek specific sanctions. Rather, sanctions must be determined in accordance with a written law. Invoking a memorandum on enforcement practice would have little, if any, effect before a Brazilian court. In order to have any relevance, considerations like cooperation and compliance must be written into the law.
Mr. Ayres, along with Bruno Carneiro Maeda (also of Ibrademp), have testified before the Brazilian Congress about the draft legislation. They point out some lingering questions related to Article 9. They seek clarification on whether companies will get credit for their cooperation after proceedings have already begun. They are also concerned that the draft bill does not describe the elements of a credit-worthy compliance program.
Foreign Official. The Brazilian draft bill defines “Foreign Public Administration” and “Foreign Public Official” in a way that is consistent with the OECD and United Nations Conventions. Specifically, Article 6 provides:

The agencies and government entities or diplomatic representations of a foreign country are considered foreign public administration, no matter their level or sphere of government, as well as companies held directly or indirectly by the government of a foreign country.
For purposes of this law, a foreign government official is any individual who, although momentarily or without payment, holds a public position, employment or function in any public agency or entity or diplomatic representations of foreign country, and also in companies held directly or indirectly by the government of a foreign country or in any international public organization.

This definition encompasses a broad range of entities, including agents of the state, state-owned enterprises, international public organizations, and other instrumentalities of the state. This definition would make employees at these entities “foreign public officials.” The broad definition appears to stand in contrast with ongoing efforts in the United States to clarify or narrow the
meaning of that term.
Accounting Provisions. The Brazilian draft bill does not include any accounting provisions, as required under Article 8 of the OECD Anti-Bribery Convention. However, Brazil’s laws provide similar provisions elsewhere, which work to meet the OECD requirement as noted in the OECD Working Group Phase II Report. The report also notes that, while an advanced framework for accounting requirements exists under other laws, requirements under the law for internal controls have room for development.

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.
The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.
@2012 Matteson Ellis Law, PLLC

Author: Matt Ellis

The End is Nigh for Facilitation Payments – Get Ahead of the Breeze

Last summer, an article was published in the University of Pennsylvania, Journal of Business Law, entitled “The OECD’s Call for an End to the ‘Corrosive’ Facilitation Payments and the International Focus on the Facilitation Payments Exception under the Foreign Corrupt Practices Act”. It was authored by Jon Jordan, Senior Investigations Counsel, in the Foreign Corrupt Practices Act (FCPA) Unit of the Securities and Exchange Commission (SEC). In this article, Jordan reviews, at length, the creation of the facilitation payment exception to the FCPA and the international criticism of the US position by the Organization of Economic Co-operation and Development (OECD), Transparency International, the World Economic Forum and TRACE International. The article also contains a discussion of the hidden costs to US companies which still allow facilitation payments under their company compliance regimes. I found this article to be an excellent review of the issue of facilitation payments and a useful guide to the compliance practitioner on how to navigate this knotty problem.

Costs of Facilitation Payments
1. The Bull’s Eye
Jordan notes that the cost of making facilitation payments is often higher than simply the (purportedly) small dollar amount. He believes that once a company starts down the road of making such payments, it may well lead “to higher costs imposed on those companies that choose to engage in that type of activity.” He quotes Alexandra Wrage, President of TRACE International, that having a corporate policy of allowing facilitation payments is like “putting a bull’s eye on your company’s forehead” as the payment of facilitation payments sets “a permissive tone, which leads to more and greater demands.”
2. Books and Records Issues
A second reason detailed by Jordan is the hidden intra-corporate transaction costs in making facilitation payments. There are a “complex matrix of domestic and foreign anti-bribery laws that companies must navigate when making facilitation payments, and steering through that matrix can be a compliance nightmare and a costly legal undertaking.” The clearest example of this situation is the UK Bribery Act, which has no exception for facilitation payments. If your company has a UK subsidiary, or any employees who are UK citizens, you must carve out an exclusion for them from your facilitation payment exception under your FCPA compliance policy. Got that? So not only must you have an entire carve out in your compliance protocols, your internal accounting system, which is required under the FCPA to record internal controls, you must also make sure that no UK citizen or person otherwise under the jurisdiction of the UK Bribery Act, makes such a claim for reimbursement under your company policy.
 3. Customers
The same is true for large UK based multi-national companies with which your company might transact business. The most obvious example in the energy arena is BP, which not only bans facilitation payments, but requires that any company which provides services for them ban facilitation payments made while doing work for or performing services on BP’s behalf. So think through how you would train your employees on how to properly make and record facilitation payments under your FCPA compliance policy with the HUGE EXCEPTION of when they might be performing some work under the 5 year Master Services Agreement with BP. It’s an administrative nightmare.
Is it Legal to Bribe?
Jordan also brings up the issue that there is not any country in which facilitation payments to public officials of that country are permitted under the written law of the recipient’s country. Accordingly, even if a particular facilitation payment qualifies for an exception of the FCPA, it, nevertheless, is likely to constitute a violation of local law – as well as under anti-bribery laws of other countries that also might apply simultaneously – and thus exposes the payer, his employer and/or related parties to prosecution in one or more jurisdictions. While enforcement to date in this area has been limited increased global attention to corruption makes future action more likely. Countries that are eager to be seen as combating corruption are prosecuting the payment of small bribes with greater frequency. Remember the hellish example of UK citizen Bill Smith, who was sentenced to two years imprisonment in an Afghanistan prison for making a ‘facilitation payment’ to get his company’s vehicles out of a Kabul impoundment lot. Apparently, even Afghanistan will fight the corruption of its own government officials, particularly if the fight involves a foreigner.
You Don’t Need a Weatherman
Jordan concludes by stating, “The facilitation payments exception has become a dinosaur remnant of a bygone era…” He advises US companies to get ahead of this issue and ban such payments in their company compliance programs now. This is sound advice. I would, however, add one additional reason for such advice, which is foretold in the intro paragraph to this article.
Who does the author work for and where does he work? Let’s recap: The SEC in the FCPA Unit. The article clearly states, “The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement of its employees…and do not necessarily reflect the views of the Commission…” Did I mention who the author works for and where he works? You don’t need a weatherman to know which way the wind blows and the direction of that breeze you feel at your back about now is clearly running against allowing the facilitation payments to continue.


© Thomas R. Fox, 2012