FCPA Compliance Training: Clarity Needed

Extortion

A World Bank study and Confer-ence Board report quotes the comments of company trainers who presented the following question to a class of East Asian students: 'A government official asks for $5000 before a decision can be made regarding our business. Do you pay him?' The instructors reported being astonished that not a single discussion group chose the desired response: 'No!' The instructors found this exasperating because they considered that particular problem to be a 'straightforward bribery question'; indeed, their own management reviewers had remarked that the question seemed 'ridiculously easy.'

The proposed explanation of this story in the World Bank's report is that for cultural reasons these students were inhibited about 'just saying no' to a government official. That inhibition led them to opt for lame responses such as 'Speak with your manager' or 'Pay and get a receipt.'

Another possible explanation, however, is suggested by the report's description of the case as a straightforward bribery question. Plainly the scenario describes not bribery but extortion. If indeed the instructors themselves used these terms interchangeably, one wonders if 'bribery' and 'extortion' were carefully defined before the exercise. If not, the students' hesitation to clearly label the scenario corrupt would be more understandable. Legal definitions vary from common usage, and regional variations compound the problem. But at least in American English usage, 'bribery' is commonly thought of as being initiated by the briber, and 'extortion' is more commonly associated with personal blackmail and organized crime than with its technical legal meaning: demands for bribes by government officials.

Bribery

To get a deeper sense of the definitional difficulty, let's look more closely at the notion of bribery and attempt to distinguish it from some other concepts.

While culprits alone defend extortion, others sometimes contend that bribery can be a good or even life-saving practice, specifically when it is used to subvert the evils of a corrupt regime. The latter case is of course important, but it is also a conceptual red herring that should not be allowed to complicate the definition of bribery.

By way of analogy, surgery is technically 'battery' in the absence of informed consent, but such consent cannot even be implied in some cases of life-saving emergency medical treatment. Instead of trying to define away the problem by saying that emergency treatment isn't battery, a legislature can more straightforwardly protect medical practitioners by trumping the law of battery with a 'Good Samaritan' law.

Similarly, an oppressed person who bribes his or her way out of a murderous police state is indeed committing bribery; even the element of corrupt intent is present. Our approval of the practice in this special case is merely a matter of accepting the lesser of two evils.

Facilitating Payments

If bribery to combat oppression is a different kettle of fish, the exclusion of 'facilitating payments' from anti-bribery laws is better described as a can of worms. Amendments to the FCPA in 1988 opened this can by excusing 'any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.'

The amendment helpfully listed some examples of 'routine government actions':

• Obtaining permits, licenses, or other official documents;
• Processing governmental papers, such as visas and work orders;
• Providing police protection, mail pick-up, and delivery;
• Providing phone service, power, and water supply;
• Loading and unloading cargo, or protecting perishable products; and
• Scheduling inspections associated with contract performance or transit of goods across the country.

Some commentators have characterized the facilitating payments exception as a well-intentioned move meant to focus the initial international anti-bribery campaign on legally 'grand' rather than 'petty' offenses. The time for zero tolerance would come later. Meanwhile, winking at minor payments would let international firms get licensed and get their telephones installed in weeks rather than years.

Regrettably, however, the definitional uncertainty created by the facilitating-or-expediting payments exception has been utterly confounding when it comes to compliance administration, and even more so to compliance training.

For example, the aforementioned World Bank report quotes a company FAQ's response to the question 'I don't understand the difference between a facilitation payment and a bribe.' The FAQ necessarily punts, saying that employees 'need to consult their manager and the legal department.' Firms can also seek an advisory opinion from the Department of Justice ('DOJ') under the FCPA Opinion Procedure. But the procedure allows DOJ to take up to a month to reply to each question after getting the scenario clarified to its satisfaction.

Especially for small (or even small-percentage) payments, a source of further confusion is that facilitating payments are often compared to commercial tipping. Flat-rate tipping in some restaurants does indeed seem comparable to a facilitating payment. In regions where government officials often go months without a paycheck, even the spirit of facilitating payments may to some extent be benign.

By contrast, handsomely tipping the maitre d' in a restaurant to bypass the queue is far more akin to bribery. And so is any 'expediting payment' that unfairly disadvantages others queued for a government service.

Similarly, a facilitating payment to an official who will otherwise obstruct one's business should be understood as a failure to resist extortion.

Closing Thoughts

Anticorruption training is inherently challenging, even apart from the need of some organizations to deliver training and guidance in multiple languages and varying cultural contexts. Conceptual clarity is essential for strengthening resistance to corruption.

'Bribery' as defined under the FCPA requires the corrupt intent to influence a government official to grant new business or retain existing business. I think the 1988 amendments would have caused less confusion if they had addressed the issue of intent, rather than focusing only on the type of government action being paid for. For example, the amendment could have said that small customary payments for routine governmental actions would benefit from a presumption that they were made without corrupt intent.

When the FCPA and related international conventions are next revised, it will in any case be desirable for drafters to pay closer attention to the impact of new changes on compliance administration and training.

Joe Danowsky is the editor-in-chief of this newsletter.

Just as corruption saps the entire GDP of many countries, it can destroy the profitability of a firm's overseas (or, for that matter, overall) business. My 'Confronting Corrupt Practices' article in A&FP's June 2007 edition surveyed some aspects of anticorruption training that law firms should consider.

That article identified 'hearts and minds' motivational training as essential for maintaining an organization's moral compass. But it also noted that the training challenge is complicated by definitional issues, especially those relating to the exception for 'facilitating payments' allowed by the Foreign Corrupt Practices Act ('FCPA'). This article briefly elaborates on that aspect of the problem.

While the ultimate goal of anticorruption training is to get all firm representatives to act properly, a key intermediate training goal is to help them clearly understand the topic. Even those with formal legal training may need to wrestle with the inherent ambiguity of some bribery-extortion situations; but for staff employees and business agents of the firm, it's primarily important that training support clear acquisition of basic concepts.

Extortion

A World Bank study and Confer-ence Board report quotes the comments of company trainers who presented the following question to a class of East Asian students: 'A government official asks for $5000 before a decision can be made regarding our business. Do you pay him?' The instructors reported being astonished that not a single discussion group chose the desired response: 'No!' The instructors found this exasperating because they considered that particular problem to be a 'straightforward bribery question'; indeed, their own management reviewers had remarked that the question seemed 'ridiculously easy.'

The proposed explanation of this story in the World Bank's report is that for cultural reasons these students were inhibited about 'just saying no' to a government official. That inhibition led them to opt for lame responses such as 'Speak with your manager' or 'Pay and get a receipt.'

Another possible explanation, however, is suggested by the report's description of the case as a straightforward bribery question. Plainly the scenario describes not bribery but extortion. If indeed the instructors themselves used these terms interchangeably, one wonders if 'bribery' and 'extortion' were carefully defined before the exercise. If not, the students' hesitation to clearly label the scenario corrupt would be more understandable. Legal definitions vary from common usage, and regional variations compound the problem. But at least in American English usage, 'bribery' is commonly thought of as being initiated by the briber, and 'extortion' is more commonly associated with personal blackmail and organized crime than with its technical legal meaning: demands for bribes by government officials.

Bribery

To get a deeper sense of the definitional difficulty, let's look more closely at the notion of bribery and attempt to distinguish it from some other concepts.

While culprits alone defend extortion, others sometimes contend that bribery can be a good or even life-saving practice, specifically when it is used to subvert the evils of a corrupt regime. The latter case is of course important, but it is also a conceptual red herring that should not be allowed to complicate the definition of bribery.

By way of analogy, surgery is technically 'battery' in the absence of informed consent, but such consent cannot even be implied in some cases of life-saving emergency medical treatment. Instead of trying to define away the problem by saying that emergency treatment isn't battery, a legislature can more straightforwardly protect medical practitioners by trumping the law of battery with a 'Good Samaritan' law.

Similarly, an oppressed person who bribes his or her way out of a murderous police state is indeed committing bribery; even the element of corrupt intent is present. Our approval of the practice in this special case is merely a matter of accepting the lesser of two evils.

Facilitating Payments

If bribery to combat oppression is a different kettle of fish, the exclusion of 'facilitating payments' from anti-bribery laws is better described as a can of worms. Amendments to the FCPA in 1988 opened this can by excusing 'any facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.'

The amendment helpfully listed some examples of 'routine government actions':

• Obtaining permits, licenses, or other official documents;
• Processing governmental papers, such as visas and work orders;
• Providing police protection, mail pick-up, and delivery;
• Providing phone service, power, and water supply;
• Loading and unloading cargo, or protecting perishable products; and
• Scheduling inspections associated with contract performance or transit of goods across the country.

Some commentators have characterized the facilitating payments exception as a well-intentioned move meant to focus the initial international anti-bribery campaign on legally 'grand' rather than 'petty' offenses. The time for zero tolerance would come later. Meanwhile, winking at minor payments would let international firms get licensed and get their telephones installed in weeks rather than years.

Regrettably, however, the definitional uncertainty created by the facilitating-or-expediting payments exception has been utterly confounding when it comes to compliance administration, and even more so to compliance training.

For example, the aforementioned World Bank report quotes a company FAQ's response to the question 'I don't understand the difference between a facilitation payment and a bribe.' The FAQ necessarily punts, saying that employees 'need to consult their manager and the legal department.' Firms can also seek an advisory opinion from the Department of Justice ('DOJ') under the FCPA Opinion Procedure. But the procedure allows DOJ to take up to a month to reply to each question after getting the scenario clarified to its satisfaction.

Especially for small (or even small-percentage) payments, a source of further confusion is that facilitating payments are often compared to commercial tipping. Flat-rate tipping in some restaurants does indeed seem comparable to a facilitating payment. In regions where government officials often go months without a paycheck, even the spirit of facilitating payments may to some extent be benign.

By contrast, handsomely tipping the maitre d' in a restaurant to bypass the queue is far more akin to bribery. And so is any 'expediting payment' that unfairly disadvantages others queued for a government service.

Similarly, a facilitating payment to an official who will otherwise obstruct one's business should be understood as a failure to resist extortion.

Closing Thoughts

Anticorruption training is inherently challenging, even apart from the need of some organizations to deliver training and guidance in multiple languages and varying cultural contexts. Conceptual clarity is essential for strengthening resistance to corruption.

'Bribery' as defined under the FCPA requires the corrupt intent to influence a government official to grant new business or retain existing business. I think the 1988 amendments would have caused less confusion if they had addressed the issue of intent, rather than focusing only on the type of government action being paid for. For example, the amendment could have said that small customary payments for routine governmental actions would benefit from a presumption that they were made without corrupt intent.

When the FCPA and related international conventions are next revised, it will in any case be desirable for drafters to pay closer attention to the impact of new changes on compliance administration and training.

Joe Danowsky is the editor-in-chief of this newsletter.