August 08, 2012

George Martin Advises on Designing a Facilitation Payments Policy in The FCPA Report

George Martin explained the value of flexibility in a facilitation payments policy and emphasized the importance of rigorous internal review in the article, "Designing a Facilitation Payments Policy to Minimize Liability and Retain Flexibility (Part Two)" in The FCPA Report.

Rather than instituting a complete ban on facilitation payments, companies might want to consider scenarios that would warrant an exception to a ban, according to The FCPA Report. "I think it's recognized that if the [facilitation] payment needs to be made in order to avoid physical harm or someone is in duress, those payments are characterized as falling within the acceptable parameters for facilitation payments," Martin said.

According to Martin, another critical question to ask when evaluating a one-off exception to a ban on facilitation payments is: "Would it put business to a standstill if you didn't pay it?"

In Martin's view, "An FCPA compliance policy that allows for facilitation payments should track the statute. The FCPA is very specific about the types of payments and the nature of the services that are exempt from the bribery provisions. The first point is to make sure that the policy of allowing facilitation payments is as close to the statute as possible."

While some exceptions to a ban should be considered, companies should develop a facilitation payments policy that includes a prior approval process, Martin told The FCPA Report.

"Companies not yet ready to make an absolute prohibition of these payments are getting more rigid about requiring advance, written approval from the compliance team or general counsel's office before anyone may offer or make a facilitation payment," Martin said. "Companies are recognizing the significant risk associated with allowing lay persons outside the United States to make nuanced and critically important judgments as to whether the proposed payment satisfies the criteria for a permissible facilitation payment under U.S. law. Delegating that decision just isn't a good idea." 

Martin emphasized to The FCPA Report the need for a specific request to a lawyer or compliance officer, or someone working for either such person. "The best way to approach this is to have a written policy that prohibits facilitation payments unless they are approved in advance and received in writing by a responsible individual who is well-versed in the law, such as the compliance officer, the general counsel or someone acting on their behalf or under their direction." He detailed what should be in the request: "You need to make a request explaining the reasons for the payment and why it is considered necessary. You should identify who the recipient is, the nature of his or her job, what is being requested and why, the amount that is going to be provided and any other relevant facts and circumstances. Only then can a judgment be made as to whether that is appropriate and within the company's policy for allowing facilitation payments."

"It is really important from a process standpoint to require approval for those facilitating payments if they are going to be allowed so that you don't have individuals who are not versed in the nuances of the FCPA making judgments as to whether the payment is permissible," said Martin.

Although a company may want to make facilitation payments only in the presence of a Department of Justice (DOJ) or Securities and Exchange Commission (SEC) opinion, this course of action is not realistic, Martin told The FCPA Report. "For common, routine questions, you are not going to receive guidance from the SEC or the DOJ. If you need guidance, there are FAQs on both entities' websites with guidance."

It is also important to accurately track facilitation payments. Issuers, which are subject to the FCPA's accounting provisions, are required to meet various recordkeeping standards and have certain internal controls in place worldwide," Martin said. "This means, among other things, making entries on the company's books and records that accurately and fairly reflect all transactions – including the provision of any facilitation payments. Any facilitation payments should be clearly identified and recorded as such."

Martin said that the first step with respect to facilitation payments is to have "a comprehensive written FCPA compliance policy, with clear guidelines and procedures in place, and with genuine management support for it."

Martin said "all relevant personnel must be trained thoroughly, and regularly, regarding what the FCPA requires, and prohibits. If facilitation payments are to be allowed," Martin told The FCPA Report, "adequate written explanation and in-person training must be provided to ensure that the exception is well understood, and that procedures for obtaining advance approval to offer or provide such a payment are observed." 

Read a summary of Part One of this article. The full article is available by subscription only.

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