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24 Nov 2011

Foreign anti-bribery laws - will Government abandon a critical protection?

by Gary Berson, Dr Michael Maxwell

The possible removal of the facilitation payments defence to foreign bribery is a potentially critical development for companies doing business in international jurisdictions that pose challenging corruption issues.

On 15 November 2011, the Federal Government published a consultation paper, Assessing the ‘facilitation payments’ defence to the Foreign Bribery offence and other measures, and invited public comment on, amongst other things, whether the facilitation payments defence should remain under Australian foreign bribery laws.

Companies potentially affected by this proposed change should consider preparing a submission to ensure that their circumstances and views are taken into account before any final decision is made. The deadline for submissions is 15 December 2011.

The Government makes the fundamental mistake of assuming that facilitation payments are just a bribe and must be prohibited. As outline below, it hasn't thought through such issues as developing countries' unsophisticated tax systems and inability to afford to pay for public services we take for granted.

For example, a company may require postal services 30 hours per week where only 6 hours are available and the government requires payment to provide the extra 24 hours.

This is precisely the type of situation that many companies encounter in places such as sub-Saharan Africa and for which the facilitations payment defence is designed. Similar examples abound for other industries operating in severely under-resourced countries where corruption is endemic.

The inability to pay small amounts for routine government services may put Australian companies at a significant disadvantage across a range of industries and jurisdictions, particularly those associated with mining or pharmaceuticals.

Anti-bribery law and the facilitation payments defence

Australia, and other countries that ratified the 1998 OECD Convention on combating bribery, all prohibit in similar terms the giving or offering of any benefit to another with the intention of influencing a foreign public official to obtain or retain business, or to secure an improper business advantage.

An important defence is that a benefit was a "facilitation payment", which can lawfully be made where:

  • its purpose is to expedite or secure a "routine government service" that the company would have been entitled to in the ordinary course of business;
  • it does not relate to a decision about whether to award new business, continue existing business or the terms of new or existing business; and
  • the payment is of a minor nature and is accounted for clearly and accurately.

Rationale for change

The motivation for change is broadly outlined in the consultation paper. In our view, it primarily represents a reaction to the introduction of the UK Bribery Act on 1 July this year, which is widely considered the most onerous and broad reaching anti-bribery legislation and is also the first (and currently only) jurisdiction to prohibit facilitation payments.

  • The prohibition of facilitation payments in the UK Bribery Act poses unique difficulties for companies subject to that jurisdiction. The consultation paper makes light of those difficulties.
  • The UK approach lacks the clarity of the US and Australian defence and there is no jurisprudence to guide how such payments ought to be interpreted, with little clarity forthcoming from the UK Government.

The paper acknowledges that the US (the leading jurisdiction) retains the facilitation payment defence but focuses instead on the US government having publicly stated that it does not condone facilitation payments and that the OECD has recommended the US review its policy.

Key competing arguments

The consultation paper sets out a number of arguments for removing the defence (all of which have significant deficiencies), including:

  • Compliance with international treaty obligations and consistency with foreign laws / international standards – on the basis that there are international moves towards criminalising such payments and by reference to inconsistencies with the UK Bribery Act.
  • Regulatory certainty – afforded by an outright ban to "ensure that bribery does not occur" and not having to distinguish between a bribe and a facilitation payment.
  • Reducing corruption and associated delays and costs – based on reported "research" and anecdotal evidence that refusal to pay reduces subsequent demands.

The paper largely dismisses the few acknowledged arguments in favour, on the basis that each has, at its source, the problem of corruption. The Government appears not to have considered at all such factors as:

  • the fact that facilitation payments are often necessary for companies to operate because some governments simply don't have the resources to provide required routine services. The issue may not be one of corruption but a fundamental lack of resources; and
  • its importance in encouraging and allowing international companies to continue to invest in high risk under-resourced areas and the significance to local communities and developing countries of the social development programs and infrastructure implemented by those companies.

Conclusion

This is a legally complex and practically difficult area. The paper skirts over that complexity and appears to start from a belief that facilitations payments are inherently corrupt.

We do not agree. When the OECD first proposed international anti-bribery obligations, facilitation payments were considered separate to bribery on grounds that "small facilitation payments" did not constitute an attempt "to obtain or retain business or other improper advantage". In our view, nothing has occurred in the interim to call into question that important distinction.

The current defence provides a confined exemption to illegal payments based upon a recognised practical need and lack of corrupt intent. It provides much needed certainty to businesses operating in difficult jurisdictions about how their conduct will be judged against international anti-bribery obligations.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.