Facilitation payments have been an issue in the business world for many years. Despite what many have come to believe, facilitation payments can bring significant legal problems for those who seek to use them.
This article explains what facilitation payments are, the law in relation to them and the approach that those in business should take to them.
What are facilitation payments?
A facilitation payment is also referred to as a grease payment or a facilitating payment. The definition of a facilitation payment is a payment that is made to a public or government official to facilitate legal or governmental proceedings – a way of ensuring a task is carried out quicker or more efficiently than it would have otherwise been done.
Facilitation payments are used to make something happen that is legal and would have happened anyway, although probably not as quickly. But, in a number of countries, such a payment is illegal as it is considered to be a bribe – and offering, requesting or accepting a bribe is an offence.
It should be emphasised that facilitation payments are different from business hospitality, where gifts and services are offered with “no strings attached’’.
Are facilitation payments legal in the UK?
Facilitation payments are not legal in the UK. Under the UK Bribery Act 2010, facilitation payments are considered to be a form of bribery and can be penalised, with cases often sent to the Serious Fraud Office (SFO) for investigation and prosecution. Under section 7 of the Act, failure of a commercial organisation to prevent bribery is an offence.
The international reach of the Bribery Act means that using or attempting to use facilitation payments outside of the UK is still an offence that can be prosecuted in the UK, if the accused person has a connection to the UK.
If you are found to have made facilitation payments, the penalties under the Bribery Act can be severe - up to ten years in prison, an unlimited fine or both.
Other Countries’ Approach to Facilitation Payments
The United Nations Convention against Corruption (UNCAC) prohibits facilitation payments. Germany, like the UK, treats facilitation payments as bribery.
But some countries take a different approach.
For example, since 2006 in Australia, facilitation payments have been allowed. But they are only legal if they are “offered for the sole or dominant purpose of expediting or securing performance of a routine government action of a minor nature,” according to the Criminal Code.
However, the controversial nature of facilitation payments has encouraged some Australian states to override the federal legislation and deem facilitation payments illegal and a form of bribery.
In the US, facilitation payments are legal as they are viewed as a legitimate payment that speeds up an official process but do not change the outcome of that process. While the US has the Foreign Corrupt Practices Act 1977 (FCPA), which makes it illegal to pay bribes to foreign officials, facilitation payments are an exception to this.
The US has the Omnibus Trade and Competitiveness Act of 1988, which makes it legal to make “facilitating or expediting payments” to help progress a routine governmental action that involves non-discretionary acts (an act to prevent an emergency that is out of the payment maker’s control).
But even in countries where facilitation payments are legal, many companies tend not to use them because they are difficult to distinguish from bribery, which could lead to prosecution. It remains the case that it can be hard to determine the precise difference (in countries where facilitation payments are legal) between what is a lawful facilitation payment and what is an illegal bribe.
Facilitation Payments vs Bribery
While, as mentioned before, it can be difficult to determine what will be considered a bribe and what may be considered a facilitation payment, there is a general difference.
It can be important to understand this difference. In countries where facilitation payments are legal, such understanding could help a company or individual avoid making a payment that could lead to them being prosecuted for bribery. Although it should be emphasised that the difference can, in certain circumstances, be very subtle and so great care needs to be taken when considering making any type of payment.
The main two differences are that a bribe tends to mean making a payment to persuade an official to do something they would not (and should not) usually do for you. But a facilitating payment is paid to speed up a procedure that you are entitled to use. In addition to this, bribes are illegal in most countries whereas facilitation payments are allowed in some nations.
Facilitation Payments Vs Business Hospitality
There is sometimes uncertainty about what can be considered lawful business hospitality (which is food and drink served at legitimate business events) and what is a facilitation payment (which would be treated as illegal bribery in many countries).
The offering of business hospitality (also known as corporate hospitality) and gifts is legal. But it is only legal if what is given freely is reasonable and proportionate to the business and does not come with any strings attached - meaning it is not being given on the understanding that it will be repaid with some form of favour or benefit. Gifts or hospitality cannot be given or offered to officials in exchange for quicker services or services that the giver is not entitled to.
Facilitation Payment Examples
There are various situations in which people or companies may attempt to use facilitation payments to obtain a particular outcome.
Examples include:
- A company looking to do business in a new country that gives a local council or authority a cash payment to ensure the process of obtaining the necessary paperwork and permits runs as smoothly and quickly as possible.
- Payments to customs authorities to speed up the processing of goods that are stuck at the border.
- Paying to speed up the process for an export licence to be issued for a company’s goods.
What are the legal consequences for facilitation payments in the UK?
In the UK, facilitation payments are treated as bribery and are illegal under the Bribery Act 2010. Under section 7 of the Act 2010, failure of a commercial organisation to prevent bribery is an offence. Under this Act, it is illegal to make such payments both in the UK and abroad.
Cases can be referred to the Serious Fraud Office for investigation and prosecution. The penalties for involvement in facilitation payments can be severe under the Bribery Act. The maximum penalty is up to ten years in prison, an unlimited fine or both.
Preventing Facilitation Payments in Your Business
The issue of facilitation payments is one that has to be approached carefully by those in business. They have to ensure they do nothing that could be viewed as facilitation payments by the authorities in countries where such activity is illegal. Even in counties where facilitation payments are allowed, they must ensure that their activity cannot be seen as bribery by the authorities, which could lead to prosecution.
Companies need to be vigilant when it comes to their staff and any representatives working on their behalf. They must ensure nobody acting for the company is doing anything that could lead to prosecution for making facilitation payments (or for bribery in countries where facilitation payments are legal). Staff must be made aware of the law and the importance of complying with it.
Facilitation payments is an area of law that requires close attention to what is and what is not allowed. There may be companies that are unsure of the fine line between legal and illegal when it comes to such payments. If that is the case, they should be seeking expert legal advice to ensure that nothing they do breaks the law.
At Rahman Ravelli, our legal teams have an in-depth knowledge of facilitation payments. They can provide advice on assessing a company’s risk of being involved in such conduct and can represent those who find themselves accused of breaking the law by making such payments.
Notable Facilitation Payments Case
One example of a notable facilitation payments case is the 2016 settlement that German authorities reached with logistics provider DB Schenker over allegations that the company bribed port officials in St Petersburg, Russia.
Schenker agreed to pay a fine of €2 million and 30 Schenker executives lost their jobs as a result of the scandal. The prosecutors said the fine would have been higher if it wasn’t for DB Schenker’s very high level of cooperation with the investigation and the fact that the case was started following a report its parent company made to prosecutors.
The allegations involved payments being made to speed up the extremely slow customs clearing process for deliveries of supplies to a nearby Ford plant. It was alleged that DB Schenker paid local tax collectors a ‘service fee’ for fast clearance. Schenker paid this fee to a Russian agency which then transferred the funds to accounts in Switzerland and Cyprus. These accounts belonged to a financial holding entity, registered in the Caribbean and owned by the Russian agency. DB Schenker was said to have transferred up to €2.25 million to the Russian agency over two and a half years.
