Facilitation payments

Definition

Facilitation payments are small sums of money paid to foreign officials to expedite or secure the performance of a routine governmental action. These payments are often considered bribes under the Foreign Corrupt Practices Act (FCPA), which aims to prevent corruption in international business transactions. While some argue that these payments can help navigate bureaucratic hurdles, they can lead to ethical dilemmas and legal consequences if perceived as corrupt practices.

5 Must Know Facts For Your Next Test

1. The FCPA explicitly allows for facilitation payments as long as they are made to expedite routine governmental actions and do not influence the official's decision-making.
2. Facilitation payments are controversial because they can blur the lines between legitimate business practices and bribery, leading to potential legal issues.
3. Many countries have stricter laws than the FCPA regarding facilitation payments, which could expose businesses to legal risks abroad.
4. Some multinational corporations have adopted zero-tolerance policies toward facilitation payments to uphold ethical standards and maintain their reputations.
5. The OECD Anti-Bribery Convention discourages facilitation payments, encouraging member countries to outlaw them altogether.

Review Questions

• How do facilitation payments relate to the principles outlined in the Foreign Corrupt Practices Act?
  • Facilitation payments are defined within the context of the Foreign Corrupt Practices Act as payments made to expedite routine governmental actions. The FCPA allows such payments under specific circumstances, differentiating them from outright bribery. However, companies must be cautious because what constitutes a routine action can vary widely by jurisdiction, potentially leading to legal complications if misinterpreted.
• Evaluate the ethical implications of facilitation payments in international business operations.
  • Facilitation payments raise significant ethical concerns because they can foster a culture of corruption and undermine fair competition. While some businesses justify these payments as necessary for navigating bureaucratic processes, they risk perpetuating systemic corruption. This not only affects the integrity of the market but can also damage the company's reputation and violate local laws in jurisdictions where such practices are prohibited.
• Assess the impact of different international regulations on facilitation payments and how businesses can adapt their strategies accordingly.
  • International regulations surrounding facilitation payments vary significantly, with some countries allowing them while others strictly prohibit any form of payment meant to influence officials. Businesses must conduct thorough research into the legal frameworks of the countries they operate in and implement robust compliance programs. This may involve training employees on ethical standards, establishing clear guidelines against facilitation payments, and developing strong internal controls to ensure adherence to both local laws and international standards.

Related terms

Foreign Corrupt Practices Act:

A U.S. law that prohibits bribery of foreign officials and requires companies to maintain accurate records and internal controls.

Bribery: The act of giving or receiving something of value to influence the actions of an official in their official capacity.

Routine governmental action: Actions performed by a government official that are typically nondiscretionary, such as processing permits, issuing licenses, or providing services.