First InningYou might figure that the year I decide to jump back on the Houston Astros bandwagon, they go back in the tank. Last year they were one game away from the American League (AL) Championship. This year they have the third worst record in the AL, with a paltry .419 winning percentage. Is it too early in the season to draw any conclusions? I will leave that one up to you. And yet…

What are the lessons to be learned from allegations of corruption in the early stages of any investigation? Indeed, are there any lessons to be learned at all? If so when should you learn them? The FCPA Professor recently explored some of these issues in a blog post, entitled “Lesson Learned…”. Proving once again that the FCPA Professor and I can look at the same event or set of facts and see different things, I see significant lessons to be learned when reviewing ongoing Foreign Corrupt Practice Act (FCPA) or other significant matters, even when reported in the press. Or to use the Professor’s analogy, I believe it is both useful and appropriate to consider the ongoing results of the National Basketball Association (NBA) playoffs, on an ongoing basis and apply those results going forward.

Why should you consider reviewing events on an ongoing basis? When I look at these, I see information that could help the Chief Compliance Officer (CCO) or compliance practitioner going forward. I think Wal-Mart is a prime example. It really does not matter if you fall into the New York Times (NYT) or Wall Street Journal (WSJ) story camps; when the world’s largest retailer is on the front page, you can and should draw lessons from this applicable to your organization.

Such public reporting is a useful teaching paradigm for the FCPA practitioner. The day after the NYT broke the story I wrote a blog post about it and I called several client types (I am a proud card carrying member of FCPA Inc.) to make sure they were aware of the matter. Was it marketing? Or perhaps something more nefarious, like business development? How about the following – I wanted to make sure they were aware of it. Or a combination of all three? Does any of that lessen the messages to be learned from the NYT story about Wal-Mart? I would answer a resounding No.

The thing that struck me when I called around was how many CCOs had used the NYT front-page story about Wal-Mart as a teachable moment for several internal constituencies. These constituencies started with the C-Suite and the message was along the lines of this is what can happen if you do not have an effective compliance program in place. Several others used the Wal-Mart story as an opportunity to consider their internal use of facilitation payments; to explain to employees how they are defined under the FCPA and also to make sure they were properly recorded on the company’s books and records.

Was this in the first inning of Wal-Mart’s long trek FCPA investigation? Most probably, yet these CCOs were able to use this very public event as lessons learned for their organizations in a powerful and current events manner to help educate or reinforce.

What about the Unaoil matter? Once again, can the reported story provide anything worth writing about or commenting upon? I would certainly urge the answer is Yes. How could a CCO use the information in the Huffington Post story in the everyday doing of compliance? I can think of three immediate lessons to be learned that every compliance practitioner should take to heart and use going forward.

First and foremost, did your organization use Unaoil in any manner? If your organization has contracted with or has any contact with Unaoil in any company files you need to find out now as a Department of Justice (DOJ) subpoena could well be on its way. Second, as with Wal-Mart, can you utilize the discussion around Unaoil internally to educate senior management or others? Once again I think the answer is Yes and the most obvious way would be to discuss your risk management lifecycle of your third parties. Use this as an opportunity to explain that it is the management of the relationship which may well be the key element so that even if your due diligence was faulty you can demonstrate effective compliance. Finally, it is a very good reminder to review all of your third parties files to make sure they contain the required documentary evidence to support your compliance program. All of these lessons can be learned now, at the very beginning of the matter (first inning yet again).

Next, the Panama Papers. What can you draw from this event; even at the very beginning of what may be a very long slog? (Probably the top of the first inning.) As of today, you can review the 214,000 entities with offshore entities, in a searchable database. This is more than a lesson to be learned or even a teachable moment. This is a new resource available to anyone to use to find out if an entity their company is doing business with is who they say the are or even might be. This is information that is in the public domain, made available by the International Consortium of Investigative Journalism. You can search by jurisdiction or by country. It is axiomatic that when information becomes available a compliance practitioner should not only use it going forward but also use it to see if any third parties or counter-parties might need updating in your risk ranking.

As for the lesson to be learned, once again does your compliance department know with whom you are doing business with? Are you managing the relationship after the contract was signed? Have you Documented, Documented, and Documented the files and the relationship? When was the last time your business sponsor visited high-risk third parties to discuss your anti-corruption compliance program?

Information is critical to any best practices compliance program. Usually that information comes internally. Yet that information can also come from outside the organization. How many CCOs knew about Unaoil before the Huffington Post story? Or had thought about their company’s recordation of facilitation payments? Or had considered what it might mean if a third party was incorporated in Panama? I do not find any of the above to be scare mongering or even inappropriate questions to ask. For I have found it is always how you use information that forms the key inquiry; not when you obtain the information.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Cuba 4-Managing the RelationshipToday, I conclude my weeklong exploration of doing business in Cuba from the perspective of the Foreign Corrupt Practices Act (FCPA) with some final observations. One of the key themes throughout this week’s blog posts has been the inherent complexity of preparing for and then doing business in Cuba when such opportunities become available. All of these issues are overlaid by the biggest issue, which is the political settlement that will have to occur before there can be anything close to full and open trade between the US and Cuba.

It appears to me that the two biggest issues are from the American side, reparations to be paid to person and companies whose land and properties were confiscated. From the Cuban side, the biggest issue is the US trade embargo. There are other issues that I heard discussed during my weeklong visit and they include Guantanamo, the Cuban Adjustment Act and subversion. I am sure there are others but even with this list you can see the difficult negotiations ahead for both sides. Couple these issues with an American political system which is in or near complete dysfunction and the continued rule of the Castro brothers, formerly Fidel and now Raul, and it is clear that the path will be challenging.

Additionally as I have tried to make clear throughout this week, everyone you deal with is a government employee in Cuba. This means that the plumber you hire to help renovate or fix your buildings pipe systems is a government employee. The same is true for the air conditioning repairman, the telephone technician, electrical repairman and all other similarly situated workers. They are all paid a set wage by the state; something like 300, 500 or 800 pesos per month. This leads to everyone trying to do anything to supplement their income.

Now consider what will happen when you need their services. Under the FCPA, a Facilitation Payment might be considered to move yourself or your company up the list to obtain repairs or work earlier. Now consider the amount of this Facilitation Payment. What might be appropriate: 20, 50 or 100 pesos? Even at a one-to-one exchange rate, these amounts would all probably pass muster under a FCPA analysis, if they were properly recorded in your books and records as Facilitation Payments.

But what if the US government looked at it in a different manner? Such as considering the amount of the Facilitation Payment as a part of a monthly income? Now how does 50 pesos look to someone whose monthly pay is 500 pesos? Does a Facilitation Payment become a bribe when it is 10% of the monthly income of the person receiving the payment? How about on an annual basis, does a Facilitation Payment of 1% of the receiver’s annual salary constitute a bribe? The best I can say at this point is there are no FCPA enforcement actions where this issue has arisen. This would lead to speculation that such an amount is a Facilitation Payment so it is exempt from FCPA enforcement but I can certainly see an argument going the other way.

How about the hiring of Cuban government official when they leave the employ of the government? The government has announced it plans to reduce the size of its bureaucracy by over 10% by the creation of jobs in the soon to arise private sector. This could well lead to a very fast moving one way (not revolving) door from government regulator to private sector employees in the same industry or business segment. On the one hand it makes perfect business sense to hire someone from the Ministry of Agriculture, if your US based company is entering into the Cuban agricultural market because of their technical expertise or knowledge. On the other hand, it may certainly appear as if a promise might have been made that if my company’s license is approved, that some government official who had decision-making authority or even influence received something in return for discretionary decision.

If the latter were true how long should there be between receipt of license and hiring away of the government official? Should there be window for non-poaching? Yet, where else are you going to find a talent pool specific to a Cuba business segment? How about local content requirements? All potentially difficult questions where the answer might appear quite reasonable under one analysis. Yet a few years later, under a different review it may appear to raise a FCPA issue. You only need consider the investment banks under scrutiny for conduct in Libya for their interactions around that country’s sovereign wealth fund to see the potential danger.

Finally, with all of the potential issues I have laid out in this series, simply under a FCPA analysis, why would your company even go into Cuba? You need to consider not only the FCPA but a whole host of topics I have not touched upon, such as the legal system, rule of law, independence of judiciary, monetary and export controls and a whole host of others; all the while trying to make a profit. This is not China with a potential market of billions but an island nation of 11.2m people.

Yet even with all these considerations, I believe you should contemplate going into Cuba for several reasons. It is only 90 miles south of the United States and sits at the very crossroads of the intersection between North American, Central America and South America. It is by far the largest island in the Caribbean and has the potential to be one of the leaders in the Caribbean basin. The potential market is still available to your company and has a population with literacy approaching 99% so it presents a workforce with an education level far above any other country in the region. Lastly, how many times in your lifetime or your company’s existence do you have the chance to enter into a truly new market?

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Bess MyersonTwo famous New Yorkers died this week. Both spoke to not only to the glamour of the Big Apple, but the city’s once undisputed crown as the cultural mecca of the US. They were Allie Sherman and Bess Myerson. Allie Sherman

Sherman was with the New York (Football) Giants as an Assistant Coach when they were the original America’s Team. He later became the Head Coach when the Giants were ending a phenomenal run as the greatest pro football team in America. Sherman coached some of the most memorable players from the last century including Sam Huff, Frank Gifford, Andy Robustelli, Charley Connerly and Y. A. Tittle. As an Assistant Coach, he was a part of a team that went to the National Football League (NFL) championship games in 1956 and 1958/9. As Head Coach, he took the Giants to the championship games from 1961-63. That is six championship games appearances in seven years, a record no other team in football has ever achieved.

The second death was that of Bess Myerson. In my little hometown in podunk Texas, Bess Myerson was about the highest epitomy of American high class and grace that one could imagine. (My parents hated the Kennedys so Jackie was not a candidate.) What I did not fully appreciate until I read her obituary in the New York Times (NYT), entitled “New Yorker of Beauty, Wit, Service and Scandal by Enid Nemy and William McDonald, was that Myerson was the first Jewish Miss America and what her win of that crown meant in 1945 to Jews in America. The article quoted Barra Grant, Ms. Myerson’s daughter for the following; “When my mother walked down the runway, the Jews in the audience broke into a cheer. My mother looked out at them and saw them hug each other, and said to herself, ‘This victory is theirs.’” But in Bryan, Texas, she was not the Jewish Miss America; she was just Bess Myerson, the one and only Miss America we knew by name.

I thought about these two famous New Yorkers, where they came from and what New York once stood for as I considered the ongoing tragedy of AirAsia Flight 8501 and pondered facilitation payments. In another article in the NYT, entitled “AirAsia Jet That Crashed Had Lacked All Clearances to Fly, Regulators Say, Tom McCawley reported that “AirAsia Flight 8501, which crashed in the Java Sea on Dec. 28, was allowed to take off from Surabaya, Indonesia, even though it did not have all the required clearances from regulators to fly that day, the Indonesian Transportation Ministry said on Monday.” While the article did not identify those Indonesian who allowed this to occur, McCawley did report “The [Indonesian Transportation] Ministry said it was suspending several officials for allowing the flight to take off.” Moreover, “other airlines and airports across the country will also be scrutinized to see if they have been cutting corners in similar ways.”

The article did not say or even suggest that bribes were paid to allow this flight to take off when it did not have the proper permits to do so, such actions did occur in Indonesia, which had a 2014 score on the Transparency International – Corruption Perceptions Index at 34 and came in at a ranking of 107 out of 157 countries ranked. Fresh on the minds of all anti-corruption, Foreign Corrupt Practices Act (FCPA), UK Bribery Act practitioners and others is the Alstom FCPA enforcement action where a large amount of the companies bribes were paid in Indonesia to secure winning contracts. Of course, Alstom is a French company and AirAsia is Malaysian entity.

FCPA enforcement actions involving US companies and the air industry are unfortunately very well known. Biz-Jet and its bribes to secure business are in a direct line to Dallas Airmotive, involved in a FCPA enforcement action in the past quarter. But in the AirAsia case, I wondered about something different, that continuing FCPA bug-a-boo around facilitation payments. Facilitation payments are exempted out of FCPA violations but the AirAsia case is a clear example of the slippery slope of how something that is not illegal can easily move into such a realm and the true cost of corruption. Two of the loudest responses by the business community to the Wal-Mart allegations of bribery and corruption were that they were simply payments to expedite the process of licensing in Mexico and what did you expect to get things moving in Mexico anyway?

What if AirAsia made small payments to move things along faster with the Indonesian Transportation Ministry? What if these payments might properly be characterized as facilitation payments under an anti-corruption law such as the FCPA? McCawley’s article reported, “Officials have said that AirAsia had permits to fly the popular Surabaya-Singapore route on Mondays, Tuesdays, Thursdays and Saturdays, but later changed its schedule to fly on other days of the week, The Associated Press reported. Flight 8501 took off on a Sunday. Mr. Murjatmodjo said that while Singapore officials had approved the Sunday flight, Indonesia had not, and the aviation agency used incorrect information in granting Flight 8501 a takeoff slot.”

So what if that ‘incorrect information’ used by the Indonesian aviation agency turned out to be ‘facilitated’ by a grease payment? Is the granting of such approval something that would be been granted eventually but AirAsia was just trying to speed up the process? What if there were safety reasons for not allowing AirAsia to operate on the Sunday when the plane went down? What if it was something safety related to the flight controllers or something other than the plane or crew? Make no mistake about it, facilitation payments are bribes, yet there are other gray areas around them that can create confusion and make it hard for companies to police them.

A similar view was recently articulated by Thomas C. Baxter, Executive Vice President and General Counsel at the Federal Reserve Bank of New York who indicated a general unease with facilitation payments. Baxter was quoted in the FCPA Blog for the following, “Baxter said an organizational policy that allows some types of official corruption — including facilitating payments – “diminishes the efficacy of compliance rules that are directed toward stopping official corruption.”” Further, “While I understand that the exception is grounded in a practical reality, I feel that zero tolerance for official corruption would have been a better choice. To any public servant with an extended hand, I would say in a loud and clear voice, “pull it back and do your job.” And, let me note the OECD Working Group on Bribery recommends that all countries encourage companies to prohibit or discourage facilitating payments.”

Allie Sherman and Bess Myerson reminded us of a New York that once existed. With the proliferation of the internet and social media, I doubt US culture will ever be so concentrated in one city again. The AirAsia crash may portend of things in the future, so if it comes to pass that bribery and corruption was involved to obtain a seemingly minor approval to allow the flight of an airplane on a day it was not licensed to fly; perhaps one thing that comes out of the tragedy is the removal of this seeming anomaly of allowing bribes under the FCPA by calling them facilitation payments.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2015

IMG_3289One of the more confusing areas of the US Foreign Corrupt Practices Act (FCPA) is in that of facilitation payments. Facilitation payments are small bribes but make no mistake about it, they are bribes. For that reason many companies feel they are inconsistent with a company culture of doing business ethically and in compliance with laws prohibiting corruption and bribery. Further, the FCPA Guidance specifies, “while the payment may qualify as an exception to the FCPA’s anti-bribery provisions, it may violate other laws, both in Foreign Country and elsewhere. In addition, if the payment is not accurately recorded, it could violate the FCPA’s books and records provision.” Finally, further the FCPA Guidance states, “Whether a payment falls within the exception is not dependent on the size of the payment, though size can be telling, as a large payment is more suggestive of corrupt intent to influence a non-routine governmental action. But, like the FCPA’s anti-bribery provisions more generally, the facilitating payments exception focuses on the purpose of the payment rather than its value.” [emphasis in original text]

In recent remarks, Thomas C. Baxter, Executive Vice President and General Counsel at the Federal Reserve Bank of New York indicated a general unease with facilitation payments. Baxter was quoted in the FCPA Blog for the following, “Baxter said an organizational policy that allows some types of official corruption — including facilitating payments – “diminishes the efficacy of compliance rules that are directed toward stopping official corruption.”” Further, “While I understand that the exception is grounded in a practical reality, I feel that zero tolerance for official corruption would have been a better choice. To any public servant with an extended hand, I would say in a loud and clear voice, “pull it back and do your job.” And, let me note the OECD Working Group on Bribery recommends that all countries encourage companies to prohibit or discourage facilitating payments.”

In addition to these clear statements about whether the FCPA should continue to allow said bribes; you should also consider the administrative nightmare for any international company. The UK Bribery Act does not have any such exception, exemption or defense along the lines of the FCPA facilitation payment exception. This means that even if your company allows facilitation payments, it must exempt out every UK Company or subsidiary from the policy. Further, if your company employs any UK citizens, they are subject to the UK Bribery Act no matter who they work for and where they may work in the world so they must also be exempted. Finally, if your US Company does business with a UK or other company subject to the UK Bribery Act, you may be prevented contractually from making facilitation payments while working under that customer’s contract. As I said, an administrative nightmare.

  1. The Statute

When the FCPA was initially passed in 1977, the facilitating payment exception was found under the definition of foreign official. However, with the 1988 Amendments, a more explicit exception was written into the statute making it clear that the anti-bribery provisions “shall not apply to 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 . . .” The statute itself provided a list of examples of facilitation payments in the definition of routine governmental actions. It included the following:

  • Obtaining permits, licenses, or other official documents;
  • Processing governmental papers such as visas and work orders;
  • Providing police protection, mail services, scheduling inspections;
  • Providing utilities, cargo handling; or
  • Actions of a similar nature.

It is important to note that the language of the FCPA makes it clear that a facilitation payment is not an affirmative defense but an exception to the general FCPA proscription against bribery and corruption. Unfortunately for the FCPA Practitioner there is no dollar limit articulated in the FCPA regarding facilitation payments. Even this limited exception has come under increasing criticism. As far back as 2009, the OECD studied the issue and recommended that member countries encourage their corporations to not allow the making of facilitating payments, “in view of the corrosive effect of small facilitation payments, particularly on sustainable economic development and the rule of law.”

Interestingly, one of the clearest statements about facilitation payments comes not from a FCPA case about facilitation payments but the case of Kay v. US, 359 F.3d 738, 750-51 (5th Cir. 2004). This case dealt with whether payment of bribes to obtain a favorable tax ruling was prohibited under the FCPA. In its opinion the Fifth Circuit commented on the limited nature of the facilitating payments exception when it said:

A brief review of the types of routine governmental actions enumerated by Congress shows how limited Congress wanted to make the grease exceptions. Routine governmental action, for instance, includes “obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country,” and “scheduling inspections associated with contract performance or inspections related to transit of goods across country.” Therefore, routine governmental action does not include the issuance of every official document or every inspection, but only (1) documentation that qualifies a party to do business and (2) scheduling an inspection—very narrow categories of largely non-discretionary, ministerial activities performed by mid- or low-level foreign functionaries.

2. Enforcement Actions

Con-way

The FCPA landscape is littered with companies who sustained FCPA violations due to payments which did not fall into the facilitation payment exception. In 2008, Con-way Inc., a global freight forwarder, paid a $300,000 penalty for making hundreds of relatively small payments to Customs Officials in the Philippines. The value of the payments Con-way was fined for making totaled $244,000 and were made to induce the officials to violate customs regulations, settle customs disputes, and reduce or not enforce otherwise legitimate fines for administrative violations.

Helmerich and Payne

In 2009, Helmerich and Payne, Inc., paid a penalty and disgorgement fee of $1.3 million for payments which were made to secure customs clearances in Argentina and Venezuela. The payments ranged from $2,000 to $5,000 but were not properly recorded and were made to import/export goods that were not within the respective country’s regulations; to import goods that could not lawfully be imported; and to evade higher duties and taxes on the goods.

Panalpina

Finally, there is the Panalpina enforcement action. As reported in the FCPA Blog, this matter was partly resolved last year with the payment by Panalpina and six of its customers of over $257 million in fines and penalties. Panalpina, acting as freight forwarder for its customers, made payments to circumvent import laws, reduce customs duties and tax assessments and to obtain preferential treatment for importing certain equipment into various countries but primarily in West Africa.

DynCorp

Then there is the DynCorp International investigation matter. As reported in various sources the matter relates to approx. $300,000 in payments made by subcontractors who wished to speed up their visa processing and expedite receipt of certain licenses on behalf of DynCorp. This investigation has been going on for several years and there is no anticipated conclusion date at this time.

3.      Some Guidance

So what does the Department of Justice (DOJ) look at when it reviews a company’s FCPA compliance program with regards to facilitation payments? Initially, if there is a pattern of such small payments, it would raise a Red Flag and cause additional investigations, but this would not be the end of the inquiry. There are several other factors which the DOJ could look towards in making a final determination on this issue. The line of inquiry the DOJ would take is as follows:

  1. Size of payment – Is there an outer limit? No, there is no outer limit but there is some line where the perception shifts. If a facilitating payment is over $100 you are arguing from a point of weakness. The presumption of good faith is against you. You might be able to persuade the government at an amount under $100. But anything over this amount and the government may well make further inquiries. So, for instance, the DOJ might say that all facilitation payments should be accumulated together and this would be a pattern and practice of bribery.
  2. What is a routine governmental action? Are we entitled to this action, have we met all of our actions or are we asking the government official to look the other way on some requirement? Are we asking the government official to give us a break? The key question here is whether you are entitled to the action otherwise.
  3. Does the seniority of the governmental official matter? This is significant because it changes the presumption of whether something is truly discretionary. The higher the level of the governmental official involved, the greater chance his decision is discretionary.
  4. Does the action have to be non-discretionary? Yes, because if it is discretionary, then a payment made will appear to be obtaining some advantage that is not available to others.
  5. What approvals should be required? A facilitation payment is something that must be done with an appropriate process. The process should have thought and the decision made by people who are the experts within the company on such matters.
  6. Risk of facilitation payments and third parties? Whatever policy you have, it must be carried over to third parties acting on your behalf or at your direction. If a third party cannot control this issue, the better compliance practice would be to end the business relationship.
  7. How should facilitation payments be recorded? Facilitation payments must be recorded accurately. You should have a category entitled “Facilitation Payments” in your company’s internal accounting system. The labeling should be quite clear and they are critical to any audit trail so recording them is quite significant.
  8. Monitoring programs? There must always be ongoing monitoring programs to review your company’s internal controls, policies and procedures regarding facilitation payments.

So we return to the question of when does a grease payment become a bribe? There is no clear line of demarcation. The test seems to turn on the amount of money involved, to whom it is paid and the frequency of the payments. Additionally, accurate books and records are a must. Finally, remember that the defense of facilitation payments is an exception to the FCPA prohibition against bribery. Any defendant which wishes to avail itself of this exception at trial would have to proffer credible evidence to support its position, but at the end of the day, it would be the trier of fact which would decide. So, much like any compliance defense, the exception is only available if you use it at trial and it would be difficult to imagine that any company will want to use the facilitation payment exception.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014

The Engineer's ThumbWe conclude our week of Sherlock Holmes inspired themes with one of the few cases in which Holmes fails to bring the criminals to justice, The Adventure of the Engineer’s Thumb. In this adventure a young engineer, Victor Hatherley, arrives at Dr. Watson’s surgery with a gruesome injury, a severed thumb. He relates his tale to Watson, who then takes him to see Holmes. Hatherley was hired to inspect a hydraulic press by one Lysander Stark, who claims that it is used to compress fuller’s earth into bricks. However when Hatherley goes to Stark’s country residence to inspect the machine he discovers that it is actually a printing press used to create counterfeit money. He tries to flee and in the process, Hatherley is forced to jump from a second story window, in the process getting his thumb severed by Stark’s cleaver. Hatherley, Watson and Holmes arrive at the Stark residence as the house is on fire, and the perpetrators have fled.

Once again using the Holmes tale as a contrast I refer to the recently released white paper, published by Transparency International UK (TI-UK), entitled “How to Bribe: A typology of Bribe-Paying and How to Stop It”. It was created by TI-UK, lawyers from the London firm of Pinsent Masons and thebriberyact.com, with principal author Julia Muravska and editors Robert Barrington and Barry Vitou. Just as Stark hid the true purpose of his hydraulic press, the title of this work does not convey its true use in how to stop bribes and bribery schemes by identifying them.

 Barry Vitou, partner in Pinsent Masons and co-founder of thebriberyact.com, states in the forward that “This handbook is perfect for General Counsel, Chief Compliance Officers and anyone in any company responsible for anti-bribery compliance from the Board of Directors, down. The purpose is to show how people pay bribes in practice. The examples are based on realistic experiences or real cases. Many bribery cases receive little attention. Often the focus is on the international examples in far away places where, it is sometimes said, you have to ‘pay the man’ to get business done. The impression given is that it would never happen at home. Yet it does. While the first two sections focus on the how, why and when bribes are sometimes paid in a short final section the handbook covers some examples of more prosaic bribery, at home. Who said it could never happen here? Transparency International deserve credit, once again, for putting together a document designed to be practical and helpful for those keen to avoid falling into the trap of bribery.” The white paper has three main sections.

Section I: What is a Bribe?

In this section, the authors review what constitutes a bribe. Recognizing that cash will always be king, they also take a look at excessive gifts, entertainment and travel, charitable donations and political contributions, favors to family members or friends and even the Foreign Corrupt Practices Act (FCPA) exempted facilitation payments. I particularly found the discussion of facilitation payments interesting in light of the recent claims that Archer Daniels Midland Company (ADM) in the Ukraine and Wal-Mart in Mexico were essentially making facilitation payments.

The authors end this section with the following guidance about the specific types of bribe and how to spot them.

Section 2: How Bribes are Paid?

In this section, the white paper lays out a variety of different bribery schemes. Of course they include agents, distributors, intermediaries, introducers, sub-contractors, representatives and the like. But they also detail schemes that the compliance practitioner should acquaint his or herself on. These bribery schemes include false or inflated invoicing or products, offshore payment arrangements and off-balance sheet payments, joint ventures, training, per diems and expense reimbursement arrangements, rebates and discounts and employment agreements. Once again, the authors end this section with the guidance on how to spot and stop each of the bribery schemes they detail.

Section 3: Bribery On Your Doorstep

In this section, the authors cite to cases and examples that were derived from real cases and illustrate how bribes can be paid within the UK. They note that even though “bribery is illegal across the board in the UK, experience shows that bribery also happens in the UK” and cite several reports. The first was by TI-UK and it showed that 5% of citizens polled in the UK said they had paid a bribe at least once in the past twelve months. Further, a recent survey of the construction sector found that more than a third of the industry professionals polled stated that they had been offered a bribe or incentive on at least one occasion. Lastly, the white paper notes that the first three prosecutions under the UK Bribery Act were for bribes paid in the UK. So the authors conclude “It is fair to say that in common with many other countries, UK public officials are susceptible to bribery. Public officials are almost all, universally, paid less than their peers may be paid in the private sector but in many cases in their hands rests the power to make decisions which have huge financial consequences for others. All the ingredients for paying a bribe exist. Likewise, bribes may be paid in the private sector, and there is increasingly a grey area between public and private sector as government services are contracted out.” In this section, some of the examples are inflated invoices, bribes to local planning departments, excessive expenses for training, and even an example of bribes paid to police.

Suggested Reading

Although neither this blog nor the books I have published on anti-corruption compliance made their list, there is an excellent resource list at the end of the white paper for additional reading and research on the subject. It ranges from government guidance’s to David Lawler’s excellent text “Frequently Asked Questions in Anti-Bribery and Corruption”.  Their list is an excellent resource in and of itself.

So we finish our Sherlock Holmes themed blogs. I hope that you have enjoyed the stories and tie-ins as much as I have enjoyed revisiting them this past week.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2014