Facilitation Payments Seen as Problematic by Many Companies

ANNAPOLIS, Maryland -

- Respondents Say Banning Would Make Job Easier, or Have No Effect

Although facilitation payments are still permitted by some countries, many companies say banning them would make no difference to their businesses, according to survey results released today by TRACE, a non-profit membership association providing anti-bribery compliance solutions for multinational companies and their commercial intermediaries.

Such payments — also called “expediting payments” or “grease payments” — are bribes permitted under United States, Canadian, Australian, New Zealand and South Korean laws to encourage government officials in other nations to perform or expedite routine tasks that are a part of their usual responsibilities, such as connecting phones, delivering mail, completing inspections, and processing shipments through customs.

“Facilitating payments are a hot topic of debate in the anti-bribery compliance community,” said Alexandra Wrage, President of TRACE. “In our benchmarking survey, more than 45 percent of respondents said that if such payments were prohibited everywhere, their jobs would be easier, and another 48 percent said such a prohibition would not affect their jobs at all. Fewer than 7 percent of these business people said their jobs would be more difficult if facilitation payments were banned. Our finding that 93 percent of respondents’ jobs would be easier or unaffected if facilitation payments were banned confirms the growing recognition worldwide that what grease payments tend to facilitate is more demands, and, in many cases, they make doing business even more difficult.”

The TRACE survey underscored considerable differences in how corporations treat facilitation payments, and clear patterns emerged regarding how payments are perceived, the level of risk they pose to corporations, and the guidance respondents would find useful from government authorities and regulating agencies to understand what is permissible when making them.

For example, 76% of respondents believe it is possible to do business successfully without making facilitation payments if there is sufficient management support and careful planning. Buttressing this, 71% believe the employees of their company either never, or only rarely, make facilitation payments, regardless of whether facilitation payments are permitted under their corporate policies. When respondents were asked to gauge the level of risk facilitation payments pose to a company with respect to books and records violations or violations of other internal accounting controls, 58% assess such risk level as medium to high. Asked to assess how likely their company is to face a governmental investigation or prosecution related to facilitation payments, just over half believe they are moderately or highly likely to face such an investigation in the country where they are headquartered, and 40% believe they are likely to be investigated or prosecuted in the country where the payment is made.

Respondents expressed a desire for greater guidance from domestic and international enforcement agencies about what constitutes permissible facilitation payments:

- 81% seek a clear definition of facilitation payments with detailed examples; - 58% want a clear definition of government officials to whom payments may be made; - 57% want guidance about whether payments for non-discretionary tasks that incidentally have a business benefit are facilitation payments; - 56% seek monetary thresholds; - 54% want an expansive list of what constitutes a facilitation payment; and - 46% seek guidance about the proper accounting for such payments.

Questions included on the survey about how corporate compliance policies currently address facilitation payments allowed respondents to select more than a single response. Some 80% of respondents’ companies had a formal, written policy. In describing these policies, nearly 35% reported their companies specifically prohibit such payments and another 9% of respondents said their companies prohibit facilitation payments as a part of a more general prohibition on bribery. Only 12% of respondents’ companies did not have a policy.

The survey also revealed how companies that make facilitation payments presently account for them. Although 69% of respondents report that such payments are required to be recorded precisely as “facilitation/facilitating payments” on their company’s books, nearly 7% say their companies do not require facilitation payments to be accounted for as such.

Seventy-six companies and organizations operating in virtually every region of the world participated in the survey, launched August 7. Of these:

- 72% are headquartered in North America; - 18%, in Western Europe; - 4% in Asia; - 2.7%, in Central America; - 1.4%, in the Middle East; - 1.4%, in Africa; and - 1.4%, in Australia/Oceana.

The industry sectors represented in the survey include aerospace and defense (20.3%); extractive industries (17.4%); pharmaceuticals (13%); manufacturing (10%); technology and software (8.7%); financial services (5.8%); engineering/construction (4.3%); food, beverage and hospitality (4.3%); service provider (4.3%); telecommunications (4.3%); and transportation/airlines, express delivery (4.3%).

Full results of the TRACE Facilitation Payments Benchmarking Survey are available at www.traceinternational.org .

TRACE is a non-profit membership association that pools resources to provide practical and cost-effective anti-bribery compliance solutions for multinational companies and their commercial intermediaries. The organization provides several core services and products, including: due diligence reports on commercial intermediaries; model compliance policies; an online Resource Center with foreign local law summaries, including guidelines on gifts and hospitality; in-person and online anti-bribery training; and research on corporate best practices. For more information, visit www.traceinternational.org .

Source: TRACE

Jamie Moss of newsPRos, +1-201-493-1027, for TRACE