Targeting the Demand for Facilitation Payments — Compliance Week (ONLINE)

Jaclyn Jaeger

27 March 2012 © 2012 Haymarket Media. All Rights Reserved.

Reprinted with permission.


A consortium of compliance executives primarily from the energy industry is taking aim at one of the most vexing headaches businesses face today: facilitation payments.

Facilitation payments—more commonly called “grease payments”—are small sums given to foreign officials to expedite normal business transactions, such as clearing goods through customs. They differ from bribes, which are typically meant to entice foreign officials to commit acts they might otherwise not do, such as awarding a contract.

A complex web of global anti-corruption laws, however, makes the distinction between permissible facilitation payments and illegal bribes maddeningly difficult to navigate. Not until passage of the U.K. Bribery Act in 2011, which imposed a blanket ban on bribes and facilitation payments paid to government and non-government officials alike, did many multinational companies really begin to assess their policies on facilitation payments.

During this time, a few peers in the energy industry—which is rife with requests for facilitation payments—began collaborating on how to deal with potential demands for facilitation payments. Aside from companies taking a zero-tolerance approach, “the clear consensus was that the best way to address the problem of facilitation payments is through collective action,” says Michael Munro, chief compliance officer for offshore driller Transocean.

With a common purpose in mind, the group created the new Committee to Address Facilitating Payments (CAFP). “We all agree that facilitation payments are not appropriate, and we want to make sure going forward that we collectively work to reduce the risk,” Munro says.

The committee’s strategy is to convince governments to crack down on requests for facilitation payments by their officials, thus reducing the demand. It wants governments to review the documentation that certain transactions require, how the required fees are paid (cash or wire transfer, for example), and whether the processes can be automated to reduce risk. CAFP is also working on a country-by-country basis to convince governments to provide more training to officials that facilitation payments are improper and to make sure that those officials are fairly compensated.

The group first sought the assistance of Richard Alderman, director of the U.K. Serious Fraud Office, to get a better understanding of the agency’s views on facilitation payment risks and collective action, Munro says. [Editor’s note: Alderman has retired since this article ran.]

The committee also consulted a number of non-governmental organizations, including TRACE International, Transparency International, the Organization for Economic Co-operation and Development, and the World Economic Forum. Even though CAFP is an industry-led initiative, Munro says, “We see importance and value in partnering, where helpful, with anti-corruption NGOs.”

The group is working to obtain broad-based input to “determine on a country-by-country basis the most effective way to deal with the potential risk,” Munro explains. “The feedback we got was very positive. People almost are hungry for an industry-led initiative that addresses facilitation payments.” Among the solutions the group is pursuing are better documentation by governments on what government service fees are required, and published guidelines, fee schedules, and processes to end the ambiguity that foreign officials use to open the door to requests for grease payments.

Companies face demands for facilitation payments for many reasons. Particular high-risks areas include:

• Operating in countries that historically tolerate small facilitation payments;

• Situations where government fees aren’t clearly defined and published;

• Situations where government officials aren’t paid in certain circumstances, such as overtime or travel expenses; and

• Situations where there is no, or limited, automation of processes, which increases risk when having to deal with multiple government officials.

Instead of giving into demands for facilitation payments, the idea is to establish clear processes and procedures that cover many of the situations that give rise to such requests. One example is when a company must fly parts overseas on a weekend to fix an offshore pipeline leak, and the customs officials in that country aren’t paid for weekend work. In that case, Munro says, the goal would be to work with the country to put in place a clear process to allow products into the country on a weekend.

Since September 2011, when the first CAFP meetings commenced, several companies have joined the global steering committee, including Transocean, Baker Hughes, ExxonMobil, Fluor, Halliburton, KBR, McDermott, Tidewater, Weatherford, and others that wish to remain anonymous.

“While there are many compliance challenges the companies could address, the group works cooperatively under a strict set of agreed guidelines with a narrow mission to keep the focus,” says Sue Kean, chief compliance officer of McDermott, an engineering and construction company that focuses on oil and gas projects.

Together these companies came up with the following mission statement: “Global companies working together to address the potential future demand/risk of facilitation type payments in a thoughtful, proactive, and appropriate manner.”

While the steering committee currently consists of peers in the energy or energy-related industries, the long-term intent is to make it a cross-industry initiative, Munro says. “We don’t want this to be an energy-only initiative.”

Country-Specific Committees

“What I really like with what we came up with is that it is not one-size-fits-all,” Munro says. “It’s not just one group saying, ‘This is the way it has to be done in every country.’ Rather, it is one group recognizing that there are different ways that this issue could, and should, be addressed at a local level.”

In that respect, CAFP also has created country-specific committees—so far in India and Indonesia—where local leaders are charged with both identifying country-specific risks as they apply to potential demands for facilitation payments and creating action plans for addressing those risks. Indonesia, for example, has three sub-committees dealing with three distinct risk areas: customs; immigration and work permit issues; and inspections. In both countries, the committee also has enlisted the help of outside counsel. Kean notes that in both Indonesia and India the country-specific committees have expanded to companies beyond the energy industry.

The group is looking to establish committees in other countries or regions, including Gabon and North Africa. The plan is to form three or four committees at first and see how those succeed before deciding to form additional committees, he says.

The hope is that leaders of the country-specific committees can help to identify points of contact within local governments to come up with ways to automate processes, implement anti-corruption training, clarify fees, and provide other solutions.

The collective goal is to eliminate situations where demands for facilitation payments occur while at the same time promoting operational efficiency and country economic development. “We are all working toward the same goal. We’re all committed to anti-corruption principles and policies. We’re all in this together,” says Munro. “Collective action and addressing risk areas is the way we’re going to get there.”

A Message from Mike Munro, Transocean’s CCO >