The Facilitation Payment Exemption is Gone – It’s Time to Revisit Your Anti-Corruption Compliance Program

10 janvier 2018 | James M. Klotz, Derek Hoffman

( Disponible en anglais seulement )

Finally, with elimination of the “facilitation payment” exemption, a little-known loophole in Canada’s foreign anti-corruption law has been closed.  However, there is now a need for extra-careful consideration of international business behaviours that may have previously been taken for granted.

Canada’s Corruption of Foreign Public Officials Act (the “CFPOA”) contained, until October 30, 2017, an unusual provision permitting the payment of certain small bribes to foreign public officials.  Known as the “facilitation payment” exemption, this provision permitted companies and individuals to make payments to “expedite or secure the performance by a foreign public official of any act of a routine nature that is part of the foreign public official’s duties or functions.”  That exemption has now been repealed.

The facilitation payment exemption was a curious piece of legislation which was included in the CFPOA when Canada made it law in 1999.  The exemption mirrored an exemption in the CFPOA’s US counterpart, the Foreign Corruption Practices Act (where the exemption is still permitted).  The idea behind the exemption was that businesspeople should not be penalized for having to make minor bribes to foreign officials to, say, release goods from customs, or expedite a visa.  Unfortunately, the exemption, both in Canada and the US, provided very little guidance.  In particular, there was no language in the exemption indicating that it had to be “minor”, nor was there any guidance on the size of the payment under which it would qualify.

Many years ago, when a senior official in the US Department of Justice Fraud Section was asked (by one of the authors of this piece) about the amount of a payment that would turn an exempted “facilitation payment” into a culpable “bribe”, he indicated that $100 was probably ok, that $1,000 might be ok, but that a million dollars was not.  Indeed, that was slim comfort, particularly when lawyers try to explain to businesspeople exactly what payments are permissible and what payments are not.

To make this even more difficult, there has been very little case law regarding facilitation payments in the US, and none in Canada.  Finally, as  most facilitation payments would be considered to be bribes under the laws of the country in which the payments are made, the exemption was a curious one in that in effect Canadian law was allowing Canadian businesspeople to commit a crime in a foreign country.

Now that the facilitation payment exemption is gone, no payments may be made to any foreign government official, regardless of the size or purpose, if they contravene the CFPOA.  Section 3(1) provides that any direct or indirect payment, advantage or benefit of any kind which is given or offered, or agreed to be given or offered, to a foreign official, in order to obtain or retain an advantage in the course of business, in return for an act or omission by the official in connection with the performance of the official’s duties or functions, or to induce the official to use his or her position to influence any acts or decisions of the foreign state for which the official performs duties or functions, is an offence under the CFPOA (paraphrased and emphasis added).  The CFPOA continues to contain some additional exemptions to permit certain payments to be made to foreign officials, and although it is a short piece of legislation, its interpretation is complicated and safe reliance on its exemptions requires great care.

Although many compliance programs currently prohibit all payments to foreign officials including what would previously have been considered facilitation payments, many enterprises have chosen to include provision for facilitation payments in their compliance programs.  These must now be revisited and amended immediately, along with implementing increased training to ensure that employees are fully armed with all information necessary to successfully resist requests for facilitation payments.  A typical example of where this training is required occurs when goods are transported by land across developing countries.  In many countries, police roadblocks are known to be difficult to transit without making payment of some token amount.  If an enterprise chooses to be willfully blind to the fact that its transporter needs to make these payments, it may face liability.

What is even more curious is that the penalty for making what was previously a legal bribe under the facilitation payment exemption, is now subject to the maximum penalty under the CFPOA, namely 14 years in prison.  That is an extraordinary maximum penalty for paying, say $50 to a foreign visa officer (and far exceeds the penalty for a similar payment to an official in Canada).

It was not a great surprise that the facilitation payment exemption was eliminated, as the Federal Government included provisions to do so when it introduced minor amendments to the CFPOA in 2014.  As a result, the elimination was to take effect whenever the Government passed an Order in Council which it finally did on October 30, 2017.  Clearly, the government was waiting for the right moment to implement the elimination of the exemption.  Perhaps it was the pending introduction of proposals to introduce a deferred prosecution agreement regime, which many believe the Federal Government will soon try to implement.  However, at this point one can only speculate as to the exact facts which contributed to this being the right moment to implement the elimination of the exemption.

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