Facilitating a Global Change? Australia’s Position on Facilitation Payments

Much has been written about the UK Bribery Act 2010’s prohibition of facilitation payments, regardless of their amount or frequency. The only countries that still permit facilitation payments are the United States, Australia, New Zealand, South Korea, and Canada. This is so even though facilitation payments are illegal in every country in which they are paid as no country legally permits its officials to accept such payments.

Commonly known as “expediting payments” or “grease payments,” facilitation payments are considered to be low-level payments, designed to expedite performance of a routine government action. However, determining accurately whether a particular payment will be considered one that facilitates or expedites a routine government action is an exercise fraught with uncertainty. Australia’s current laws provide no more certainty than do the laws of the other countries which allow their companies to make such payments when doing business overseas, while prohibiting them domestically.

Whilst Australia’s federal foreign public official anti-bribery legislation has been in place since 1999, there has only been one prosecution under the legislation and no judicial guidance on the legislation or the scope of the facilitation payments defense. In October 2012, the Organisation for Economic Co-operation and Development (OECD) released its Phase 3 Report evaluating and making recommendations on Australia’s implementation and enforcement of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and provided some interesting comments on the facilitation payment defense.

Facilitation Payments in Australian Legislation

The wording of Australia’s facilitation payment defense is almost identical to that of the US Foreign Corrupt Practices Act (FCPA). Under the Australian Criminal Code Act (Criminal Code), a person will not be guilty of bribery if 1) the value of the benefit provided was of a minor nature. 2) the conduct was for the purpose of expediting or securing the performance of a routine government action of a minor nature, and 3) as soon as practicable after the conduct occurred the person made a record of the benefit conferred.

The Criminal Code provides that a “routine government action” is an ordinary and commonly performed action by a foreign public official that involves:

  • granting a permit, license or other official document that qualifies a person to do business in a foreign country or in a part of a foreign country;
  • processing government papers such as a visa or work permit;
  • providing police protection or mail collection or delivery;
  • scheduling inspections associated with contract performance or related to the transit of goods;
  • providing telecommunications services, power or water;
  • loading and unloading cargo;
  • protecting perishable products, or commodities, from deterioration; or
  • any other action of a similar nature.

If the decision is about whether to award new business, continue existing business, or the terms of new business or existing business with a particular party, it is not a “routine government action.”

OECD Phase 3 Report

Given the uncertainty about what constitutes a facilitation payment, it is not surprising that the OECD found that there was general confusion about the facilitation payment defense in Australia (amongst both the general public and professionals). Because of this confusion, there was support for abolishing the defense. Based on its consultations, the OECD noted that:

  • facilitation payments appeared to be frequently equated with any bribes of small value;
  • the requirement that facilitation payments were to be made only to secure a routine government action of a minor nature that does not result in the obtaining of a business advantage was often overlooked, as opposed to the size of the payment;
  • there is a perception that Australian companies may be making facilitation payments and that practice is prevalent in some regions;
  • accountants and auditors indicated that they had seen such payments recorded in companies‘ books; and
  • several interviewees said that Australian companies are increasingly banning facilitation payments.

In highlighting the confusion around the facilitation payment defense, the OECD noted how certain payments made under duress were

inaccurately perceived to be facilitation payments. For example, an interviewee believed that a facilitation payment included paying an official who was threatening grievous physical harm at a roadblock or supplying diesel to a police vehicle used to arrest a criminal. One company said facilitation payments include those made under duress. A payment made under these circumstances may fall under the Criminal Code’s self-defense provision, but it will not be captured under the facilitation payments defense.

Accordingly, the OECD recommended that Australia increase its efforts to raise awareness of the difference between the payment of bribes and facilitation payments. Rather than abolishing the facilitation payment defense, the OECD recommended that Australia “encourage companies to prohibit or discourage the use of small facilitation payments in internal company controls, ethics and compliance programmes or measures, recognising that such payments must in all cases be accurately accounted for in such companies’ books and financial records.”

Record Keeping and Taxation

Under Australian taxation legislation, companies are not permitted to claim bribes as tax deductions. Facilitation payments to foreign public officials are, however, allowable deductions.

One of the OECD’s concerns in relation to the tax treatment of facilitation payments was not the ability to deduct such payments, but rather that the record keeping requirements under the taxation legislation differed slightly to those under the Criminal Code.

For example, the taxation legislation does not require records of facilitation payments to contain the payer’s signature, the identity of the foreign public official or the particulars of the routine government action that was sought, unlike the records required under the Criminal Code. As noted by the OECD, “a failure to maintain records in the form required under the Criminal Code Act will not necessarily mean the person cannot claim a tax deduction.”

The OECD noted that the confusion caused by the different record keeping requirements for facilitation payments and recommended that the tax legislation record keeping requirements be aligned with those under the Criminal Code. This would address the concern that some payments could be illegal under the Criminal Code, but yet be tax deductable.

Moreover, companies or individuals may not properly record facilitation payments as to do so is to admit a violation of local law (as no country legally permits its officials to accept such payments). For companies with exposure to the FCPA, there would be a risk that failing to keep such a record would be in breach of the record keeping offense, although the payment itself would be legal. In circumstances where the requirements of the facilitation payment could not be met, the company could still claim such payment as a deduction, despite its illegality under the Criminal Code.

Facilitation Payments Reform

In November 2011, the Australian Federal Government released a public consultation paper on the facilitation payment defense, seeking views on whether the defense should be abolished. The submissions were accepted until February 2012 and the Federal Government is considering them.

There have not been any proposed reforms announced by the Federal Government as a result of the OECD’s Phase 3 Report or the submissions received as part of the public consultation paper. While much of the commentary has urged abolition of the facilitation payment defense in Australia in alignment with the highest standard set by the UK Bribery Act. However, in light of the Federal election to take place in September 2013, it is unlikely that any legislative reform will occur before that time or that it will gain much attention as an election issue. Until such legislative reform or the issuance of judicial guidance by the Courts, the business community will remain in a state of regulatory uncertainty as to the difference between a bribe and a facilitation payment.


Jerrem Ng is a senior associate specialising in commercial dispute resolution in various matters including regulatory compliance, complex commercial and contractual disputes, white collar criminal defense and trade practices. He also advises on a variety of corporate matters and schemes of arrangements.

No related content found.

Source: corporatecomplianceinsights.com

Category: Bank

Similar articles: