Tag: facilitation payments

We continue our exploration of the Scoular FCPA enforcement action. We are still awaiting the DPA and Criminal Information, so the details of the case are based on the Department of Justice (DOJ) Press Release. Today we take up a topic little commented on anymore, but this enforcement action provides an opportunity to discuss, review, and explore facilitation payments.

The phrase “facilitation payment” is one of the most dangerous phrases in anti-corruption compliance. It sounds technical. It sounds modest. It can make an improper payment appear to be a recognized cost of moving goods through a difficult market. When a customs broker says that a small payment is necessary to get a train across the border, the business may hear urgency, local custom, and operational necessity.

The Foreign Corrupt Practices Act hears a different question: Was the official merely being paid to perform a routine act that the company was already entitled to receive, or was the payment intended to change the official’s decision and secure an improper business advantage? That distinction resolves the issue in The Scoular Company enforcement action.

According to the Department of Justice, Mexican inspections found dirt, soil, and other impurities in Scoular shipments. Scoular employees then directed customs brokers to pay Mexican officials approximately $2,000 per train so the shipments would cross the border despite those findings. The brokers invoiced the payments back to Scoular as “reinspection fees.” The alleged payments did not accelerate a routine action. They changed the result of an inspection. That is why the facilitation payments exception does not apply.

The Exception Is Narrow by Design

The original 1977 FCPA excluded payments for duties that were essentially ministerial or clerical. Congress revised the statute in 1988 and defined the modern exception for facilitating or expediting payments made to secure the performance of “routine governmental action.”

The statute gives examples:

• Obtaining permits, licenses, or other official documents needed to do business
• Processing government papers such as visas and work orders
• Providing police protection or mail service
• Scheduling inspections connected with contract performance or the transit of goods
• Providing telephone, power, or water service
• Loading and unloading cargo
• Protecting perishable products from deterioration

The list can mislead a hurried business employee. Inspections and cargo appear in the statute. Scoular involved inspections and cargo. That superficial similarity is not enough. Congress expressly excluded decisions about awarding new business or continuing business with a particular party. The core principle is that routine governmental action does not include discretionary decisions that are the functional equivalent of obtaining or retaining business or securing an improper advantage. The exception is about speeding up the official’s performance of an existing duty. It is not about purchasing a favorable decision.

What a Facilitation Payment Is

A true facilitation payment has four characteristics.

1. Routine. The governmental act is routine. The official performs it in the ordinary and customary manner. The act does not require a substantive judgment about whether the company has met a legal or regulatory standard.
2. Entitled. The payer is already entitled to the action. The official has no lawful basis to deny the service. The payment changes timing, not entitlement.
3. No Discretion. The official exercises no meaningful discretion. The official may control the pace of processing, but not the substantive outcome.
4. Intent. The purpose is to expedite performance. It is not to influence an official to ignore a violation, reverse an adverse decision, waive a requirement, or confer a competitive advantage.

Consider the difference between scheduling an inspection and passing one. A small payment to move an inspection request from an ignored pile into the ordinary scheduling process may fall within the statutory language, subject to all the other legal and policy risks. A payment to persuade the inspector to overlook contamination does not. The first payment seeks action. The second purchases an outcome.

What a Facilitation Payment Is Not

A facilitation payment is not defined by amount. The FCPA contains no safe harbor for $20, $200, or $2,000. A small bribe remains a bribe when its purpose is to influence discretion. It is not defined by local custom. “Everyone pays it” is evidence of a risk of corruption, not a legal defense. It is not defined by urgency. Perishable goods, demurrage, customer demands, and production interruptions can create enormous pressure. Commercial pressure does not convert a discretionary government decision into a ministerial act.

The name on the invoice does not define it. “Reinspection fee,” “expediting charge,” “special handling,” and “administrative support” are descriptions. Compliance must determine what the money was actually used for. It is not created because a third party made the payment. The FCPA reaches indirect payments and authorizations through agents. A customs broker cannot manufacture an exception that the principal could not claim directly. Finally, it is not a blanket authorization for customs payments. Customs functions combine routine processing with significant official discretion. Scheduling an inspection may be routine. Deciding that contaminated goods can enter the country is not.

Apply the test to Scoular

The DOJ’s allegations make the application straightforward.

The shipments had failed a substantive condition

Mexican law subjected the agricultural shipments to inspection for dirt, soil, and other impurities. According to the DOJ, inspections found those conditions. The company was therefore not waiting for an official to perform a duty it had already satisfied. It faced an adverse regulatory result.

The payments changed the outcome

The brokers allegedly paid officials to ensure that the trains crossed despite the inspection findings. That is the exercise of official discretion. The payments were not made merely to schedule or complete a reinspection. They allegedly caused officials to permit entry notwithstanding the problem.

The company obtained a substantial business benefit

The DOJ said Scoular authorized more than $400,000 in bribes and avoided more than $6.5 million in fees and costs. The benefit was not faster paperwork alone. It was the avoidance of consequences associated with shipments that did not satisfy inspection requirements. That economic reality matters. A payment that yields more than $16 in avoided costs per dollar spent looks less like clerical acceleration and more like a mechanism for obtaining an improper advantage.

The conduct was repeated and organized

The scheme allegedly continued from 2013 through 2019 and involved multiple customs brokers. Scoular employees directed the payments, discussed them via WhatsApp and other channels, and paid the brokers’ reimbursement invoices.

In my podcast with Matt Ellis of Miller & Chevalier, Ellis addressed repeated payments in the related context of extortion. He explained that one or two emergency payments may present a different analysis, but a chain of payments over time makes reliance on a defense far more difficult. Extortion and facilitation payments are distinct legal doctrines. Still, Ellis’s practical point applies with full force here. Repetition changes the compliance story. A recurring payment is not an emergency response. It becomes part of the operating model.

The invoices did not call the payments what they were

The brokers allegedly invoiced the bribes as reinspection fees. Even a payment that qualifies for the narrow anti-bribery exception must be accurately reflected in an issuer’s books and records. The exception is not permission to conceal the true nature of an expenditure. This creates a central compliance paradox. Employees may resist recording a “facilitation payment to customs official” because the description raises legal, ethical, and local-law concerns. They may then use a vague or misleading account description, creating separate books and records and internal control risks. The invoice label in Scoular did not solve the problem. It became evidence of it.

Do Not Confuse Facilitation With Extortion

Companies must also distinguish the facilitation-payments exception from an extortion or duress analysis. A facilitation payment concerns the nature of the governmental action. Was it routine and nondiscretionary? Extortion concerns coercion. Was an individual facing a genuine threat to life, health, safety, or liberty? Ordinary economic pressure, such as delay costs or lost business, generally does not carry the same significance as a threat of physical harm.

Ellis stressed that companies confronting cartel and extortion risks should examine whether an event is isolated, whether alternative routes or providers exist, what remediation was undertaken, and whether management changed the conditions that allowed the payments to continue. His broader advice was that a company must be able to tell a credible story of reasonable measures and operational adjustment. Scoular’s alleged six-year payment pattern is difficult to reconcile with that story. The operational response was not to stop, reroute, escalate, or remediate. It was allegedly to reimburse the brokers and continue moving trains.

The Accounting Provisions Remain

Another recurring error is to assume that an anti-bribery exception eliminates all FCPA risk. It does not. The FCPA’s accounting provisions require issuers to keep books and records that accurately and fairly reflect transactions and to maintain adequate internal accounting controls. A payment may fall outside the anti-bribery prohibition and still create liability if it is mischaracterized, hidden in a miscellaneous account, or made through controls that do not provide reasonable assurance of proper authorization and recording. The DOJ FCPA Resource Guide 2nd edition explains these requirements and the government’s narrow approach to the exception.

That is why a company policy that allows facilitation payments creates operational difficulties. Employees must make fine legal distinctions under pressure, document a payment that may violate local law, obtain appropriate approval, and record the transaction transparently. Many companies reasonably prohibit facilitation payments altogether. The legal exception is so narrow, and the collateral risks so substantial, that a global ban is often easier to explain, control, and test.

A Better Customs Control

When a broker describes a payment as a facilitation payment, compliance should treat the statement as the starting point for the inquiry.

The company should ask:

1. What exact government action is requested?
2. Is the company already legally entitled to that action?
3. Does the official have discretion over the outcome?
4. Has an inspection, permit, or application already produced an adverse result?
5. Will the payment change only timing, or will it change the result?
6. Is the amount supported by a published fee schedule and an official receipt?
7. Who will receive the money?
8. Is the payment lawful under local law and permitted by company policy?
9. How will it be recorded in the books?
10. Has the same broker, port, product, or payment description appeared before?

If the business cannot answer those questions before payment, it should not rely on the exception.

Questions for CCOs and the Final Lesson

CCOs should ask whether employees understand the difference between scheduling an inspection and buying a successful inspection. They should test customs invoices for recurring round-dollar charges, match fees to official documents, and review whether brokers produce unusually favorable outcomes after special payments.

The Scoular lesson is simple. A payment does not become permissible because it is small, customary, urgent, or routed through a broker. It qualifies for the FCPA’s narrow exception only when it expedites a routine, nondiscretionary action that the company is already entitled to receive. Scoular’s alleged payments did something very different. They caused officials to allow shipments across the border despite failed inspections, avoided millions of dollars in costs, and were disguised as reinspection fees.

That was not facilitation. It was the business purpose of the bribery scheme.