The US Department of Justice (DoJ) and Securities & Exchange Commission’s (SEC) investigation of Walmart and its Mexican subsidiary Walmex has brought into sharp focus a controversial exemption under the Foreign Corrupt Practices Act (FCPA).
It’s a good example of why companies are advised against relying on the exemption.
The FCPA’s anti-bribery provisions allow facilitating payments – small payments to expedite certain routine government actions. But most other countries do not, including Mexico.
On paper, Mexico’s domestic anti-bribery laws appear robust. The Federal Law on Administrative Accountability of Public Officials and the Federal Law on Accountability, along with other provisions of the Federal Criminal Code outlaw bribery of officials, including facilitating payments.
The Mexican House of Representatives in April passed a bill banning bribery of public officials for a business advantage.
Despite these measures, practice has proved different. And it’s unclear if the latest bill will make much of a difference even if passed by the Senate and made into law.
This is due in part to the discretionary powers of public officials to authorise business permits for a fee, as is thought to have been the case with Walmex’s building permits.
“Let us not forget that Mexican public officials put their careers on the line every time discretionary powers are exercised and they are held accountable,” said Jáuregui y Navarrete partner Miguel Jáuregui Rojas.
Mexico was ranked 100 out of 183 countries and territories surveyed in Transparency International’s 2011 Corruption Perceptions Index. This can make it difficult for large companies with subsidiaries in the country.
“Sometimes local competitors, with different standards than those espoused by Fortune 500 companies, might take part in behavior damaging to those observing such standards upon competing in the market,” said Jáuregui Rojas.
To comply with the FCPA as well as host-country laws, companies are advised to establish a reputation of compliance with bribery laws in all markets they are active. But this easier said than done.
“Management can’t simply say no (to facilitating payments) if the culture in a location includes those kinds of payments,” said Shearman & Sterling’s Danforth Newcomb.
“Management has to put in place practical alternatives so that line employees can follow the policy of no facilitation payments and still do whatever job is required of them,” he said.
In the case of Mexico, Newcomb said that can mean placing the local subsidiary in a special enterprise zone where local officials have less ability to hold-up matters.
It can also mean building more time into schedules so the local business can wait out a local hold-up, carrying extra supplies so hold-ups do not shut down production and appealing to higher levels of government when hold-ups occur, he added.
If facilitating payments were allowed under Mexican law, there would still be debate over what qualifies. The term applies to obtaining permits and licences among other things, but its reach has become narrower in recent years as FCPA enforcement has increased.
“I have no idea what a facilitating payment is and I have worked in this area since before the statute was adopted,” Newcomb said.
Even if companies can rely on the FCPA facilitating payment exemption, they will still have to answer to restrictions at the local level.