Bribes can come in all sizes. The media likes to highlight the more flagrant examples, but the smaller, everyday forms often go undetected.

The most pervasive kind of small bribes are facilitation payments – or money paid to local officials to accelerate bureaucratic procedures.

In the past, governments have overlooked facilitation payments. Western lawmakers assumed that such payments were simply unavoidable, a necessary part of doing business abroad.

Facilitation payments were exempted from the Foreign Corrupt Practices Act (FCPA) – the world’s first extra-territorial anti-bribery law, passed in the US in 1977.

The act forms the basis of many anti-bribery laws around the world. It made “small, routine, non-discretionary payments to government officials” – facilitation payments – permissible by US companies.

A major turning point in the fight against facilitation payments came in 2001, with the UK’s Anti-Terrorism Act. It is now a criminal offence for UK companies, and UK employees of multinationals, to make such payments.

The new law seems to have affected big companies. In 2002, BP became the first multinational to ban facilitation payments.

Now, non-UK companies with UK employees are being forced to rethink their policies.

Weak enforcement

But there are yet to be any prosecutions under the act, although it is thought that there are about 30 cases currently being investigated.

Transparency International, the global corruption watchdog, recently named and shamed the UK, along with 18 other OECD countries, for its failure to enforce anti-bribery laws.

It is a problem that Alexandra Wrage is well placed to address. As president of Trace (Transparent Agents and Contracting Entities), she works with companies seeking to root out bribery.

Wrage admits that the number of prosecutions have been lower than expected. But she has some reservations about Transparency International’s findings.

First, she says, “tricky legalities” have made prosecutions difficult. Some countries have taken a long time to establish mechanisms for dealing with crimes committed abroad.

This is not unusual: it was at least a decade before US courts could enforce the FCPA, she says.

Second, she suspects that much anti-bribery enforcement is politically motivated. In France, Italy and South Korea – all praised in the TI report – high-profile cases were brought against foreign, mainly US, interests.

Start small

Wrage believes that anti-bribery drives should start small, focusing on facilitation payments – or “expediting bribes” as she calls them.

There are many reasons why facilitation payments are damaging, she says. The most obvious is that they create double standards, as payments are permitted in some countries but not in others.

Wrage observes that companies making facilitation payments distort the functioning of local bureaucracies.

Unlike paying tips, she says, money from facilitation payments is funnelled through a series of government officials, creating a “pyramid scheme” of bribery.

Wrage says that such payments send conflicting signals to employees, who are told they will be imprisoned for bribery but not for expediting payments.

They can also alienate local communities, she says, as companies buy their way past certain local officials.

And they create accounting problems, since employees have trouble keeping accurate records and do not want to document what really happens.

Facilitation payments can also undermine international security. Wrage says: “If you pay government officials to manage differently, you shouldn’t be surprised if criminals and terrorists are doing the same.”

Paying bribes perpetuates the system, as “entrepreneurial bribe takers” raise prices and demand more.

The process is self-defeating. Wrage says that, in the end, facilitation payments do not achieve their goals. Instead they increase delays, and become costs and risks in themselves.

Encouraging signs

The signs are that attitudes are changing. In the past 30 years the size of small bribes has decreased.

In the 1980s, $5,000 paid to government officials would have been classed as small. Now the amounts under consideration are as little as $50.

Many companies now have compliance programmes in place. According to Wrage, between a third and a half of Trace member companies have abolished facilitation payments in the past two years.

The answer to the problem of small bribes lies in giving local employees the training and skills to tackle the problem of demanding officials, she says. They can, for instance, blame their refusal to pay on headquarters.

Companies that introduce tougher policies on bribes will face “30-60 days of pain”, says Wrage. But then demands from intermediaries and officials stop.

She explains that the average bribe-taker is risk averse, and “won’t stand there with their hand out if you won’t pay”.

From her experience, companies can quickly clean up their act. “You shine the least bit of light” and malpractice can stop, she says.

Trace helps its members face the problem, going into government departments and making subtle or direct suggestions on their behalf.

Bribes do not have to be an everyday part of business. Wrage says: “I disagree that it’s impossible to do business without making facilitation payments.”

She admits that in some countries it can be very hard. But non-payment has advantages. “From a business and a legal perspective, ethics aside, you save money, you save time, you save risk.”

Ultimately, small bribes will stop when the cost of non-compliance outweighs that of compliance.

This moment could be a liberating one for companies, as they shake off the cost of facilitation payments and the hypocrisy that comes with them.

Additional reporting by John Russell, deputy editor

Useful links:
www.traceinternational.org

Transparent Agents and Contracting Entities

Trace is a membership organisation providing anti-bribery support to companies and their intermediaries across the world.

The organisation undertakes due diligence reviews and compliance training for intermediaries – sales agents and representatives, consultants, distributors, suppliers and so on.

Members include Microsoft, Exxon Mobil, Northrop Grumman, United Parcel Service, General Electric, Honeywell, Marathon Oil, Dow Chemical, American Express and FedEx.

Main offenders

The five states perceived as the most corrupt are:

• Chad
• Bangladesh
• Turkmenistan
• Burma
• Haiti

Source: Transparency International

Bribery: the key facts

• Since 1998, more than 30 new anti-bribery laws have come into being, as a result of the OECD’s Convention to Combat Bribery.
• Typically, companies can be prosecuted if it is proved that management “knew or should have known” about illegal payments being made by their intermediaries.
• Bribery is now a matter of risk management. Companies are vulnerable if they do not keep a close eye on employees and intermediaries.
• Transparency International says that just 12 OECD countries, out of 31 surveyed, have taken significant enforcement action to tackle bribery and corruption.