Businesses in dilemma over corruption in African ports

Anti-bribery legislation

This degree of concern in part reflects a broadening in the scope of international anti-corruption legislation to target small bribes and facilitation payments.

Historically, facilitation payments were not a target of international anti-corruption legislation, which traditionally focused on bribes paid to public officials to secure contracts.

The US Foreign Corrupt Practices Act (FCPA) was passed in 1977 as the first extraterritorial law to combat the bribery of foreign officials. Following protests by US companies, Congress in 1988 made a concession by amending the act to exclude the prohibition of ‘facilitation’ payments, defined as payments “to expedite or secure a routine government action”.

Similarly, the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions provides against bribes made “to obtain or retain business or improper advantage”, but the commentary to the provision asserts that it does not cover small ‘facilitation’ payments to foreign officials to induce them to perform their functions. It noted that facilitation payments were a “corrosive phenomenon”, but said that they were better addressed through “support for programmes of good governance”. However, recent years have seen an accelerating trend towards an erosion of the facilitation payment exemption.

The OECD in December 2009 issued a recommendation that called on member states to “prohibit or discourage them”. In April 2010, the British government passed the Bribery Act (UKBA), which came into force in 2011. The act provides no defence for facilitation payments, meaning that they are included in its definition of bribery and prohibited.

Moreover, the definition of bribery is broader than that of the OECD convention, being based on the concept of soliciting an ‘improper performance’ rather than gaining an ‘improper advantage’. A payment to a customs official to induce or expedite a standard procedure could be caught under the UKBA.

Alongside the strengthening of anti-bribery legislation, there has been a significant increase in the number of enforcement actions taken against companies for making corrupt payments to customs officials.

Most notably, the US Department of Justice and Securities and Exchange Commission in November 2010 concluded an investigation into a Swiss logistics company over the payment of bribes to evade normal customs procedures. The company admitted to having paid thousands of small bribes, amounting to $27m, to officials in Africa and Central Asia. It was required to pay a $70.56m criminal penalty under a deferred prosecution agreement.

The offence for which the company was prosecuted fell under the FCPA definition of a bribe rather than a facilitation payment because the payments were made to evade rather than to expedite normal customs procedures, and were orchestrated systematically across the company’s business. The penalty highlights that US authorities are prepared to target companies that routinely pay small bribes in connection with standard logistical operations.

These trends in the scope and enforcement of international anti-corruption legislation create significant dilemmas for business leaders. While the tightening of legislation can make it hazardous to pay operational bribes, the failure to make such payments can lead to significant delays in navigating standard port and customs procedures. This can be particularly problematic for businesses transporting valuable or time-sensitive goods, such as perishable foodstuffs.

Moreover, all businesses face the risk that, if customs clearance procedures are delayed, demurrage fees may become due to the port authority or operator. In many ports in Africa, such as Matadi in the Democratic Republic of Congo, there is a significant spike in demurrage tariffs after a few days’ free time that become applicable if there are delays in clearing customs processes and other standard procedures. This presents a strong incentive for a cargo owner or its customs clearance agent to make ‘facilitation’ payments to expedite standard processes. This is particularly applicable to customs clearance agents whose raison d’être is the ability to clear customs procedures in an efficient and timely manner.