Frank Lumpkin, IV
Introduction
The Foreign Corrupt Practices Act (FCPA) bans U.S. companies from bribing foreign officials. However, the Act makes an exception for facilitating payments, more commonly known as “administrative grease” or “grease payments.” The FCPA permits these legal bribes when used “to expedite or to secure the performance of a routine governmental action by a foreign official, political party, or party official.” The payment does not cover the cost of the action itself as the action is a normal government function. Rather, the payment provides preferential treatment in terms of priority ahead of other actions by government administrators.
18 U.S.C.A. § 201 bans U.S. individuals and entities from bribing U.S. government officials. While no statutory exception permits direct bribes in § 201 like in the FCPA, some think lobbying effectuates the same result as a bribe. Britannica defines lobbying as “any attempt by individuals or private interest groups to influence the decisions of government.” These individuals or groups engage in lobbying by contracting with registered lobbyists who in turn communicate with government officials. Through this communication, an effective lobbyist will build a relationship with elected officials, influence the way officials think on issues, and draft legislation and regulations.
Facilitating payments and lobbying accomplish many of the same goals for individuals, corporations, and other interest groups, all within the bounds of U.S. law. This note examines these two types of influence on government officials, considers the key similarities and differences between them, explores the stigma surrounding facilitating payments as opposed to lobbying, examines the economic and social impacts of each practice domestically and abroad, and indicates ideas to reform the two practices.
Facilitating Payments
U.S. law permits facilitating payments because these payments open the door for companies to conduct business in a foreign country—companies argue that without them, the business could not be effectively conducted in foreign countries. Facilitating payments occur all around the globe, and the beneficiary is no specific type of government official. Not all foreign countries allow U.S. companies to engage in this practice within their borders, though. For instance, the United Kingdom and most European countries have banned the practice. Ironically, though the U.S. permits the use of facilitating payments in foreign countries, the U.S. prohibits foreigners to use facilitating payments within the U.S.
The line between facilitating payments and bribery can be ambiguous. One U.S. company discovered this when the U.S. government found they violated the FCPA for paying customs officials in Argentina to secure clearance of materials into the country. Helmerich & Payne, Inc. crossed the line when the government discovered that the materials lacked the required certification by Argentine law and that the company was paying less than the applicable duty rate. Helmerich went too far when they used the money to surpass the law rather than to accelerate normal government functions.
Lobbying
U.S. law permits lobbying because the practice allows citizens to communicate their concerns with those in the government who represent them. For this reason, lobbying is a right guaranteed under the First Amendment’s Right to Petition. Over the years, entities besides individuals have been engaged in lobbying, and the process has grown more complex. Because of this complexity, entities hire lobbyists to represent their interests before federal, state, and local officials. Lobbying takes place throughout the U.S. from Washington D.C. to the capitols of every state, all the way to the local county commission. Lobbying spans the legislative and executive branches, including all levels of administrative government within the executive branch.
Lobbying transformed greatly in 2010 with the landmark case, Citizens United v. Federal Election Commission, which solidified this constitutional guarantee by holding that the U.S. government could not suppress political speech based on the “speaker's corporate identity”. The decision allows corporations to contribute substantially more resources toward influencing government officials than ever before. The decision also allowed corporations, as opposed to individual citizens, to engage more directly in the lobbying process, as they could now contribute to the candidates themselves rather than contributing to the candidates through their employees. Though officials have always received larger campaign contributions from wealthier individuals, now elected officials are more beholden to corporations since they are usually better positioned to be larger contributors. More and more campaign finance reports show more and more funds coming from a few large corporate donors as opposed to individual donors. Since 2010, U.S. entities have spent nearly $37 billion with the nearly 14,000 registered lobbyists in the country.
A Comparison
This section will analyze similarities and differences between facilitating payments and lobbying, in relation to priority, payment caps, payment beneficiaries, disclosure, and acceptability.
Priority
Both facilitation payments and lobbying offer businesses the opportunity to advance their interests ahead of others, albeit through different means. Facilitation payments allow corporations to expedite their business objectives, often in a more explicit manner than with lobbying tactics. Examples of facilitation payments include obtaining licenses to do business in a foreign country, processing visas, providing protection, ensuring safe delivery of goods, or securing utility services.
On the other hand, lobbying does not follow a quid pro quo approach like facilitation payments. Lobbyists seek to gain access to decision-makers, which can be achieved through engagement in political activities. This access may take the form of sitting next to an administrator at a reception, walking alongside a senator between meetings, or meeting alone with a member of the House of Representatives to advocate for their case.
While facilitation payments are direct and affect specific functions, lobbyists focus on influencing legislation that will, in turn, impact the jurisdiction of regulatory agencies over corporations. For instance, a lobbyist's meeting may not result in a handshake agreement to expedite a corporation's business visas for guest workers, but it may lead to that lawmaker voting for or against a bill or persuading an administrator to loosen a regulation, thus expediting the process for certain companies to bring in guest workers.
Lobbying can also resemble facilitation payments in the sense that an effective lobbyist can expedite normal government functions for their clients. For example, a non-profit client of a D.C. lobbying firm once needed a last-minute passport, and with the help of their lobbyist, they received it the following day, instead of the usual two-week or ten-week wait time. However, even in these situations that resemble facilitating payments, lobbying involves a tacit understanding rather than a promise. Both facilitation payments and lobbying can prioritize corporate objectives. Lobbying, however, does so in a more indirect and implicit way than facilitation payments.
Payment Beneficiaries
Compared to facilitating payments, the process of prioritizing corporate objectives through lobbying is generally slower and more indirect. However, the benefit to government officials from lobbying is more complex than that of facilitating payments. Facilitating payments are straightforward: the government official is the beneficiary, and the corporation seeking influence pays the official directly.
In contrast, lobbying involves nominal gifts, invitations to events, banquets honoring elected officials, and campaign contributions. Direct payment from lobbyists to government officials is generally prohibited by laws and regulations. Events and contributions benefit officials by increasing their visibility and supporting their reelection campaigns. For appointed officials, lobbying can still be effective since elected officials appoint them and determine their budget and duties. Instead of directly lining the pockets of officials, payments from lobbyists benefit them indirectly by supporting their political campaigns and enhancing their public image.
Payment Caps
Facilitation payments and lobbying efforts differ in both the direct beneficiaries and the permissible total value of the payments. The Foreign Corrupt Practices Act (FCPA) does not limit the amount a corporation can provide through a facilitating payment, despite suggestions that lawmakers should set caps on the amount that can be given. In contrast, U.S. law places limits on the types of gifts and campaign contributions that lobbyists can give to elected officials.
Lobbyists are limited to giving nominal gifts worth less than $10, such as greeting cards, baseball caps, or t-shirts, with certain exceptions. Some lobbyists argue that the strictness of these rules has reduced their ability to have personal and emotional discussions with lawmakers and their staff. Throw in restrictions following the Covid-19 Pandemic and stricter security at the Capitol following the January Sixth Riot, and interaction is further restrained. Furthermore, campaign contributions are limited, with individuals able to contribute up to $2,900 per election per candidate and political committees able to contribute up to $5,000 per candidate per year.
However, the formation of Super Political Action Committees (Super PACs) has made these limits less concrete. While lawmakers have limited the amount an elected official can receive through campaign contributions from corporations, lobbyists still have virtually no cap on how much they can give to a candidate through the use of Super PACs.
Disclosure
Though caps are non-existent for facilitating payments and virtually non-existent for lobbying, disclosure implicitly caps the practices, particularly lobbying. Beginning with facilitating payments, the size of the payment is generally suggestive of a corruptive intent to “influence a non-routine governmental action.” Some argue a cap is unnecessary since larger payments are scrutinized more carefully by government agencies, and the public naturally regulates the industry. But the ability of a government agency and the public to easily regulate only works if the payment is disclosed. However, facilitating payments are generally not disclosed, making monitoring the business's activities difficult for those wishing to track down how much a business is spending on facilitating payments. On the other hand, lobbying is extremely transparent, much due to the Lobbying Disclosure Act of 1995. The Act makes lobbyists register themselves as lobbyists and report lobbying activity in which they engage. Even candidates who receive from the Super PACs are under strict scrutiny by statute to disclose from who the money comes and how much.
Disclosure for lobbying is not only statutorily required, but lobbying disclosure is also a voluntary, common practice by corporations. Especially for publicly traded companies, thanks to Sarbanes-Oxley Act the financial documents are quite attainable to the public. However, if you look at a global company’s books, you likely will not find a line item in the expense category on the income statement for facilitating payments. Again, facilitating payments are seen as corrupt so businesses generally do not disclose these despite their legality. On the other hand, lobbying efforts are often presented in the companies' financials with a write-up of the successes of the efforts. For example, in Capital One’s 2018 Government and Policy Affairs Group Annual Report, a write-up on their government relations practice says, “From designing a new product to capital requirements and the corporate tax code, Capital One is impacted by the legislation enacted by lawmakers….In 2018 alone, over 500 bills were passed at the state level that were applicable to Capital One.” They even go as far as to say that their lobbying practices are pivotal to their role as “a responsible corporate citizen.” Overall, lobbying is more transparent than facilitating payments because of required and voluntary disclosure.
Acceptability
More stigma surrounds facilitating payments as opposed to lobbying. Facilitating payments have a negative reputation for bloating corporations' operational expenditures and encouraging inefficient business practices, while benefiting officials at the expense of average citizens. This lack of transparency and accountability can lead to an environment where officials are more susceptible to corruption and can undermine the legitimacy of the local government. Facilitating payments can also encourage inefficient business practices, as companies may prioritize short-term gains over long-term sustainable growth. This can lead to a negative impact on the local community, as resources are not allocated efficiently, and local businesses may suffer as a result.
Lobbying has a mixed reputation. While it is considered a legitimate way for businesses and organizations to express their interests to decision-makers, it has also been criticized as a way for corporations to exert undue influence on the political process. Lobbyists are often seen as having disproportionate access to decision-makers and can use their influence to shape policy in favor of their clients, rather than in the best interests of the public. The Watergate Scandal in 1973 is an example of how corporate lobbying can go too far. The scandal involved the Nixon administration's efforts to undermine political opponents, including break-ins to the Democratic National Headquarters, bugging offices, and ordering investigations of challengers by the FBI, CIA, and IRS. One of the Watergate burglars received a $25,000 cashier's check from the Committee to Reelect the President, which had been directly used to finance the burglary and wiretapping. This scandal led to President Nixon's resignation and highlighted the need for regulation of lobbying activities. Since then though, lawmakers have put forth significant efforts to regulate lobbying activities like the Lobbying Disclosure Act of 1995, discussed earlier. However, despite these regulations, concerns still exist about the influence of money in politics and the ability of lobbyists to shape policy in favor of their clients.
While both facilitating payments and lobbying have their criticisms, facilitating payments have a more negative reputation due to their association with corruption, lack of transparency, and inefficient business practices. While lobbying has had its scandals and criticisms, it is generally considered a legitimate way for businesses and organizations to express their interests to decision-makers, provided it is regulated properly.
The Impact of Facilitation Payments and Lobbying
This section considers the economic and social impacts of facilitating payments and lobbying, both domestically and abroad.
Economic
Facilitation payments serve a purely economic function, attempting to speed up normal government processes to make the business more efficient. However, the benefits of facilitation payments may be tempered by their resulting expense uncertainty and potential adverse impacts on firm reputation. A PWC Survey based on 390 senior executives in 14 countries shows that in addition to potential damages to the firm’s reputation, corruption tends to create a company culture of unethical behaviors and attitudes. One study by Transparency International, an organization that encourages transparency to combat corruption, found that "in aggregated terms, facilitation payments are costly, acting as a hidden tax on businesses and introducing uncertainty, risk, and delay in the performance of business and government operations". Each time a payment is made, time must be spent with foreign bureaucrats negotiating regulations. This is time away from their other tasks, costing the company valuable time. And nothing stops foreign officials from charging more, especially as the culture of bribery extends throughout the company and the organization receives a reputation of making facilitating payments. As facilitating payments grow in the amount charged and the frequency demanded, companies find budgeting for costs associated with negotiating time and cost of the payment impossible.
From an economic perspective, lobbying is quite good for business. Government relations intervention by firms accounts for about thirty percent of that firm’s corporate earnings, according to one McKinsey Report. These earnings may not contribute to an overall more economically prosperous country, though. An International Monetary Fund working paper suggests that financial, insurance, and real estate companies in the United States with rigorous lobbying shops tend to engage in riskier lending practices. The paper reveals how lenders who lobby more intensively on the issues of mortgage lending and securitization have larger loan-to-income ratios and faster-growing mortgage loan portfolios as a result of less regulation generated through lobbying influence in legislation. Riskier lending led to the 2008 financial crisis—a detrimental blow to the United States and the World economy.
Not all large-scale efforts by lobbyists cause financial suffering though. For example, all large infrastructure investments in the U.S. were made through the efforts of lobbyists. Many of these lobbyists represented the interests of car manufacturers, gasoline companies, and their agglomerates, collectively known as the “highwaymen”. The first of these acts pushed through by the highwaymen and their lobbyists was the Federal-Aid Highway Act of 1944, creating the national highway system responsible for many of the U.S. Highways still in use today; however, the most famous of these National Interstate and Defense Highways Act which established the interstate highways system. Businesses, U.S. citizens, and the government alike receive widespread benefits from this government investment, largely advanced through massive investment in lobbying by private companies. Businesses benefited by being able to sell more cars, gasoline, and associated products, U.S. citizens benefited through more connections and safer roads, and the government benefited from increased national security and more tax revenues. Interstate 5 provides a practical example of the extent of these improvements. If I-5, which runs along the U.S. west coast, were to simply disappear, California would lose 6% of its annual income and Oregon would lose 15% of its annual income. When used for economically prudent causes, lobbying positively benefits the economy.
Social
For facilitating payments, the social impact might be worse than the economic impact, both for the businesses and the countries in which they conduct business. While these practices may help a business in the short term, they may have negative long-term consequences, as reputation not only impacts revenues and expenses of the business but also how employees feel about the place they work, says one study. And while in the short-term facilitating payments might create more commerce within the country, these practices are likely to affect the efficiency of the whole country in the long term. Facilitating payments incentivize elected officials and administrators to create more restrictions and procedures to elicit more facilitation payments from companies. These regulations make government processes even slower than before, decreasing efficiency for the citizens government officials are supposed to serve. And though companies can afford to jump these hurdles many citizens cannot. Instead, these citizens needing assistance from their government administrator must either find the cash or go without whatever service they are owed from the government if they wish to receive that service.
While lobbying can be a way to make positive social change, those changes rarely benefit all groups of people equally or at all. In the US, 89% of corporations and 53% of trade associations succeed in their lobbying efforts, while the majority of those fighting for the broader good—60% of citizen groups and 63% of foundations—fail in their lobbying goals. This trend stems from the “[legislators] beholden to the wealthy interests that will underwrite their next re-election bid” says the OECD Forum on Transparency and Integrity in Lobbying in June 2013. Participants in the OECD survey emphasized that: “a major problem at the heart of the democratic system is a sense that the wealthy finance political parties only to further their own interests.”
Lobbying or an Alternative?
Impacts aside, what other solutions are available for the people of the U.S. to communicate with their government besides lobbying? It's lobbying or it's nothing. At any one time, a staffer for a high-level government official receives 134 emails a day representing various issues of constituents and other interests who want them to take action on their behalf. Each House office has on average 14 staffers, each Senate office has on average 34 staffers, and offices of administrators vary widely. The volume of information makes the job of the staff of these officials to decipher and then take appropriate actions on all of their constituent’s needs impossible. The need for filtering differs for facilitation payments. While administrators are too overloaded with requests to perform normal government function tasks, these tasks are more uniform. For instance, approving a work visa is more uniform and less complex than listening to a constituent’s proposal for a new law, drafting the bill, negotiating with other elected officials to support the bill, and then going through the process of making the bill law. The range of expectations with normal government functions is fewer than the many types of issues lobbyists deal with.
Further, while the elected official or administrators may take credit for the new law, lobbyists are at the forefront of nearly every major piece of legislation and regulation. Take for instance, a recent law passed the Congress as part of the 2021 Bipartisan Infrastructure Bill, the Interstate 14 Act. This act designates a new interstate highway from Odessa, Texas to Augusta, Georgia. Supported by groups ranging from non-profits, local municipalities, and corporations, the various supporters hired a Washington, D.C., lobbying firm to push the legislation through. The lobbyists received written approval for the project from all lower levels of government for the project, came up with strategies of how to make the project a reality, drafted the legislation for the congresspeople, and even wrote the talking points for the senators to present on the Senate floor. Had the firm not intervened, this new interstate highway running from Odessa, Texas to Augusta, Georgia, would never exist. And with I-14, its economic and social impact on the country by providing a more efficient logistics route across the southeast for travelers and truckers, new economic opportunities to rural and impoverished regions, a more connected military increasing national security, and evacuation routes for the gulf and the Atlantic coast would nonexistent without lobbying.
While facilitation payments can help filter which functions ought to be prioritized, plenty of governments outlaw the use of facilitating payments and are still able to provide services to businesses and people that operate within their borders.
Conclusion
Though facilitating payments and lobbying might accomplish many of the same goals, substantive data shows facilitation payments present a net detriment, while the conclusions for lobbying are more uncertain. Facilitating payments appear to have no morally redeeming economic or social features. They allow for the direct purchase of favors or advantages—the true “you scratch my back, I’ll scratch yours” scenario. Because of their amorality, lack of economic and social benefit, and corrupt nature, facilitating payments ought to be banned. Lobbying, on the contrary, is an important, even critical tool in influencing public policy—evening the scales between different groups. While not effective all the time, lobbying is essential.
Perhaps though, the practice of lobbying can adopt some aspects of facilitating payments. Lobbying should be more like the practice of facilitating payments in the sense that lobbyists should be allowed to have more personal interaction with lawmakers. Under the current law and circumstances, the interaction between a lawmaker and their staff and lobbyists faces so much regulation that the exchanges needed to form a successful lobbying relationship present more difficult than ever before.
Lawmakers need to cap both facilitation payments - if not banned - and lobbying in terms of contribution. Officials, both domestic and abroad, succumb to greed through massive contributions either directly to their coffers or to their campaign bank accounts. And finally, officials simply need to be paid appropriately (appropriately meaning a livable wage to a salary great enough to outweigh the risk associated with participating in corrupt activities) to prevent the need for these high facilitating payments to begin with, especially when it comes to facilitating payments, which are often used for an administrator’s livelihood.