Canada makes facilitation payments illegal

  • January 26, 2018
  • David Debenham

The “facilitation payments” exception to Canada’s Corruption of Foreign Public Officials Act was repealed by Bill S‑14: An Act to amend the Corruption of Foreign Public Officials Act, effective on Oct. 31, 2017.

A facilitation payment is a payment made to a government official to facilitate approval of some type of business transaction or activity. In some countries, small facilitation payments are considered unofficial fees or “tipping” rather than bribes, as they promote good service rather than extend a service to someone otherwise not entitled to it. It is important for North Americans to recall that many countries have widespread public ownership, such that hotel and restaurant employees, phone and utility installers, and others may be “government officials” for the purpose of facilitation payments. Imagine coming to a new country and being unable to get mail, phone, heat and other service hook-ups because there is a three-year backlog unless you “tip” to accelerate services you are otherwise entitled to.

The Americans were the pioneers of anti-corruption legislation, and under their Foreign Corrupt Practices Act of 1977, facilitation payments to expedite the performance of routine government actions (obtaining permits, processing government documents, police protection, mail and utility services) were permitted because certain countries do not consider the payments to be bribes as long as such payment is not made to earn or maintain business, or to create an unfair or improper advantage over another business. Such countries may believe these payments are simply a part of the cost of doing business, particularly where low-level government officials would be unfairly compensated without such consideration. Historically, some countries would sell government offices to individuals, and then allow those individuals to earn income by selling their office via fees for government licences.

The United Nations Convention against Corruption prohibits facilitation payments. The legal status of facilitating payments varies by country. With Canada now making such payments illegal, and the United States continuing to allow them so long as they appear on the company’s consolidated financial statements, Canadians will have to audit their worldwide practices, particularly if they have an American parent or subsidiaries which may not be aware of the change in the law. A question to leave you with – are our First Nations’ chiefs “government officials?” Is gift sharing as part of doing business with our Indigenous peoples now “offside” as a “facilitation payment?”

David Debenham is a lawyer with McMillan LLP