‘Grease Payments’ – A Cost of Doing Business Overseas

Editor’s note: “International Business Corner” is a weekly column written by Joan Keston that provides information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment. This article is part of a series that addresses corruption.

RALEIGH – In most developing countries routine and perfunctory bureaucratic governmental functions are inordinately cumbersome and often require “under the table” payments in addition to the required fees.

The officials involved are generally not high level officials, but mid-level bureaucrats.

These are payments made to ensure that government functionaries discharge certain ministerial or clerical duties. There is no discretion involved on the part of the government functionary, and often the payments are necessary to speed up the process.

These payments are made as common practices among all companies and appear to be necessary. They are part of the business/regulatory culture of the country and have evolved as part of the normal salary or compensation expectations for the involved officials. These payments to facilitate or expedite performance of a routine governmental action are also called “Grease Payments.”

Routine Governmental Action

Routine governmental action means only an action which is ordinarily and commonly performed by a foreign official, such as the following:

• Obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country

• Processing governmental papers, such as visas and work orders

• Providing police protection, mail pick-up and delivery, or scheduling inspections associated with contract performance or inspections related to transit of goods across country

• Providing phone service, power and waste supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration

• Actions of a similar nature

Routine governmental action does not include any decision by a foreign official or any action taken by a foreign official involved in the decision-making process to award new business to or to continue business with a particular party.

Are Grease Payments Legal?

The Foreign Corrupt Practices Act and the Organization for Economic and Cooperative Development (OECD) Convention do not include Grease Payments in the definition of an illegal bribe. However, the laws of the country where you are doing business should be researched to determine the legal status of Grease Payments. It is essential that you implement procedures to educate and train your domestic and foreign management team so that they clearly understand the point at which payments to governmental officials cease being Grease Payments and enter the realm of illegal bribes.

(This article is not providing any legal advice regarding the subject discussed in this article. You should consult with legal counsel in that regard.)

Joan Keston is the Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a Partner at Paladin and Associates, Inc. She has 25 twenty-five years of experience with mature as well as entrepreneurial companies, domestically and internationally, coupled with an executive managerial and legal background. Her firm facilitates international business transactions, and assists companies establish, grow and integrate their international operations. She can be reached at (919) 881-7764 and at jkeston@kestonassociates.com.