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A Modality By Any Other Name

The language of corruption, as of most bad actions, is endlessly inventive. It could even be called picturesque if the subject wasn't the grubby crime of bribery. Like drug dealers who constantly rename their product to keep it attractive, those in the business of corruption do the same. Commission, success fee, performance incentive, gift, gesture, backhander, remembrance, honorarium, rebate, pork, quality claim, netback, freight savings, gratuity, congratulations money, perquisite, lagniappe, plugola, boodle, baksheesh -- pick your window dressing.

The evasion has even found its unedited way from the field to officialdom, with predictably turbulent results. It happened in a 1998 FCPA Opinion Procedure Request to the Department of Justice. The requestor reported that the Nigerian government was holding it liable for environmental contamination and had levied a $50,000 fine and a clean-up order. The requestor's idea was to solve the problem by "retaining a Nigerian contractor with experience in the removal of environmental contaminants." Unfortunately for the guileless requestor, the contractor was recommended by officials of the Nigerian Federal Environmental Protection Agency -- the folks who levied the fine in the place.

To make sure everything went well, the contractor insisted that (1) the $50,000 fine must be paid to the Nigerian government through the contractor itself, and (2) the balance of the contractor's proposed fee -- approximately $170,000 -- had to include some $30,000 in "community compensation and modalities for officials of the Nigerian FEPA and the Nigerian Ports Authority." Not a second too soon, the requestor's light bulb came on. "[U]nder these circumstances," the DOJ said, "the requestor has reasonably concluded that all or a portion of the 'fine' and the 'modalities' will be paid, in fact, to Nigerian Government officials."

The steady hands at the DOJ reacted about as you'd expect. They went ballistic. Based upon all the facts and circumstances disclosed to us by the requestor, the Department would -- if the requestor were to proceed with the requested payments to the contractor of the "fine" and the "modalities" -- commence an investigation to determine if a criminal prosecution would be merited.

When they'd regained their composure, the prosecutors helpfully suggested another way forward. The requestor, they said, could instead pay the fine directly to an official account of the appropriate Nigerian government agency, and reduce the contractor's fee by the amount included for modalities, and pay the contractor only after the government of Nigeria actually certified that the necessary environmental clean-up was completed. If all that happened, the DOJ said, it would "reconsider its present intention to take an enforcement action with respect to the proposed transaction." Nice response, but probably not the answer our requestor was hoping for.

All of which goes to show that in the wrong hands, even modalities -- whatever the heck those are -- can be dangerous and downright illegal. Who would have guessed?

View FCPA Opinion Procedure Release 98-01 (Feb. 23, 1998) here.

Full post as published by The FCPA Blog on May 12, 2008 (boomark / email).