WHEN is a bribe not a bribe? According to US law, it might not be a bribe if a company paid a little something under the table to a foreign official to encourage him to speed up a permit that he would have issued anyway.

Some legal experts are wondering whether this little-known exception to the Foreign Corrupt Practices Act could come into play in the case of Walmart, which is facing allegations that executives at its Mexican subsidiary paid off officials in that country to obtain building permits - actions that allowed the company to grow quickly in the local market.

Under the law, it is illegal to bribe foreign officials to obtain business. But there is an exception for "facilitation payments," also known as grease payments made to speed up routine government actions. Walmart could theoretically argue that at least some of the alleged payments fall under that exception and therefore were not illegal under US law.

No charges have been brought in connection with the case.

The New York Times reported on Saturday that the retailer's own investigators found a paper trail of hundreds of payments totaling more than $24m but that company leaders essentially shut down the probe and failed to alert US or Mexican law enforcement officials.

A Walmart spokesman declined to comment on a possible defence. In a statement on Tuesday, the company said it has taken several actions in the last year to investigate the matter and strengthen the company's compliance with the FCPA.

While broadly prohibiting bribery abroad, the FCPA makes an exception for grease payments, which are defined as payments made to facilitate or expedite "the performance of a routine government action."

When the act was passed in 1977, Congress was aware of a variety of payments that companies were making to foreign officials. The Securities and Exchange Commission had found that more than 300 US companies had made improper foreign payments involving hundreds of millions of dollars. The payments, Congress concluded, were bad for business and hurt the image of the United States abroad.

The grease payment exception nodded to the reality that even though petty corruption is objectionable, given the somewhat limited resources of law enforcement, it would not be practical to target it.

But the exception can be open to interpretation. Because the risks of going to trial for a company are great, businesses typically seek to negotiate a settlement. That leaves the task of interpreting the FCPA to prosecutors, not a judge. It is the prosecutor who decides whether the alleged wrongdoing falls under the exemption, and in recent years, prosecutors have defined the exemption narrowly, according to defence lawyers.

STRATEGY SHIFT

Recognising this development, companies have shifted their response to FCPA inquiries, said Alexandra Wrage, president of the anti-bribery resource association TRACE International Inc.

"Companies are increasingly reluctant to head into the Department of Justice using a facilitating payment exception as a defence," Ms Wrage said.

There have been at least two cases that have addressed the kinds of payments allowed under the FCPA, according to Michael Koehler, an FCPA scholar at Butler University and author of the FCPA Professor blog.

The best-known decision about what payments are allowed under the FCPA came from the New Orleans-based 5th US Circuit Court of Appeals in 2004. The opinion did not address grease payments specifically, but considered rather what is necessary to show whether payments were made to obtain business.

In the case, two former American Rice Inc executives were accused of bribing Haitian officials with tens of thousands of dollars to reduce duties and taxes on the company's rice. To carry out the scheme, the defendants allegedly instructed subordinates to generate false business records and to deliver cash in sealed envelopes to the officials.

The lower court judge dismissed the indictment, finding that as a matter of law, the payments were not targeted by the FCPA because they were not used to obtain or retain business. If a case against Walmart were to be filed, the company could make the same argument.

However, the argument did not fly in the 5th Circuit, which reversed the lower court in the American Rice case. The appeals court found that under certain circumstances, the bribes could be viewed as falling within the purview of the statute. After the case was sent back to the lower court, the two executives were convicted at trial.

In a 2002 case, two former executives at Baker Hughes Inc, an oilfield services company, successfully argued that bribes they allegedly authorised did not violate the FCPA. The executives had been charged with authorising payments to Indonesian officials to reduce a tax assessment for an Indonesian company owned by Baker Hughes. But US District Judge Kenneth Hoyt in Houston concluded that the payments did not violate the FCPA because they did not help Baker Hughes "obtain or retain business."

Walmart could have a "very valid legal defence," according to Mr Koehler. He said Walmart could argue that the payments under scrutiny were grease payments and did not involve obtaining or retaining business from the government. The alleged payments for building permits were arguably for services that the company would get anyway.

"The purpose of the payments was to get licenses and permits faster," said Mr Koehler.

But others disagree. Michael Volkov, a former federal prosecutor and FCPA expert, said that alleged payments in the Walmart case were clearly not allowed under the statute, because the payments were used to influence the discretion of government officials and to gain a business advantage.

Making an argument that the payments were allowed under facilitating payments exception, he said, would be "like trying to take a boulder and fit into a hole the size of a pebble."

REUTERS