The compliance departments of many FCPA-exposed companies spend an inordinate amount of time worrying about whether their businesspeople are triggering the statute by providing gifts, entertainment and travel to government customers. The new DOJ and SEC Resource Guide to the U.S. Foreign Corrupt Practices Act (the Guide)1 takes pains to emphasize that the SEC and DOJ recognize that these expenditures are legitimate if made without corrupt intent, and it reassures that full-blown prosecutions are unlikely to arise solely from a small, one-off payment of this nature, even if it may appear suspicious. However, the Guide also tasks companies with having compliance processes in place to reduce the risk that they will make gift, entertainment and travel expenditures in a corrupt fashion. Below are the key highlights from the Guide’s treatment of these expenditures, and advice on how corporate compliance departments can translate this guidance in practice.
Low Enforcement Risk for De Minimis Expenditures
The Guide states that the agencies have not brought an FCPA enforcement action for small gifts and hospitality payments, unless those payments “occur together with other conduct reflecting systemic bribery or other clear indicia of corrupt intent.”2 In its roll-out of the Guide, the SEC’s enforcement director explained that “it is not the $5 cup of coffee, or the one-off $50 gift to a public official, that companies need to be concerned about, but payments of real and substantial value that clearly represent an unambiguous intent to bribe a foreign official to obtain or retain business.”3 Thus, although not expressly promising to forego prosecution, the agencies have sent a message that they are unlikely to pursue enforcement actions over very small, one-off payments, so long as the company is otherwise perceived as a good corporate citizen.
An Emphasis on Corrupt Intent
The Guide emphasizes that the key distinction between a legitimate gift, entertainment or travel expenditure and a bribe is the giver’s corrupt intent. While this is a truism, the Guide helpfully describes the factors the authorities are likely to view as evidence that a particular expenditure is not corrupt:
The expenditure is not extravagant: While the Guide maintains that there is no minimum threshold below which an expenditure will never be viewed as corrupt, a smaller expense is safer because items of nominal value are unlikely to influence a foreign official. What, according to the Guide, are examples of gifts and entertainment that are not unduly extravagant? Modest promotional items like hats and t-shirts bearing the company’s logo, a moderately priced crystal vase given to an official as a wedding gift, a sporting event or a theater performance after a legitimate factory tour, and reasonable expenses on food and drink. By contrast, luxury items such as fur coats and automobiles, travel expenses for spouses, and thousands of dollars spent on multiple meals and entertainment for a single official are more likely to be viewed by the agencies as potential FCPA violations.4
The expenditure is made openly and transparently: In a number of examples cited in the Guide, the agencies appeared to deem an expenditure “corrupt” at least in part because the nature of the expense was misrepresented in the company’s records. For example, the Guide describes several enforcement actions arising out of vacations provided to foreign officials under the false pretense of training or tours at the companies’ facilities.5 Improperly recorded expenditures may also put issuers of U.S.-listed securities at risk of violating the FCPA’s accounting provisions.
The expenditure has a legitimate business purpose: Gifts or hospitality provided in connection with the promotion or demonstration of the company’s products are permissible, as are reasonable tokens of esteem or gratitude.6 By contrast, gifts or entertainment that appear designed to curry favor with officials considering whether or not to award the company business will probably not pass muster.
The expenditure does not involve providing cash directly to an official: The Guide warns that business or promotional expenditures should not involve cash payments directly to foreign officials. For example, where travel arrangements are being made on an official’s behalf, the costs should be paid directly to the vendors or, where necessary, reimbursed only upon presentation of supporting receipts.7
Compliance: Control the Funds
The agencies claim that they will give enforcement credit to companies that have in place robust anti-corruption controls and procedures. (As discussed in the section of this site on compliance programs, exactly how much credit is uncertain). In addition, while hospitality and travel payments are not in and of themselves an enforcement priority, the agencies have prosecuted cases where significant bribes are disguised as gifts, entertainment or travel.8 Thus, compliance officers must remain vigilant with respect to these types of expenditures and have systems in place to identify and control all payments involving foreign officials.
In general, the Guide mandates “clear and easily accessible guidelines” in the context of gifts and entertainment.9 Companies seeking to comply with this directive should consider implementing the following policies and procedures:
Mandatory gift and entertainment thresholds with annual limits that require management’s prior written approval for any exceptions.
Automated clearance processes for gifts and entertainment expenses that require backup documentation and generate an accurate record of all such payments.
A prohibition on providing any cash or cash equivalents (such as gift cards) to foreign officials.
Where items of significant value, such as business-related travel, are being provided to foreign officials, a requirement of written confirmation from the official’s government employer that the expenditure is both legal under local law and approved by the employer.
Require third parties acting on the company’s behalf, such as agents and consultants, to abide by the company’s policies with respect to gifts, entertainment and travel.
Policies and procedures such as those set out above should allow a company to engage in lawful hospitality and promotional activities while preventing employees from dispensing bribes under the guise of gifts, entertainment and travel. Moreover, once in place, these clear thresholds and automated processes should free compliance departments to devote their energies to preventing the types of large-scale bribery that are most likely to result in an FCPA enforcement action.
1 The Guide is available on the SEC's website here
2 See Guide at 15.
3 Robert Khuzami, Remarks During News Briefing About SEC-DOJ FCPA Guide, Nov. 14, 2012, available here
4 See Guide at 15-16.
5 See id.
6 See Guide at 17 (hypotheticals).
7 See Guide at 24.
8 See, e.g., SEC v. Lucent Technologies Inc., No 07-cv-2301 (D.D.C. Dec. 21, 2007), ECF No. 1, available here (enforcement action arising out of millions of dollars spent on approximately 315 trips for Chinese officials, most of which lacked a true business purpose).
9See Guide at 16.