If one were to reflect upon the providing of gifts and business entertainment to foreign governmental officials, one might reasonably conclude that after 40 years of the FCPA, companies might follow its prescriptions regarding gifts and business entertainment. However, there have been some notable FCPA enforcement actions in this area.

The 2012 Guidance clearly stated the FCPA does not ban gifts and entertainment. Indeed, the Guidance specified that “A small gift or token of esteem or gratitude is often an appropriate way for business people to display respect for each other. Some hallmarks of appropriate gift-giving are when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law. Items of nominal value, such as cab fare, reasonable meals and entertainment expenses, or company promotional items, are unlikely to improperly influence an official, and, as a result, are not, without more, items that have resulted in enforcement action by DOJ or SEC.”

What does the FCPA Itself Say? 

While prohibiting payment of any money, or thing of value, to foreign officials to obtain or retain business, the FCPA arguably permits incurring certain expenses on behalf of these same officials. There is no de minimis provision. The presentation of a gift or business entertainment expense can constitute a violation of the FCPA if this is coupled with the corrupt intent to obtain or retain business. Under the FCPA, the following affirmative defense regarding the payment of expenses exists:

[it] shall be an affirmative defense [that] the payment, gift, offer or promise of anything of value that was made, was a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to…the promotion, demonstration, or explanation of products or services; or…the execution or performance of a contract with a foreign government or agency thereof.

As with most matters under the FCPA, there is little direct guidance on what conduct may step over the line set out above. Of course, there is always the gut check test, which simply measures “if it feels wrong in your gut, it probably is wrong”. It is something good to always keep in mind in any circumstance.

Opinion Releases 

Somewhat surprisingly, there are not any recent DOJ Opinion Releases from the past 10 years dealing with the values for gifts and business entertainment under the FCPA. However, there are three Opinion Releases from the early 1980s which can provide some guidance to current practitioners.

In Opinion Release 82-01, the DOJ approved the gift of cheese samples made to Mexican governmental officials, by the Department of Agriculture of the State of Missouri to promote the state of Missouri’s agricultural products. However, the value of the cheese to be presented was not included in the Opinion Release. In Opinion Release 81-02, the DOJ approved a gift of its packaged beef products from the Iowa Beef Packers, Inc to officials from the Soviet Ministry of Foreign Trade. The total value of all the samples presented was estimated to be less than $2,000 and the Iowa Beef Packers, Inc averred that the individual sample packages would not exceed $250 in value.

The final Opinion Release relating to gifts is 81-01. In this release, Bechtel sought approval to use the SGV Group, a multinational organization headquartered in the Republic of the Philippines and comprised of separate member firms in ten Asian nations and Saudi Arabia, which provide auditing, management consulting, project management and tax advisory services. The SGV Group desired to solicit business on behalf of Bechtel who had proposed to reimburse the SGV Group for gift expenses incurred in this business solicitation. Regarding the reimbursement of gift expenses by Bechtel to the SGV Group the DOJ stated:

(d) Expenses for gifts or tangible objects of any kind incurred without Bechtel’s prior written approval will be reimbursed only where such expenditures are permitted under the local laws, the ceremonial value of the item exceeds its intrinsic value, the cost of the gift does not exceed $500 per person, and the expense is commensurate with the legitimate and generally accepted local custom for such expenses by private business persons in the country.

Policies and Procedures for Gifts and Business Entertainment

 Gifts to Governmental Officials 

Based upon the FCPA language and relevant Opinion Releases and allowing for inflation over the past 30 years, it would appear reasonable that a Company can provide gifts up to a value of $500. Below are the guidelines which the Opinion Releases would suggest incorporating into a compliance policy regarding gifts:

  • The gift should be provided as a token of esteem, courtesy or in return for hospitality.
  • The gift should be of nominal value but in no case greater than $500.
  • No gifts in cash.
  • The gift shall be permitted under both local law and the guidelines of the employer/governmental agency.
  • The gift should be a value which is customary for country involved and appropriate for the occasion.
  • The gift should be for official use rather than personal use.
  • The gift should showcase the company’s products or contain the company logo.
  • The gift should be presented openly with complete transparency.
  • The expense for the gift should be correctly recorded on the company’s books and records.

Business Entertainment of Governmental Officials 

Based upon FCPA language (there are no Opinion Releases on this point), there is no threshold that a Company can establish a value for business entertainment. However, I believe there are clear guidelines which should be incorporated into your business expenditure policy, which should include the following:

  • A reasonable balance must exist for bona fide business entertainment during an official business trip.
  • All business entertainment expenses must be reasonable.
  • The business entertainment expenses must be permitted under (1) local law and (2) customer guidelines.
  • The business entertainment expense must be commensurate with local custom and practice.
  • The business entertainment expense must avoid the appearance of impropriety.
  • The business entertainment expense must be supported by appropriate documentation and properly recorded on the company’s book and records.

The incorporation of these concepts into a compliance policy is a good first step towards preventing potential violations from arising, but it must be emphasized that they are only a first step. There must be procedures to implement these policies. At a minimum, you must require a business justification from the business representative requesting to provide the gift or business entertainment. Next it should be reviewed and approved by a front-line compliance professional. Then, depending on the amount and nature of the request, it may need CCO approval. Finally, if there is a Compliance Oversight Committee it should go to that Committee for a final check to make sure everything is in order.

These guidelines must be coupled with active training of all personnel, not only on a company’s compliance policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and business entertainment. Lastly, it is imperative that all such gifts and business entertainment be properly recorded, as required by the books and records component of the FCPA.

And, as always, do not forget the gut check test.

Three Key Takeaways

  1. Gifts and business entertainment continue to plague companies for compliance violations.
  2. The key is not the amount but of having a policy and procedure and following it.
  3. Always remember to record gifts and business entertainment expenses correctly.

 

This month’s sponsor is the Doing Compliance Master Class. In 2018 I am partnering with Jonathan Marks and Marcum LLC to put on training. Look for dates of one of the top compliance related training going forward.

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