Mickey, Donald and Travel and Entertainment under the FCPA


The Foreign Corrupt Practices Act (FCPA) enforcement arena is scattered with US companies which have gone many miles past the extra mile in providing travel and entertainment. Most practitioners will recall the Lucent Technologies 2007 enforcement action. Between 2001 and 2003 Lucent provided trips consisting primarily or entirely of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon and in cities such as Los Angeles, San Francisco, Las Vegas, Washington, DC, and New York City, and typically lasted 14 days each and cost between $25,000 and $55,000 per trip. These trips were provided to Chinese governmental representatives. To close out 2009, the Department of Justice (DOJ) announced a resolution of an enforcement action against UTStarcom which had arranged and paid for travel by Chinese governmental representatives to tourist destinations in the United States, including Hawaii, Las Vegas and New York City, when such trips were recorded as training expenses at UTStarcom facilities. These trips included a cash allowance of between $800 and $3,000 per person. The thing about these trips was that UTStarcom had no facilities in these areas.


So what is the problem with paying for travel to the US for foreign governmental officials? Is it a Chinese issue? Should US companies only allow travel to places where the actually have a facility (well, that’s a good start). The FCPA does not prohibit all payments to foreign officials, it is not that broad. What it does prohibit are corrupt payments (or promises of them) made to obtain or retain business. The FCPA allows payments to foreign officials for expenses related directly to “the promotion, demonstration, or explanation of products or services” that are “reasonable and bona fide” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). This affirmative defense, however, is notoriously hard to use (and easy to abuse), mainly because no one is quite sure what reasonable and bona fide really mean.

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Published In: Criminal Law Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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