Safe Harbors and Gifts, Meals, Travel, and Entertainment Expenses

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http://corruptioncrimecompliance.com/wp-content/uploads/2012/11/imagesCA4673JT.jpgCompanies often get “hung up” on paying for gifts, meals, travel and entertainment expenses.  There are risks in this area but it most cases the risks are overblown.  I am not saying that companies should ignore the issue but companies spend too much time on this issue which can be better used on financial controls and third party risks.    

The FCPA Guidance only reinforces my view of this issue — it contains important legal points and  some helpful suggestions and safe harbors for companies and practitioners. 

The FCPA Guidance draws an important distinction between proper and improper gifts.  Appropriate gifts are those which are: 

1.  Given openly and transparently;

2.  Properly recorded in the company’s books and records;

3.  Motivated to express esteem or graditude (and not corrupt intent); and

4.  Permitted under local law 

As in other compliance issues, the key touchstone is distinguishing between legitimate motives and “corrupt intent.”  

As explained in the FCPA Guidance, enforcement authorities are not focused on “ordinary and legitimate” promotion of a business; instead, they are focused on conduct that is intended to “induce” foreign officials into acting contrary to their official duties and responsibilities.

The FCPA Guidance includes an important statement on this issue:

DOJ’s and SEC’s anti-bribery enforcement actions have focused on small payments and gifts only when they comprise part of a systemic or long-standing course of conduct that evidences a scheme to corruptly pay foreign officials to obtain or retain business.

Compliance officers who struggle over paying expenses for gifts, meals, entertainment and travel should breathe a sigh of relief.  Payments or gifts of nominal or modest value will never be the focus of government prosecutors.   Large or extravagant payments, however, can be illegal.  In distinguishing between modest and extravagant gifts, common sense will easily provide a safe harbor for companies.  

In the travel and lodging context, the FCPA Guidance points to the affirmative defense allowing “reasonable” and “bona fide” expenditures directly related to promotional or performance functions.  Again, the FCPA Guidance states that it is not interested in prosecuting a one time expenditure but is more focused on systemic violations which involved egregious and lavish payments for foreign officials (and spouses or family members).    

There is nothing controversial or earth shattering in these pronouncements.  However, the FCPA Guidance does include a few important points which can be used to create “safe harbors” in any compliance program.  These include the following:

– Ten thousand dollars paid for dinners, drinks and entertainment for a government official would be improper.

– Paying for a trip for government officials which consisted “primarily” of sightseeing would be improper.      

– Inviting and paying for prospective customers bar tab at a trade show would be permissible.

– Giving a “moderately priced” gift to a government official for a wedding or a family event would be permissible. 

– Paying for travel, entertainment and accommodations for government officials to come to a US-located factory for inspection or training purposes, which included business class tickets, moderately priced dinners, a baseball game and a play, would be permissible.

In addition, the FCPA Guidance provides a helpful checklist of “safeguards” (from prior opinion releases) to help companies decide whether an expenditure falls within the affirmative defense:

1.  Do not select the foreign officials to participate in the event, or use a systematic evaluation to identify appropriate officials to attend

2.  Pay all costs directly to vendors and do not put “cash” in the pockets of any foreign officials attending an event (as an advance or for reimbursement)

3.  Ensure that stipends are reasonable estimates of expected costs and do not provide any additional compensation or money to foreign officials

4.  Ensure that payments are transparent and accurately reflected in company books and records

5.  Do not condition payments on any specific action by foreign official

6.  Obtain written confirmation payments do not violate local law

 

 

Topics:  Compliance, DOJ, FCPA, FCPA Resource Guide, Safe Harbors, SEC

Published In: Administrative Agency Updates, General Business Updates, 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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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