The So-Called Re-Emergence Of Gifts, Meals And Entertainment As A Compliance Problem

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giftsForgive me for taking the FCPA Paparazzi to task but when they deserve it, they deserve it.

A quick diversion — I often am asked by fellow bar members and commenters if I am referring to them as being a member of the FCPA Paparazzi.  My definition of the FCPA Paparazzi usually covers those writers who confuse FCPA information with FCPA scare tactics and manipulate legal reasoning and practical advice with “marketing” using fear as opposed to reliable and accurate information.

Back to the latest FCPA Paparazzi transgression – many client alerts have been issued suggesting that prosecutors have resumed the enforcement focus on gifts, meals and entertainment.  The client alerts go on to suggest that companies need to re-examine their policies to make sure they have appropriate controls in place.  Again, I have to shudder at these so-called “alerts” because they are misguided.

The important point on gifts, meals and entertainment expenses from last year’s enforcement actions is much different – companies need to continue to focus on how money is spent, particularly large amounts of money.  To pay bribes using corporate funds, bad actors have to gain access to money from available sources and then use it for improper or unauthorized purposes, such as paying bribes.

Gifts, meals and entertainment constitute one of many means by which bad actors can gain access to money for improper purposes.  Companies should focus not just on this mechanism but go back to the source of all funds in a company.

Who is responsible for approving expenditures?  What controls are in place for ensuring that money is used for proper purposes?  How are these expenditures monitored?  Who watches the person responsible for controlling the money and what controls are in place to monitor their behavior?gifts2

One bad apple controlling all of the money for a company in China may use a variety of means to gain access to money needed to carry out a bribery scheme.  That should always be the focus of a compliance effort and an internal auditing team.

Last year, there were three significant enforcement actions where gifts, meals and entertainment funds were used for improper bribery schemes.  Only one focused on gifts, meals and entertainment expenditures as the primary bribery offense – the Diebold action.

Diebold spent approximately $1.6 million in gifts, entertainment and travel to several employees of two Chinese state-owned banks.  Diebold also spent approximately $175,000 for trips for employees at Indonesia state-owned banks.

The Diebold case is much like the Lucent situation from years ago when Lucent spent over $2 million in improper gifts, meals, travel and entertainment.

Diebold and Lucent both represent cases where such expenditures were used as a means to funnel bribery payments.

By contrast, the Weatherford and Stryker enforcement actions cite gifts, meals and entertainment expenditures as part of much broader scheme to provide improper bribes to foreign officials.  They do not represent a new focus nor an approach to gifts, meals and entertainment expenses.

gifts3In the Weatherford settlement, the SEC cited $35,260 in improper travel and entertainment to Algerian oil company officials.  And in the Stryker settlement, the government cited Strkyer’s payment of travel and entertainment expenses to a Polish hospital official where a trip to visit a Stryker facility included a six-night stay at a New York hotel for the official and his spouse, a Broadway show and a five-day trip to Aruba, all totaling around $7000.

My point is that the compliance focus should always remain on access to money and ensuring that every expenditure is made with proper controls and assurances – a single-minded focus on gifts, meals and entertainment expenses will leave a company exposed to significant risks in other areas where money can be improperly obtained to carry out bribery.

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Michael Volkov
The Volkov Group Law Firm

The Volkov Group Law Firm specializes in white collar defense, corporate compliance, internal... View Profile »


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