Gifts, Meals and Then . . . FCPA Enforcement

The Volkov Law Group
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gifts4Life can be very humbling. The SEC has definitely humbled me.

For years now, I have been claiming that companies spend too much time worrying about gifts, meals and entertainment expenses under the FCPA, rather than focusing on larger risks like multi-million dollar contracts with foreign governments. I have repeated this advice on numerous occasions.

Now, I have to eat some humble pie. The SEC has brought two significant enforcement actions focused on improper gifts alone and not appended to more significant cash bribes.

In the first action, the SEC fined ($50,000 and $20,000 respectively) two former defense contractor employees for gifts given to Saudi Arabia officials, including luxury watches and a 20-night multi-continent trip. The employees gave these improper gifts to win contracts to provide the Saudi government binoculars and security cameras.

The two employees arranged for Saudi officials to tour the company’s factory in Massachusetts but extended the tour for three weeks to Casablanca, Paris, Beirut, and New York City. Compounding the excessive gifts and travel, the two employees provided false records and information to cover the expenditures.

It appears that the defense contractor company may have dodged an enforcement action based on the two employees misconduct. The company has not made any disclosure of an enforcement investigation against the company itself.gifts3

In the second action, Bruker, a global manufacturer of scientific instruments, paid approximately $2.4 million to settle charges of improper payments to Chinese officials.   Bruker made $230,000 in improper payments to provide Chinese officials with trips and tours and then improperly recorded the expenses on its books and records.

Bruker entered into sham collaboration agreements as a means to pay for Chinese officials to take sightseeing trips around the world.   The sham agreements purportedly were for research services but, in fact, the Chinese officials did not provide any services under the agreements.

The sightseeing and shopping trips involved one official’s trips to Frankfurt and Paris. Some officials went to New York and Los Angeles, the Czech Republic, Norway, Sweden, Switzerland and Italy.

Interestingly, many of the improper trips occurred immediately after legitimate travel and event sponsorship activities. The Chinese officials who accepted these improper trips were responsible for contracting with Bruker to purchase Bruker products.

gifts2The SEC noted the deficiencies in Bruker’s internal controls, citing the fact that Bruker did not translate its FCPA policy and training materials into Chinese and instead relied on its Chinese managers to explain and training employees on FCPA requirements. Bruker’s hotline reporting system was not available in Mandarin for Chinese employees to report misconduct.

Both of these cases underscore a new trend – FCPA enforcement extends to gifts, meals, entertainment and travel expenditures that are made with corrupt intent. It is rare for the SEC (or the DOJ) to bring an enforcement case against a company based solely on these expenditures – in the past such actions have occurred in egregious cases where such expenditures totaled in the millions of dollars (e.g. Lucent Technologies).

The recent enforcement actions increase the risk for global companies, especially those operating in gift-giving cultures where lavish gifts are expected and even demanded.

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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