Two recent Foreign Corrupt Practices Act (FCPA) actions – a Department of Justice (DOJ) Opinion letter and an SEC settlement – underscore key diligence questions that legal and compliance departments should address when reviewing or approving payment of travel and hospitality-related expenses.
Last month, the DOJ issued an Opinion Procedure Release (Opinion), which considered the FCPA’s anti-bribery provisions in light of a company’s proposed payment of various travel expenses related to an upcoming visit to the United States by two foreign officials.
The company requesting the Opinion was a U.S.-based child welfare agency specializing in adopting foreign children by American parents (Adoption Agency). In the months preceding the request, a foreign country that historically relied upon the Adoption Agency to help place its children in adoptive U.S. homes implemented new oversight controls over foreign adoptions. For the first time, the oversight included post-adoption follow-up visits with the Adoption Agency and its families.
To facilitate compliance with these new regulations, the Adoption Agency proposed paying two government officials to travel to the United States for a five-day trip to complete the government’s inquiry into the Adoption Agency. The proposed travel costs included reasonable airfare, lodging, transportation, meals, and certain recreational activities, such as museum visits or city tours. The Adoption Agency also planned to provide the government officials with branded souvenirs of de minimis value. No payment was provided directly to the foreign officials for these expenses.
According to the DOJ, this sort of domestic-sponsored travel for foreign officials complies with the FCPA, is consistent with prior FCPA opinions, and would not result in a DOJ enforcement action.
Notably, the FCPA prohibits corruptly giving or offering anything of value to a foreign official; the law, however, specifically exempts reasonable bona fide expenditures related to the promotion, demonstration, or explanation of a company’s products or services. Such was the case here, where the Adoption Agency only intended to cover the reasonable costs necessary to educate the visiting officials on its operations and services, including the opportunities and cultural experiences presented to the adopted children.
In this most recent Opinion, the DOJ referenced past guidance issued in 2011 and 2012 concerning the payment by adoption agencies of reasonable travel expenses for foreign government officials. In both of those opinions, the DOJ took no issue with the payment of the reasonable travel expenses of foreign officials insofar as they related to the adoption agency’s promotion, demonstration, or explanation of its services.
Two notable distinctions exist between the 2011 and 2012 opinions and the one issued last month. First, in the 2012 opinion, the DOJ stated it was permissible to provide business-class air travel to certain members of a large foreign official delegation, as determined by the official’s position within the government. For example, members of the foreign government’s legislature were able to fly business class, while their aides were not. Second, in the 2023 Opinion, the DOJ indicated that the Adoption Agency may pay for government officials to engage in certain cultural experiences, so long as they are reasonable experiences, related to the purpose of the trip, and are of reasonable value (in this case less than $100).
The 2023 Opinion, when compared with the U.S. Securities and Exchange Commission’s (SEC) recent FCPA settlement with a large multinational company, highlights the difference between bona fide expenditures related to the promotion, demonstration, or explanation of a company’s products or services, and the corrupt intent required to trigger FCPA enforcement. On August 25, the entity agreed to pay the SEC $6.5 million in penalties and disgorgement to resolve FCPA offenses related to luxury travel and a Chinese subsidiary.
According to the allegations, a China-based subsidiary of the multinational entity provided Chinese government officials with over 24 trips at a cost of close to $1 million over a three-year period. While the subsidiary was allegedly paying for the officials, largely employees of state-owned health care facilities, to attend educational events and conferences, the SEC charged that these were simply pretexts to allow the Chinese officials to partake in luxury tourism, coinciding with the times that the officials were due to be in conference meetings, in an effort to entice the officials to purchase the company’s products. These educational events were often conducted in English, which at least a portion of the Chinese officials did not speak, nor were they provided translation services.
The SEC alleged that employees created itineraries appearing to have the Chinese officials attending the educational events and conference activities, as well as company-sponsored dinners, and submitted them to their compliance department to secure approval, while also creating itineraries consisting largely of tourist activities in the same location as the legitimate conference or educational events.
As a result, the SEC charges included violations of the books and records and internal accounting provisions of the FCPA. The $6.5 million settlement is comprised of $4,581,618 in disgorgement plus pre-judgment interest, and a $2 million civil penalty.
The FCPA provides room for companies to pay for legitimate travel expenses of foreign officials in some circumstances, as reflected in the 2023 DOJ Opinion, but the risk remains that the cost of travel, when excessive, or including unnecessary luxurious benefits, could run afoul of the statute. Enforcers will look at intent when determining reasonableness and whether the travel is, in fact, related to the promotion, demonstration, or explanation of a company’s products or services. These factors that must be considered to make an informed decision about booking travel for foreign officials.
Companies operating with overseas subsidiaries or contemplating legitimate travel expenses for foreign officials should take care to implement and enforce robust travel expense compliance programs to prevent employees from crossing into the world of corrupt intent and violation of the FCPA.