The Truth Behind Gifts, Meals And Entertainment Enforcement

by Michael Volkov

giftstruthIt is time for everyone to take a deep breath.  The DOJ/SEC Guidance could not have been clearer.  The message to companies – stop devoting so much time to building, tinkering with, and monitoring their policies governing gifts, meals and entertainment.

The Guidance reminded everyone that the government has never prosecuted any company for a single violation, or even a number of violations.  Instead, DOJ and SEC will prosecute for systematic breakdowns in a gifts, meals and entertainment policy.  Lucent Technologies was prosecuted years ago for a complete breakdown in  its gifts, meals, entertainment and travel expense policies.

DOJ and the SEC want companies to focus on higher risk activities like large transactions with foreign governments and third-party agents.  In the discussion of compliance programs, DOJ and the SEC went to great lengths to emphasize the importance of a risk assessment and building an anti-corruption program which is tailored to those risks.

entertainmentIs the message getting through to the business world?

I am not so sure.  FCPA practitioners like to come up with complex formulas, systems and calculations which are used to guide gifts, meals and entertainment policies.

I have consistently advocated a simpler approach.  It does not matter if a company has a $50 or $250 threshold for requiring supervisory approvals for gifts, meals and entertainment. What matters more is does the company have a policy and is it being followed?  The existence of a policy itself is the important indication that a company is committed to compliance.gifts2

Even more significant is to include documentation requirements which will help a company establish the absence of corrupt intent.  In every case, there are facts which can be documented which establish that the company acted without corrupt intent.  For example, if a company wants to give a retiring foreign official a gift for retirement or a significant event such as the birth of a child or grandchild, such gifts can be given and the motivation for the gift should be memorialized as a gift to demonstrate gratitude for the foreign official’s service.  No one will ever be prosecuted for giving a $350 plaque to a retiring official, especially if it is documented internally as a gift motivated to show gratitude to the foreign official.

There are two reasons why companies spend too much time on gifts, meals and entertainment.

First, FCPA practitioners are partly to blame for this hyper-focus on gifts, meals and entertainment policies.  It is an easy issue for practitioners to offer advice and counsel.  It gives companies a feeling of comfort to know that their FCPA counsel blessed a particular gift.  FCPA practitioners have a responsibility to turn their clients’ attention from these types of issues to more important risks, particularly third-party agents and monitoring of their activities.

giftsSecond, in some cases, if a company focuses on this issue it may reflect the failure of the company to empower an independent chief compliance officer.  Often, if the CCO is focused on these types of issues, it means that the CCO either reports to the General Counsel who is responsible for “more significant” issues, leaving only these types of gift issues within the province and control of the CCO, or that the CCO has failed to focus on appropriate risk-based compliance priorities.

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

Written by:

Michael Volkov

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