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How to Build an Anti-Corruption Policy that Allows for Appropriate Business Gifts

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Panettone is a delicious Italian sweet bread, originally from Milan and often given as a gift at Christmastime in Europe and South America. The bread requires 20 hours of rising and must rise four times, so most people purchase panettone from bakeries rather than make it from scratch. The bread is usually wrapped by hand and put in a gift box. It is relatively low in cost, consumable, easily shipped, and can be shared by a group, all of which make it a very good option for corporate gift giving.
 
As long as panettone is not paired with cash or expensive items and is given during Christmastime and without any intent to obtain a specific benefit in return, it ought not to appear as a bribe or in any way run afoul of the antibribery provisions of the FCPA or local anti-bribery laws. Interestingly, though, it was once used as a defense by a Brazilian official who was caught accepting bribes from private contractors. The official claimed he used the money to purchase panettone for the poor.[1] This novel assertion, which might be titled the “Marie Antoinette defense,” did not prevail, at least not in the court of public opinion.[2]
 
What is a multinational company to do when there are government officials who are open to accepting bribes, or when multinational companies operate in countries where gift-giving, even to government officials, is culturally accepted and potentially could appear as a bribe? The FCPA absolutely prohibits companies from paying bribes to foreign government officials and political figures. There is no de minimis exception. The presentation of a gift, however small, can violate the FCPA if it is given with a corrupt intent to obtain or retain business or secure any other improper advantage. The recent enforcement action initiated by the SEC against alcohol beverage producer Diageo plc underscores this point. The SEC’s cease-and-desist order in that case alleged that, among other things, a Diageo subsidiary “routinely made hundreds of small payments to South Korean military officers for the purpose of obtaining or maintaining business and securing a competitive business advantage.”[3]
 
U.S.’s Lengthy History with Anti-Bribery Laws
The FCPA has been the law in the United States since 1977 after Watergate investigations brought to light that U.S. companies were paying bribes to foreign officials to obtain business. Other countries did not immediately follow suit in enacting anti-bribery legislation. Nearly 20 years later, in March 1996, the members of the organization of American States adopted the Inter-American Convention Against Corruption. Shortly thereafter, in December 1997, the industrial countries belonging to the Organization for Economic Cooperation and Development reached an agreement on a Convention on Combating Bribery of Foreign Public Officials. This Convention in turn needed to be ratified by each country, which then had to enact implementing legislation. It was not until six years later that the world saw the enactment of a truly global anti-corruption initiative. In December 2003, 140 countries signed the U.N. Convention Against Corruption, a binding agreement that has now been accepted by 161 countries and represents a global consensus. The long and short of it is that the United States not only has strict laws but has been accustomed to banning bribery of foreign officials much longer than other countries. This presents a challenge to multinational companies, whose employees and agents in other countries might not be attuned to the illegality of such payments.
 
But they need to be. This is where an effective compliance program pays for itself. Above all, multinational companies should have an effective compliance program, with strong internal controls and procedures for complying with the FCPA. All company officers, directors, employees and agents must receive training concerning what conduct is prohibited by the FCPA. A company policy regarding hospitality expenses and gift giving, facilitation payments, and compliance with the FCPA must be established and adhered to. A member of the legal or compliance department should be designated to address FCPA compliance questions. An anonymous incident reporting hotline should be established so that employees and even third parties can report possible non-compliance with the FCPA without fear of reprisal. From many directions, but especially from the top, companies must send the message that bribery is unacceptable, and this message must be reinforced not just in words, but in the actions and conduct of the senior management.
 
Corruption Is Why We Win?
One often hears the argument that bribes are the only way to conduct business in some countries. We even hear it at the movies. The 2005 Oscar winner Syriana featured a fictitious oil company director mouthing off, “Corruption charges! Corruption? Corruption is government intrusion into market efficiencies in the form of regulations. . . .We have laws against it precisely so we can get away with it. . . . Corruption is why we win.” This stirring speech, excerpted here, made for good box office receipts but hardly presents an enlightened view. Corruption breeds inefficiency and stagnates growth.
 
It can lead to a contract being awarded to the unethical company that slipped money into a foreign official’s pocket but whose product is second-rate. Moreover, a company that pays bribes may also be the same company that turns the other cheek when it comes to stringent compliance with health or safety standards. Ultimately, it is the consumer and public who suffer when corruption is unabated. Of course, there is another argument in favor of strict adherence to the strictures of the FCPA by companies who do business in the United States: it is the law, and it is heavily enforced. Prosecutions under the FCPA are on the rise. As The New York Times recently reported, there are at least 78 companies now under investigation for violations of the FCPA.[4] These include big name American companies like Avon, Alcoa, Goldman Sachs, Pfizer and Wal-Mart. When a door-to-door cosmetics company enters into settlement talks with the DOJ and the SEC concerning alleged bribes to officials in China and elsewhere, this should give any company pause.[5] Already Avon has reportedly racked up almost $280 million in legal costs alone.[6] This recent trend of heightened enforcement activity is unlikely to subside in the near future. The SEC’s whistleblower bounty program, which was created as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, provides a financial incentive for individuals to disclose to the SEC original information that leads to successful enforcement of the FCPA or other U.S. securities laws. In the first seven weeks of the program’s existence, the SEC received 334 tips,[7] and the first bounty of nearly $50,000 was awarded to a whistleblower in August 2012.[8]
 
Ways to Build an Anti-Corruption Policy that Allows for Appropriate Business Gifts
Does all of this mean that a U.S.-headquartered company must prohibit all corporate token gifts of hospitality that, depending on the country in which the company is operating, would be viewed as customary? Not necessarily. The FCPA prohibits gifts given with a “corrupt intent” to influence a corporate official to obtain or retain business, or otherwise secure an improper business advantage. Small, token, and infrequent gifts of nominal value that are not provided with any expectation of return favor would likely fall outside the crosshairs of the FCPA. In addition, a nominal gift related to the promotion or demonstration of a product may be permissible as a “business promotion” expense under certain circumstances. The DOJ has issued several opinions suggesting that such gifts would not be viewed as FCPA violations.[9] These opinions were issued pursuant to the DOJ’s established FCPA Opinion Procedure, through which any U.S. company or national may request a written statement of the Justice Department’s present enforcement intentions under the anti-bribery provisions of the FCPA regarding any proposed business conduct. Although the DOJ’s formal opinions may be relied on authoritatively only by the party that seeks the opinion, they offer useful guidance to others.
 
After reviewing FCPA cases, opinions issued by the DOJ, and numerous “how to” articles in this area, we offer the following gift-giving suggestions (which are by no means exhaustive) to consider incorporating in your company’s anticorruption policy:
 
1. Give gifts of nominal value.
2. Do not give gifts frequently to the same individualor group.
3. Set aggregate gift limits per group or individual.
4. Give gifts that are perishable, such as plants, or consumable, such as panettone, and that an entire office can share instead of just one individual.
5. Give gifts with a corporate logo that promote your company but do not have retail value.
6. Build business relationships through recreational activities instead of lavish private dinners.
7. Provide sample products (of nominal value) from your company.
8. Give something unique from your region, such as crab cakes from Maryland or blue bonnets from Texas.
9. Give something proverbially useless, like a coffee table book.
10. Never give cash or cash equivalents, such as gift cards.
11. Present gifts openly and in front of a group of people.
12. Give gifts for official, rather than personal, use.
13. Make sure that any gift would comply with both local law and the internal policies at the official’s company.
14. Clear gifts through your compliance department.
 
Every formal opinion and every case brought by both the DOJ and SEC should be taken into account in shaping your corporation’s anti-corruption compliance policy, as well as the long-awaited FCPA guidance that the DOJ and SEC are expected to issue this fall. And, if there is ever any doubt about a proposed course of action, it is always possible to ask the DOJ for a formal opinion. In the final analysis, it is always better to lose a contract than violate a law or risk a government investigation.
 
One final thought: The intent behind the gift is often the most important factor in the analysis of whether the gift-giving was permissible. In a celebrated case, mooncakes, a traditional and relatively inexpensive food gift given in Asia during the Mid-Autumn Festival, became a bribe when they were presented to the police officers investigating the donor for corruption. While the officers returned the mooncakes, the irony was delicious.
 
Suzanne Rich Folsom is the SVP, Chief Regulatory & ComplianceOfficer and Deputy General Counsel of ACADEMI LLC, a leading provider of training and security solutions. Previously, she joined AIG in the same role during the 2008 financial crisis and established a bestin-class regulatory and compliance program, including a robust anticorruption policy, for that company.
 
Victoria McKenney is the Director, Regulatory & Compliance and Associate General Counsel of ACADEMI LLC. Previously, she was an attorney with Hogan Lovells and was seconded to AIG during the 2008 financial crisis and played an integral role in helping the company’s regulatory and compliance team establish a leading practices compliance program, including a strong anti-corruption policy.
 
©2012 The FCPA Report. All rights reserved.
www.fcpareport.com Volume 1, Number 8 September 19, 2012
The FCPA Report    
 
[1] Governor of Brazil’s Capital City Surrenders to Police, BBC News (Feb. 12, 2010).
[2] See id.
[3] In the Matter of Diageo plc, SEC Admin. Proc. 3-14490 (Jul. 27, 2011).
[4] Leslie Wayne, Foreign Firms Most Affected by a U.S. Law Barring Bribes, N.Y. Times (Sep. 3, 2012).
[5] Samuel Rubenfeld, Avon Begins FCPA Settlement Talks, Wall St. J. (Aug. 1, 2012).
[6] See id.
[7] U.S. Securities and Exchange Commission, Annual Report on the Dodd-Frank Whistleblower Program Fiscal Year 2011, at 5 (Nov. 2011).
[8] Press Release, SEC Issues First Whistleblower Program Award, Securities and Exchange Commission (Aug. 21, 2012).
[9] The DOJ issued three opinions in the 1980s concerning gifts: Opinion Release 81-01 which acknowledged that SVG Group, while acting as an agent or representative of Bechtel, could seek reimbursement from Bechtel for certain nominal gifts of less than $500 per person that it might provide; Opinion Release 81-02 which did not prohibit beef samples totaling less than $2,000 in value to be provided by Iowa Beef Packers, Inc. to officials from the Soviet Union Ministry of Foreign Trade; and Opinion Release 82-01 which did not prohibit cheese samples to be provided to Mexican officials by Missouri’s Department of Agriculture. See U.S. Dep’t of Justice Op. Proc. Release 81-01 (Nov. 25, 1981); U.S. Dep’t of Justice Op. Proc. Release 81-02 (Dec. 11, 1981); U.S. Dep’t of Justice Op. Proc. Release 82-01 (Jan. 27, 1982). See generally Thomas R. Fox, “Gifts and Business Entertainment Under the FCPA,” FCPA Compliance and Ethics Blog (Jun.18, 2010). In addition, in recent opinions in which the DOJ indicated that it did not intend to initiate enforcement actions with regard to travel-related expenditures and related payments for foreign officials, the analysis indicated, among other things, that souvenirs given to foreign officials which would “reflect Requestor’s [name or] business and/or logo and would be of nominal value” were acceptable. See U.S. Dep’t of Justice Op. Proc. Release 07-01 (Jul. 24, 2007); U.S. Dep’t of Justice Op. Proc. Release 07-02 (Sep. 11, 2007); U.S. Dep’t of Justice, Op. Proc. Release 11-01 (Jun. 30, 2011).
 
For more anti-corruption commentary from Suzanne Rich Folsom, click here.

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