[1]Gifts and hospitality present some of the thorniest issues for companies and business people subject to the FCPA and operating in Latin America. The FCPA does not prohibit providing gifts or hospitality to foreign officials. But the history of enforcement highlights that these practices are high risk and should be conducted with great care and attention to compliance best practices so that they do not constitute foreign bribery.
In this post, FCPAméricas looks at gifts and hospitality practices in Mexico in particular. In Mexico, business is often conducted in social settings, and developing personal relationships is key. Paying for lunch or tickets to a sporting event might be a basic expectation. At the same time, international companies are increasingly interacting with state-owned enterprises there, like Pemex (Mexico is considering opening up its energy market), whose employees might be considered foreign officials. This heightens FCPA risk. Here are considerations for companies’ gifts and hospitality policies there.
Gifts
In general, to ensure compliance with the FCPA, a company’s gift giving should be conducted pursuant to a company-wide compliance policy. Companies often set specific value and frequency caps above which internal management approvals are required. Policies restrict gifts to those of nominal values because, ultimately, a gift with a low value is less likely to influence an official to take a specific action to further the giver’s business. Lavish gifts, like sports cars, jewelry, and golf memberships, are to be avoided. Giving cash or cash equivalents is also prohibited. Policies sometimes require that gifts carry a company’s logo, underscoring the fact that the gift is meant to increase corporate visibility and reputation, not to improperly influence a specific act. Gifts are not permitted in response to requests by officials, especially when the company has business pending before the recipient official or when the recipient official is a decision-maker on a matter affecting the company.
FCPA policies also normally require that gift giving be legal under the local law of the country where the gift is given. If it is not, it will signal to U.S. enforcement officials that the giver is acting with corrupt intent. In this respect, Mexico differs from many other jurisdictions in Latin America. Mexican law establishes specific restrictions on gift-giving practices with Mexican officials. The Federal Public Servants’ Responsibilities Law prohibits public officials, during the performance of their duties and one year after, from requesting or accepting goods or services, either free or by sale at less than market value, from individuals or corporations whose professional interests conflict with the public servant’s official duties. It also requires that, whenever public officials receive a gift valued at ten times the minimum wage applicable in the Federal District of Mexico City (approximately $48), they should declare the gift within 15 business days and deliver it to the administrative authority or give it to charity.
As a result, companies operating in Mexico usually place specific limits of approximately $48 a year per official to ensure their gifting policies are consistent with local law.
Hospitality
Considering local law on gift giving, companies operating in Mexico are faced with the question of whether or not to extend gift restrictions to hospitality expenses as well. Could meals and entertainment provided to Mexico officials be considered gifts too?
Some companies take the conservative approach. But such an approach can overly restrict otherwise legitimate business activity in a country where socializing over lunch and dinner is often a basic norm. Meals can easily cost more than $48. Because of this, many companies are interpreting hospitality as a gray area under Mexican law, since the law does not specifically address it. Instead, they apply their normal global gifts and entertainment policies to hospitality there. Perhaps they limit meal expenditures to $100 per official per meal, with the possibility of obtaining approvals for higher values that are reasonable given the context of the situation. Entertainment might have cumulative value caps for a year, or caps on the numbers of times an official can be entertained. Policies usually prohibit excessive expenditures on alcohol and any expenditure on lewd entertainment.
Does the language of the FCPA help clarify the issue? In 1988, the U.S. Congress amended the statute to include an affirmative defense for “reasonable and bona fide” expenditures involving foreign officials, “such as travel and lodging expenses.” The amendment stipulates that the expenses must be “directly related” to “the promotion, demonstration, or explanation of products or services; or the execution or performance of a contract with a foreign government or agency thereof.” Even though the amendment specifically mentions travel and lodging, its coverage can be interpreted to extend to other forms of hospitality as well, insofar as they are for the promotion, demonstration, and explanation of products or services or the execution of a contract. This might serve as a starting point for a company’s own analysis.
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