FCPAméricas Blog
FCPA Compliance with Community Donations in Latin America
4.30.2019
To give back to local communities in Latin America, companies operating in the region often make charitable donations, sometimes at significant levels. Building a school, funding a health clinic, or providing technical expertise reflect good corporate social responsibility. When doing business near severely underprivileged populations, social projects can also mean the difference between continued operations for the company and roadblocks, hunger strikes, or even violence.
Community support has the potential to generate FCPA compliance issues too. Companies can violate the FCPA if donations are smokescreens for corrupt payments. For publicly-traded companies in the United States with FCPA accounting provision obligations, the lack of sufficient controls itself can create FCPA liability. The DOJ has opined on community donation risk and compliance in FCPA Opinion Releases 10-02, 06-01, 97-02, and 95-01.
In practice, FCPA risks arise in a variety of ways. Donations are diverted to benefit local leaders personally. Community leaders demand donations as a condition for issuing permits or calling off blockades. Projects utilize contractors charging inflated rates who are connected to relatives of local officials. Companies direct their donations to supporters of elected officials to help those officials maintain power. Governments compel companies to make grants to pre-approved community organizations, some with questionable integrity, as a condition for government business.
To address these risks, companies are expected to establish processes that do things like ensure donations go to their intended purposes, recipients are legitimate, and projects do not otherwise create integrity concerns. Depending on the magnitude of the support and the nature of the program, a compliance strategy may include the following components.
Establish a pre-defined donation plan with parameters for donations. This makes a company less susceptible to extortion or other pressures by local leaders. When a mayor requests a benefit outside of the company’s giving parameters that would disproportionately benefit his supporters, the company has a reasonable basis to reject the request.
Appoint a team to manage community relations that is separate from the company’s commercial function. This reduces the conflict that often arises when business people oversee charitable decisions. A team focusing exclusively on community issues is also positioned to build knowledge about community issues, including its most critical social needs, the identities and responsibilities of local leaders, and power dynamics within groups. This intelligence can be key to ensuring a successful program.
Perform due diligence on recipients to understand potential corruption risks. Companies will want to determine if any government officials, or persons with close connections to such officials, are affiliated with the project or would otherwise benefit from the support provided. They will want to know recipient organizations’ reputations for integrity.
Establish a written agreement with the recipient to memorialize the donation and restrict use of funds. The agreement would spell out details about the support, including its nature, amount, and purpose. It would include anti-corruption compliance provisions that, for example, prohibit the payment or receipt of bribes, require the recipient organization to maintain accurate records concerning the donated benefits, and require the recipient organization to follow anti-corruption compliance standards and certify compliance with the agreement’s obligations on a periodic basis.
Implement controls around the payments or other donations. Where possible, companies can reduce risk by providing support in-kind rather than with money. Where monetary support is extended, companies should provide it directly to the community or governmental organization’s valid accounts or to the vendor involved, like a building contractor, and clearly record the transfer in the company’s books and records. Staggering payments over time allows for interim monitoring and conditioning future disbursements on satisfactory reviews.
Audit and monitor the use of funds and efficacy of the program. Company personnel can verify that budgeted amounts for project expenses are reasonable based on market rates, make periodic visits to project sites to ensure adequate progress, review accounts to understand use of funds, and maintain on file documentation establishing proper use of funds, such as reports with pictures and testimonials.
Above and beyond these steps, following basic principles like transparency, risk-based approaches, the application of consistent standards, and documentation of all compliance and oversight steps can be critical to ensuring sufficient controls and demonstrating lack of corrupt intent in what are often highly sensitive engagements.
The opinions expressed in this post are those of the author in his or her individual capacity and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author’s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.
© 2019 FCPAméricas, LLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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