Each year, Austin, Texas grows in importance. Last week, it was the center of the interactive, film, and music universes with its South by Southwest (SXSW) festival. Next fall, it will serve as the only U.S. city to host the Formula One. Events like these turn the city upside down. Roadside motels command $400 a night for tiny rooms. Whole sections of the city are shut down to car traffic. And people fly in from all around the world.
I attended my fifth SXSW last week. What struck me this year was the number of corporate events. IBM had its party at one of my favorite Mexican hotspots on the East Side. Businesses pitched new products right and left. Watching this, I could not help but think – these are the exact type of scenarios that can create thorny issues under the FCPA.
It is one thing for companies to host their best customers and potential clients at a festival like this. But what happens when they are public officials, especially foreign government officials? A company might want to bring a foreign client who happens to work for a state-owned entity to town to show off its new technology. It might want to use the festival to build goodwill or increase visibility in the eyes of that client. It might choose to give a gift as a gesture of hospitality.
Recent cases like Aon [1], Diageo [2], and Johnson & Johnson [3] show that gifts, travel, and entertainment are high risk areas under the FCPA. But there are indeed specific safeguards that a company can apply to each activity. For example, gifts should never be in the form of money. Travel should never include anything above economy class, unless the official pays. The donor should be present when entertainment is provided.
There are also common considerations that apply to a compliance review of all three activities. In the spirit of SXSW, I offer six.
1. What is the Intent? At its core, the question of whether gifts, travel, and entertainment to foreign officials are consistent with the FCPA centers around the giver’s intent. Is the purpose innocent? Is the offering intended to promote general goodwill and reputation, which is permissible? Is there a legitimate business reason for the travel, such as the need to educate the official about a new product? Or does the offering serve as part of an impermissible quid pro quo between the giver and the foreign official? Is it corrupt, done for the specific purpose of obtaining or retaining business or improperly influencing the official?
2. Is the Activity Transparent? The more that a gift, travel, or entertainment is provided openly, the less likely that the giver will be deemed to have corrupt intent. Corruption is an activity that is normally conducted in secret. Transparency, thus, becomes the antidote. Keep detailed internal records about the activity. Get approvals from superiors. Utilize normal accounting channels. If possible, disclose to the outside world the ways in which your company promotes goodwill and builds its reputation.
3. Is the Activity Consistent with a Company-Wide Policy? Stand-alone gifts, travel, and entertainment policies are best. By making policies independent, rather than buried deep in your staff handbook or code of conduct, you give them the prominence they deserve. Your company sends a message to its personnel that it is serious about compliance in these areas. Policies should be designed with the assistance of professionals to ensure their adequacy under the law. They should be periodically reviewed and approved by management. If the gift, travel, or entertainment activity under review by enforcement is consistent with a vetted and approved company-wide policy, it is more likely to be deemed reasonable.
4. Is the Activity Consistent with Local Foreign Law and Custom? If it is not, it will be a clear signal to enforcement officials that the giver is acting with corrupt intent.
5. Is the Activity Adequately Recorded and Tracked? Companies should maintain specific information like the name and title of the official, the business relationship with the official, the value and cost of the benefit provided, the number of gifts, travel, and entertainment provided to the official in the last year, the business purpose of the expenditure, the methods of payment, and the name of the company personnel who reviewed and approved the disbursement.
6. Are All Facts and Circumstances Considered in Your Review? Enforcement officials review expenditures with “20/20 vision.” They consider all facts and circumstances related to an issue. You should too. For example, patterns of giving to the same official, the nature of the company’s business currently before the official or that might soon come before the official, or a particular government agency’s tainted reputation are all factors that could change an analysis. The picture in retrospect might even include events that had not yet happened at the moment the activity took place.
The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com [4].
The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.
© 2012 Matteson Ellis Law, PLLC