FCPAméricas Blog
Gifts and Hospitality in FCPA Compliance: Four cases for your back pocket
9.21.2012
Every now and then it is good to refresh one’s memory on important FCPA enforcement actions. For example, lawyers need to remind their clients and Chief Compliance Officers need to remind management that bribes under the FCPA are not limited to bags of cash and transfers to offshore bank accounts. Certain gifts, travel, and entertainment can also create liability (FCPAméricas has previously discussed compliance policies in this area here).
On the eve of the release of the DOJ’s FCPA guidance, which will likely include a discussion of gifts and hospitality, FCPAméricas offers a few important cases to have in your back pocket.
Diageo (2011): The British spirits company that makes Johnnie Walker and Windsor Scotch whiskeys paid more than $16 million to settled FCPA charges with the SEC for, in part, its gift-giving practices. The company spent approximately $64,184 on rice cakes (customary and traditional gifts in Korean culture) and other gifts for the South Korean military over the span of four years. The gifts ranged in value from $100 to $300 per recipient. The SEC determined that the gifts were illegal because they were specifically intended to obtain a competitive business advantage. In particular, many of the recipient officials were responsible for procuring Diageo products. It also found that the company incorrectly recorded the expenses in its books.
Aon Corporation (2011): The Chicago-based company, one of the largest insurance brokerage firms in the world, administered training funds that were purportedly used to educate Costa Rican and other insurance officials on industry issues by providing travel to seminars and conferences. The company settled for a total of $16.2 million in criminal penalties, disgorgement, and prejudgment interest. The training funds reimbursed officials for non-training related activities, like travel, hotels, and meals, sometimes with their spouses, at tourist destinations including Paris, Monte Carlo, Zurich, Munich, Cologne, and Cairo. These trips had only a minor, if any, business-related component. Many of the invoices and records did not provide the business purposes or otherwise show that the trips were related to legitimate business activities. Some of the subject matters recorded, like a literary conference and a Mexican information technology conference, had no logical connection to the insurance industry. Over the span of eight years, the company earned profits of approximately $1.8 million in connection with its Costa Rica insurance business.
Lucent Technologies Inc. (2007): The global communications solutions provider conducted business in China. It entered into a non-prosecution agreement with the DOJ, agreeing to pay $1 million. It also consented to a cease-and-desist order with the SEC, agreeing to pay a $1.5 million civil penalty. Lucent spent over $10 million over three years to take hundreds of Chinese officials to the United States to “inspect” facilities in 315 trips. The officials were considered “decision-makers” at state-owned and state-controlled telecommunications enterprises. They visited Hawaii, Las Vegas, New York City, Disneyworld, and the Grand Canyon, even though no company facilities existed in those places. The company improperly booked the expenses as business trips. The company benefitted with an estimated $50 million in contracts.
ABB (2004): As part of the settlement with U.S. authorities, the company paid almost $16 million in fines and disgorgement. It made cash payments to Angolan officials during various training trips. The SEC noted that, not only did the company pay for the travel, meals, lodging, and entertainment expenses on one trip, it “also provided them with cash spending money of $120 to $200 per day, at a time when Angola’s gross annual per capita income was just $710.” On another trip, the cash payments totaled $4,320 per official. The payments were made to “future decision-makers.” To fund these payments, the company devised “elaborate, circuitous schemes” to conceal the sources.
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© 2012 Matteson Ellis Law, PLLC
Post authored by Matteson Ellis, FCPAméricas Founder & Editor
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