Corporate Hospitality Remains a Focus for FCPA Enforcement Actions
If you oversee or manage corporate hospitality expenses in your organization, then recent Foreign Corrupt Practices Act (FCPA) enforcement actions may have served as a useful reminder that corporate hospitality remains to be a focus even during uncertain times.
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What the most recent FCPA enforcement cases have included
More recently, enforcement actions have been against companies in a wide variety of industry sectors, involving businesses who provided:
- Gift cards
- Spa services
- Sightseeing tours
- Shopping excursions
- National park excursions
- Tickets to sporting events
In one enforcement action, the government alleged that a corporate event was held at a luxury resort and that after a daily half-hour business meeting, participants engaged in leisurely events such as “golf, scuba diving, snorkeling cruises, horseback riding, ocean kayaking, surfing lessons, and cocktail and luau dinner receptions,” reports the FCPA enforcement action documentation.
None of these underlying activities are inherently illegal or unethical, but issues with the FCPA arise when such things of value are offered or provided to “foreign officials.” It is important for compliance personnel to understand here, that FCPA enforcement agencies consider employees of state-owned or state-controlled companies and foreign health care providers, amongst others, to be “foreign officials.”
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What are the FCPA’s rules?
The FCPA’s anti-bribery provisions contain an affirmative defense to the extent of the things of value provided or offered to a foreign official as a “reasonable and bona fide expenditure, such as travel and lodging expenses” that was “directly related to: the promotion, demonstration, or explanation of products or services; or the execution or performance of a contract …” In construing these concepts, the FCPA enforcement agencies have seldomly suggested, if ever, the following items be reasonable and bona fide or directly related to a business purpose:
- First class airfare
- Five-star hotels
- Expensive food and drink
- Lavish entertainment
- Per diem spending money
- Inclusion of spouses or children of the foreign official
Moreover, compliance personnel at publicly traded companies need to understand how corporate hospitality can present these issues under the FCPA’s internal controls of provisions. These companies should accordingly track corporate hospitality expenditures and implement criteria for oversight and supervision of such expenses. For example, in a recent enforcement action, the government alleged that the problematic travel was approved internally “with little or no required review,” and that when a review took place, there was a failure to “note basic red flags such as travel to tourist destinations.”
In resolving FCPA enforcement actions, the government often commends the remedial actions for a company engaged, serving as a “best practice” for other businesses to model. One enforcement action the government positively cited, for instance, was a company that instituted “compliance oversight across a broad category of business expenditures.” And in a separate enforcement action, the government noted that the company now requires “pre-approval for third-party gifts, travel and entertainment, channel partner marketing expenses, and even certain operating expenses in high risk markets.”
For more information on strategies for minimizing bribery and FCPA risks, on April 16th at 11:00 AM PST.
