Now that we have reviewed all of the public record pronouncements from the Department of Justice (DOJ) and Securities and Exchange Commission (SEC), this post will try and suggest what you might need in your Foreign Corrupt Practices Act (FCPA) compliance policy and attendant procedures regarding gifts, travel and entertainment. Most generally, every company has three levels of written standards and controls around its compliance function. The first is its Code of Conduct, which every company should have to express its ethical principles. I assume your company has a Code of Conduct but if you are reading this blog post and you do not have a Code of Conduct, call me. The second is its standards and policies, which every company should use to build upon the foundation of the Code of Conduct and articulate Code-based policies, which should cover such issues as bribery, corruption and accounting practices. The third, and final component, is procedures, which every company should have to ensure that enabling procedures are implemented to confirm those policies are implemented, followed and enforced.
Rebecca Walker, writing in the Society for Corporate Compliance and Ethics Complete Compliance Manual [Second Edition], in an article entitled “Gifts and Entertainment Compliance”,said written policies around gifts, travel and entertainment typically contain the following elements:
- An introduction explaining why gifts and entertainment are acceptable and why it is important to place limits on them;
- A discussion of the types of gifts and entertainment that are acceptable (e.g., commonly accepted business courtesies);
- A discussion of the types of gifts and entertainment that are unacceptable (e.g., cash);
- Dollar limits and approval requirements;
- More stringent rules applicable to employees in particular functions, as appropriate;
- A mention or discussion of different rules applicable to government officials; and
- References to other policies.
Mike Volkov, in a blog post entitled “Safe Harbors and Gifts, Meals, Travel, and Entertainment Expenses”, gave these general guidelines about gifts:
- Given openly and transparently;
- Properly recorded in the company’s books and records;
- Motivated to express esteem or gratitude (and not corrupt intent); and
- Permitted under local law.
About travel he had the following insights:
- Do not select the foreign officials to participate in the event, or use a systematic evaluation to identify appropriate officials to attend;
- Pay all costs directly to vendors and do not put “cash” in the pockets of any foreign officials attending an event (as an advance or for reimbursement);
- Ensure that stipends are reasonable estimates of expected costs and do not provide any additional compensation or money to foreign officials;
- Ensure that payments are transparent and accurately reflected in company books and records;
- Do not condition payments on any specific action by foreign official; and
- Obtain written confirmation payments do not violate local law.
Below are some of my thoughts about what should go into your gifts, travel and entertainment policy.
- The gift should be provided as a token of esteem, courtesy or in return for hospitality.
- The gift should be of nominal value but in no case greater than $500.
- No gifts in cash.
- The gift shall be permitted under both local law and the guidelines of the employer/governmental agency.
- The gift should be a value which is customary for the country involved and appropriate for the occasion.
- The gift should be for official use rather than personal use.
- The gift should showcase the company’s products or contain the company logo.
- The gift should be presented openly with complete transparency.
- The expense for the gift should be correctly recorded on the company’s books and records.
There are no Opinion Releases on the threshold that a Company can establish as a value for entertainment. I am comfortable that such a value can go up to $500 in an appropriate circumstance. However this must be tempered with clear guidelines incorporated into the business expenditure component of a FCPA compliance policy, which should include the following:
- A reasonable balance must exist for bona fide business entertainment during an official business trip.
- All business entertainment expenses must be reasonable.
- The business entertainment expenses must be permitted under (1) local law and (2) customer guidelines.
- The business entertainment expense must be commensurate with local custom and practice.
- The business entertainment expense must avoid the appearance of impropriety.
- The business entertainment expense must be supported by appropriate documentation and properly recorded on the company’s book and records.
- Any reimbursement for air fare will be for economy class. However, you may be able to make exceptions for senior government officials, extremely long haul flights, or where you are contractually mandated to pay for business class travel.
- Do not select the particular officials who will travel. That decision will be made solely by the foreign government.
- Only host the designated officials and not their spouses or family members.
- Pay all costs directly to the service providers; in the event that an expense requires reimbursement, you may do so, up to a modest daily minimum (e.g., $35), upon presentation of a written receipt.
- Any souvenirs you provide the visiting officials should reflect the business and/or logo and would be of nominal value, e.g., shirts or tote bags.
- Apart from the expenses identified above, do not compensate the foreign government or the officials for their visit, do not fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.
- The training costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of your company.
The incorporation of these concepts into a FCPA compliance policy is a good first step towards preventing potential FCPA violations from arising, but it must be emphasized that they are only a first step. They must be coupled with active training of all personnel, not only on the policy and procedures, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts, travel and entertainment. Lastly, it is imperative that all such gifts, travel and entertainment be properly recorded, as required by the books and records component of the FCPA.
I view one of the key reasons for the attendant procedure of implanting the company policy around gifts, travel and entertainment is to allow oversight by a second set of eyes. Process validation requires oversight of compliance with gifts and entertainment policies is important to ensuring consistency in policy enforcement. This helps to ensure that there is the perception of fairness in this area, particularly if there must be discipline administered. Nothing is worse for an organization if, say, a salesman from the US is disciplined via a warning letter for cheating on his expense account whereas salesmen in Brazil are fired for the same offense.
Mike Volkov, in another blog post entitled “Creating a Framework for Reviewing Gifts, Meals, Travel and Entertainment Expenses”, said that he believes “There are three basic requirements for making the review process more efficient.” They include:
- Prospective standards – Companies need to adopt and enforce a prospective policy which carves out standards for the review and approval of such expenditures. The policy has to be clear on the standards and the procedures to be followed.
- Documentation – Companies have to document the process, maintain records, and audit the process. Without documentation, the policy is doomed to fail, and provides no protection when government prosecutors conduct an investigation.
- Advice of Counsel – Outside counsel should be used to review and approve any close calls. The run-of-the-mill situations can be handled by the policy. In close cases, outside counsel should review the matter, provide a short memo analyzing and approving the expenditure. The memo should be added to the file and available to auditors and the government if needed.
The final point from Walker, Volkov and myself is that whatever policy and procedures you set up and utilize, they should be designed for your company. The FCPA Guidance speaks to a well-thought out and designed system for any compliance risk and gifts, travel and entertainment is no different. Further, you must not only train but monitor and audit on your gifts, travel and entertainment. As this is one of the top areas that employees generate monies from their employers it is one of the top areas for fraud and hence corruption. And finally, Document, Document and Document.
This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at firstname.lastname@example.org.
© Thomas R. Fox, 2014