Ed. Note – I know yesterday I said this would be a two-part series but as usual I got carried away so it has become a three part series. Today I review the Opinion Releases and Enforcement Actions dealing with gifts, travel and entertainment.
A. Opinion Releases
Gifts
In the early 1980s the Department of Justice (DOJ) issued three Opinion Releases related to gifts under the Foreign Corrupt Practices Act (FCPA). While these Opinion Releases are clearly dated, they do remain instructive. In Opinion Release 82-01, the DOJ approved the gift of cheese samples made to Mexican governmental officials, made by the Department of Agriculture of the State of Missouri to promote the state of Missouri’s agricultural products. However the value of the cheese to be presented was not included. In Opinion Release 81-02, the DOJ approved a gift from the Iowa Beef Packers, Inc. to officials of the Soviet Ministry of Foreign Trade of its packaged beef products. The total value of all the samples presented was estimated to be less than $2,000 and the Iowa Beef Packers, Inc. averred that the individual sample packages would not exceed $250 in value. In Opinion Release 81-01, Bechtel sought approval to use the SGV Group to solicit business on behalf of Bechtel and Bechtel had proposed to reimburse the SGV Group for gift expenses incurred in this business solicitation. The DOJ approved gifts to be given by SGV in the amount of $500.00.
Travel and Lodging for Governmental Officials
Prior to the FCPA Guidance, the DOJ issued three Opinion Releases which offered guidance to companies considering whether, and if so how, to incur travel and lodging expenses for government officials. These facts provided strong guidance for any company that seeks to bring such governmental officials to the US for a legitimate business purpose. In Opinion Release 07-01, the Company was desired to cover the domestic expenses for a trip to the US for a six-person delegation of the government of an Asian country for an educational and promotional tour of one of the requestor’s US operations sites. In the Release the representations made to the DOJ were as follows:
A legal opinion from an established US law firm, with offices in the foreign country, stating that the payment of expenses by the US Company for the travel of the foreign governmental representatives did not violate the laws of the country involved;
The US Company did not select the foreign governmental officials who would come to the US for the training program;
The delegates who came to the US did not have direct authority over the decisions relating to the US Company’s products or services;
The US Company would not pay the expenses of anyone other than the selected officials;
The officials would not receive any entertainment, other than room and board from the US Company;
All expenses incurred by the US Company would be accurately reflected in this Company’s books and records.
In Opinion Release 07-02 the Company desired to pay certain domestic expenses for a trip within the US by approximately six junior to mid-level officials of a foreign government for an educational program at the Requestor’s US headquarters prior to the delegates attendance at an annual six-week long internship program for foreign insurance regulators sponsored by the National Association of Insurance Commissioners (NAIC). In the Release the representations made to the DOJ were as follows:
The US Company would not pay the travel expenses or fees for participation in the NAIC program.
The US Company had no “non-routine” business in front of the foreign governmental agency.
The routine business it did have before the foreign governmental agency was guided by administrative rules with identified standards.
The US Company would not select the delegates for the training program.
The US Company would only host the delegates and not their families.
The US Company would pay all costs incurred directly to the US service providers and only a modest daily minimum to the foreign governmental officials based upon a properly presented receipt.
Any souvenirs presented would be of modest value, with the US Company’s logo.
There would be one four-hour sightseeing trip in the city where the US Company is located.
The total expenses of the trip are reasonable for such a trip and the training which would be provided at the home offices of the US Company.
Lastly, is Opinion Release 12-02, in which the Requestors, 19 non-profit adoption agencies located in the US, asked the DOJ about bringing certain foreign governmental officials involved in the foreign country’s adoption process to the US. All the foreign governmental officials were involved in the process of allowing children from their country go through the adoption process with the US non-profits involved. The trips to the US would be for two days of meetings. The purpose of the visit would be to demonstrate the Requestors’ work to the government officials so that the officials can see how adopted children from the foreign country had adjusted to life in the US and to help the Requestors learn how they can provide that information to the foreign country’s government with appropriate information during the adoption process. The Requestors would allow the government officials to meet with the Requestors’ employees and to inspect the Requestors’ offices and case files from previous adoptions. The foreign country’s government officials would also meet with families who had adopted children from their country and learn more about the Requestors’ work.
The Requestors stated that they would pay for the following:
Business class airfare on international portions of flights for ministers, members of the legislature, and the director of the Orphanage Agency; coach airfare for international portions of flights for all other government officials; and coach airfare for domestic portions of flights for all government officials;
Two or three nights hotel stay at a business-class hotel;
Meals during the officials’ stays; and
Transportation between agencies and local transportation.
What can one glean from these three Opinion Releases? Based upon them, it would seem that a US company could bring foreign officials into the US for legitimate business purposes. A key component is that the guidelines are clearly articulated in a compliance policy. Based upon these Releases the following should be incorporated into a compliance policy regarding travel and lodging:
Any reimbursement for air fare will be for economy class, unless it is a long haul international flight, high ranking foreign officials or those entitled to travel business class by contract.
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.
Incorporation of these concepts into a compliance program is a good first step towards preventing any FCPA violations from arising, but it must be emphasized that they are only a first step. These guidelines must be coupled with active training of all personnel, not only on the compliance policy, but also on the corporate and individual consequences that may arise if the FCPA is violated regarding gifts and entertainment. Lastly, it is imperative that all such gifts and entertainment are properly recorded, as required by the books and records component of the FCPA.
B. Enforcement Actions
Mike Volkov refers to the FCPA Paparazzi when he talks about those FCPA practitioners who confuse FCPA information with FCPA scare tactics and manipulate legal reasoning and practical advice with “marketing” using fear as opposed to reliable and accurate information. In a recent blog post, entitled “The So-Called Re-Emergence of Gifts, Meals and Entertainment as a Compliance Problem” Volkov bemoaned recent FCPA Paparazzi client alerts which said that the DOJ was now gunning after companies for FCPA transgressions in this area.
But one point Volkov raised for consideration by the compliance practitioner was the overall management of these risks. He asked the following questions: “Who is responsible for approving expenditures? What controls are in place for ensuring that money is used for proper purposes? How are these expenditures monitored? Who watches the person responsible for controlling the money and what controls are in place to monitor their behavior?” All good questions, and all questions that the compliance function should be able to answer going forward.
While there were three of enforcement actions in 2013 and one in 2014 where gifts, travel and entertainment were discussed. In only one of the four such enforcement actions were gifts, travel and entertainment discussed, where over a period of 15 months these actions were the primary cause of the violation. That matter was the Diebold enforcement action. In all others, HP, Weatherford and Stryker, the gifts, travel and entertainment matters were all ancillary to the primary illegal conduct at issue. This is consistent with DOJ enforcement of the FCPA so Volkov rights notes, the FCPA Paparazzi are howling at the moon once again.
Travel and Entertainment Enforcement Expense Box Score
Company
Trip Locations
Trip Costs & Perks
Company Facilities Present
Lucent Technologies
DisneyWorld, Hawaii, Las Vegas, Grand Canyon, Niagara Falls, Universal Studios, NYC
$10 million in trips for 1000 Chinese governmental officials, including $34,000 for five days of sightseeing
None of the travel destinations
Ingersoll-Rand
Trip to Florence after trip to company facility in Vignate, Italy
$1000 ‘pocket money’ per attendee
Facilities in Vignate but not in Florence
Metcaf & Eddy
First trip – Boston, Washington, D.C., Chicago and Orlando. Second trip – Paris, Boston and San Diego.
First Class Travel and trip expenses for Egyptian governmental official and his family. Cash payments prior to trips of 150% of estimated daily expenses.
Wakefield Mass., not in Washington DC, Chicago, Paris or DisneyWorld
Titan Corporation
Reference in company books and records of $20,000 for promotional travel expenses. Not clear if ever funded (Remember a promise to pay equals making a payment under the FCPA)
UTStarcom
Hawaii, Las Vegas and NYC
Up to $7 million on gifts and all expense paid trips to US
No company offices present in any of the travel destinations
Diebold
Europe, with stays in:
Paris,
Amsterdam,
Florence,
Rome
In the US with visits to:
Disneyland,
Grand Canyon,
Napa Valley,
Las Vegas
$1.6MM to employees of Chinese state-owned banks; $175K to employees of Indonesian state-owned banks
No company offices present in any of the travel destinations
Weatherford
Trip to Germany for the World Cup
Honeymoon for Sonatrach official’s daughter
Trip to Saudi Arabia for religious holiday
Payment of $24,000 in cash advance for Algerian government officials visiting Houston
No legitimate business purpose for any of the business travel
Stryker
NYC and Aruba
$7000 for Polish gov official and wife
No company offices present in any of the travel destinations
HP
Las Vegas
$35,000 in travel expenses paid for Polish gov official
No company offices present in any of the travel destinations
Tomorrow we will tie it all together for you.
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 tfox@tfoxlaw.com.
© Thomas R. Fox, 2014
Filed under: Best Practices, compliance programs, Department of Justice, FCPA, Gifts and Business Entertainment, Michael Volkov, Opinion Releases, SEC, Travel and Entertainment Tagged: best practices, compliance, compliance programs, Department of Justice, DOJ, FCPA Professor, Foreign Corrupt Practices Act, gifts, travel and entertainment 
