The Justice Department has released new guidance to help companies understand how they can host foreign officials without running afoul of the anti-bribery Foreign Corrupt Practices Act.
The guidance is in the form of two “opinion procedure releases” that address the propriety of promotional expenditures such as travel, gifts, and entertainment associated with hosting foreign government officials in the United States. A legal bulletin from the law firm Wilkie, Farr & Gallagher describes the opinions as “helpful guidance on what will clearly constitute acceptable expenditures” under the FCPA’s provisions allowing some promotional outlays.
Enforcement of the 30-year-old FCPA is on the rise at the Justice Department and the Securities and Exchange Commission, and both are developing numerous new legal theories to justify prosecution for ever-more offenses. The law clearly prohibits any U.S. citizen or U.S. company from bribing foreign officials to win business, although it does allow small expenses to entertain officials where such courting is part of the host country’s normal culture.
Weinstein
Martin Weinstein, head of Wilkie’s compliance and enforcement group and a former federal prosecutor, says the firm gets at least three to four questions a week on the subject of gifts, travel, and entertainment expenditures under the FCPA. “The FCPA, in this area, is like watching snow fall,” he says. “From a distance, all the snow flakes look the same, but when you get up close, every flake is different. Every fact pattern is different.”
Under the statute, companies can seek a written advisory opinion from the Justice Department on any potential FCPA issues raised by a particular transaction. Getting the department’s blessing in advance can then help companies establish the argument that their transaction is lawful.
McNulty
The opinions “shed more light on the DOJ’s policies and interpretation of the statute,” says Paul McNulty, former deputy attorney general and now at the law firm Baker & McKenzie. (McNulty authored the famed “McNulty Memo” of 2006, updating the Justice Department’s procedures for deciding when to prosecute a company.)
Requests for advisory opinions are “an underutilized provision” of the FCPA, McNulty says. Indeed, the two releases on promotional expenses are the only ones issued so far this year.
“There’s some reluctance because it’s the criminal division of the Department of Justice,” McNulty says. “Most companies have a natural hesitation to bring information to their attention.”
Still, companies that are new to FCPA rules might be wise to seek their own advisory opinion, says Sharie Brown, former senior counsel at Mobil Oil and now a partner at the law firm Foley & Lardner. “By going through an opinion procedure, companies get the benefit of input from the DOJ even before an opinion is released on how they’ve structured their proposal,” she says. As companies expand overseas and encounter more foreign officials or state-run companies, “they have to know these rules.”
What’s Allowed
WE APPROVE
Below are some of the reasons why the Justice Department endorsed an insurance company hosting six foreign officials for a visit to the company’s U.S. headquarters.
The Requester will not pay any expenses related to the foreign officials’ travel to or from the United States, or their participation in the NAIC internship program.
The Requester has no non-routine business under consideration by the relevant foreign government agency.
The Requester’s routine business before the relevant foreign government agency consists primarily of reporting of operational statistics, reviewing the qualifications of additional agents, and on-site inspections of operations. Such routine business is guided by administrative rules with identified standards.
The Requester’s only work with other entities within the foreign government consists of collaboration on insurance-related research, studies, and training.
The Requester will not select the particular officials who will travel. That decision will be made solely by the foreign government.
The Requester will host only the designated officials, and not their spouses or family members.
The Requester intends to pay all costs directly to the providers; in the event that an expense requires reimbursement, the Requester will only do so, up to a modest daily minimum, upon presentation of a written receipt.
Any souvenirs that the Requester gives the visiting officials would reflect Requester’s business and/or logo and would be of nominal value, e.g., shirts or tote bags.
Apart from the expenses identified above, the Requester will not compensate the foreign government or the officials for their visit, nor will it 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 visit will be for a six-day period (five days of training plus travel time), and costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operation of a U.S. company in the Requester’s industry.
Source
Justice Department (Sept. 11, 2007).
The two opinions identify the requesting companies only as “domestic concerns,” although one of the two is also described as “an issuer.” The first company wanted to pay some expenses for a delegation of six junior-level officials visiting the company’s U.S. headquarters for an educational program; the visit would last six days, and the company would pay for lodging, local transport, meals, and a four-hour sightseeing tour.
The second company (identified as the issuer) wants to host six officials from an Asian country to let them tour its U.S. operations, as part of a broader effort the company has undertaken in order to do business in the officials’ home nation. The visit would last four days, and the company would pick up domestic airfare, lodging, transport, and meals.
Both companies said they would pay all costs directly to the service providers rather than the officials, or reimburse a “modest daily amount when necessary” with a receipt.
In both instances, the Justice Department said it saw no harm based on the scenarios described. But the opinions notably listed expenses the companies proposed not to cover as reason for allowing the visits to go forward. Those included cash per diems, paying for officials’ family members, extensive leisure activities, and gifts of significant value.
Calling out those hot-button items “reinforces those elements as risk factors,” the Wilkie Farr bulletin says. “Companies planning to pay for foreign government official travel should be particularly mindful of these risk areas in designing or approving such arrangements.”
Weinstein notes that in every case, the proportion of business purpose to travel is “extremely important.” Hosting a government official “has to be substantially a business purpose and very little extracurricular activity,” he says.
Weinstein suggests companies consider what they deem as acceptable expenses for employees traveling to clients. That means no stopovers on flights, no covering expenses for spouses or children, and no gifts that can be monetized. Companies also ought to avoid paying per diems, he says.
Brown
“Cash per diems or having officials book everything and then seek reimbursement is really not acceptable because that creates an environment for abuse,” Brown says.
Brown also notes that in both opinions, the foreign officials to be hosted weren’t selected by the company and none had any direct authority over decisions relating to potential contracts or licenses necessary for operating in the foreign country. “If the company picked the individuals, the presumption might be that they’re people in particular that the company is seeking to influence,” she says.
Finally, neither company had any substantial existing business with the foreign government. “There were no big deals hanging in the wings that could be influenced by the trip,” Brown says.
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