Law & order
Gifts, Meals and Then . . . FCPA Enforcement
Life can be very
humbling. The SEC has definitely humbled me.
For years now, I have
been claiming that companies spend too much time worrying about gifts, meals
and entertainment expenses under the FCPA, rather than focusing on larger risks
like multi-million dollar contracts with foreign governments. I have repeated
this advice on numerous occasions.
Now, I have to eat
some humble pie. The SEC has brought two significant enforcement actions
focused on improper gifts alone and not appended to more significant cash
bribes.
In the first action,
the SEC fined ($50,000 and $20,000 respectively) two former defense contractor
employees for gifts given to Saudi Arabia officials, including luxury watches
and a 20-night multi-continent trip. The employees gave these improper gifts to
win contracts to provide the Saudi government binoculars and security cameras.
The two employees
arranged for Saudi officials to tour the company’s factory in Massachusetts but
extended the tour for three weeks to Casablanca, Paris, Beirut, and New York
City. Compounding the excessive gifts and travel, the two employees provided
false records and information to cover the expenditures.
It appears that the
defense contractor company may have dodged an enforcement action based on the
two employees misconduct. The company has not made any disclosure of an
enforcement investigation against the company itself.
In the second action,
Bruker, a global manufacturer of scientific instruments, paid approximately
$2.4 million to settle charges of improper payments to Chinese
officials. Bruker made $230,000 in improper payments to provide
Chinese officials with trips and tours and then improperly recorded the
expenses on its books and records.
Bruker entered into
sham collaboration agreements as a means to pay for Chinese officials to take
sightseeing trips around the world. The sham agreements purportedly
were for research services but, in fact, the Chinese officials did not provide
any services under the agreements.
The sightseeing and
shopping trips involved one official’s trips to Frankfurt and Paris. Some
officials went to New York and Los Angeles, the Czech Republic, Norway, Sweden,
Switzerland and Italy.
Interestingly, many of
the improper trips occurred immediately after legitimate travel and event
sponsorship activities. The Chinese officials who accepted these improper trips
were responsible for contracting with Bruker to purchase Bruker products.
The SEC noted the
deficiencies in Bruker’s internal controls, citing the fact that Bruker did not
translate its FCPA policy and training materials into Chinese and instead
relied on its Chinese managers to explain and training employees on FCPA
requirements. Bruker’s hotline reporting system was not available in Mandarin
for Chinese employees to report misconduct.
Both of these cases
underscore a new trend – FCPA enforcement extends to gifts, meals,
entertainment and travel expenditures that are made with corrupt intent. It is
rare for the SEC (or the DOJ) to bring an enforcement case against a company
based solely on these expenditures – in the past such actions have occurred in
egregious cases where such expenditures totaled in the millions of dollars
(e.g. Lucent Technologies).
The recent enforcement
actions increase the risk for global companies, especially those operating in
gift-giving cultures where lavish gifts are expected and even demanded.
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