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A recent article in Corporate Counsel highlights the risks presented by business gifts and entertainment and practical steps companies can take to avoid these risks.   As noted in the article, a number of research studies of ethics and compliance leaders have placed conflict of interest and bribery and corruption among the top three ethics and compliance risks (along with data privacy) that companies face today.  Here’s why:  an actual or apparent conflict of interest can arise when the gift or hospitality interferes – or appears to interfere – with the objectivity, fairness, or legal and ethical propriety of a business decision, and this creates reputational risks for the company.  Additionally, companies face even greater risks from inappropriate gifts and entertainment that are, or could be perceived to be, bribes, kickbacks, or other forms of corruption.  A number of developments over the past few years means that companies need to be vigilant to prevent gifts, travel and hospitality from crossing the line.

 

First, prosecutions in the U.S. for violations of the Foreign Corrupt Practices Act (“FCPA”) have surged in the last few years.  The FCPA criminalizes giving or offering to give “anything of value” to a “foreign official” (a broadly defined term) to secure an improper advantage, whether the benefits are provided directly or through an agent or other intermediary.  Authorities have targeted gifts of cars, jewelry, company shares and dividends, excessive travel and entertainment expenses, and educational or executive training expenses.

 

Second, there is an increasing focus on commercial bribery, which is now prohibited in many countries.  The UK Bribery Act is a notable example and broke new ground in prohibiting all forms of bribery – not just to public officials, but involving domestic, foreign, private, and public companies – and covers both the giving and receiving of bribes.  As noted in my recent post (In Wake Of Ongoing Chinese Bribery Investigation, Glaxo Announces It Will Stop Paying Doctors To Promote Drugs) the recent high-profile crackdown on commercial bribery by the Chinese government may result in increased risk to multinational companies that do business there.

 

Third, enforcement authorities in the U.S. and other companies have imposed large fines for bribery offenses (see my recent post SEC Enforcement Of The FCPA: 2013 Year In Review).  The ten largest bribery fines ever have been imposed within the past five years.  Companies can and should manage the risk presented by gifts and entertainment by:

  • Clarifying business purpose and values to establish self-governing behaviors that reduce misconduct risk and speaking up.
  • Sending and consistently reinforcing the message by company leadership that the company does not buy business with inappropriate gifts and entertainment.
  • Performing a risk assessment that, at minimum, identifies operations in countries that have a reputation for corruption; evaluate the types of gifts and entertainment that are provided and to whom, and the amount and frequency of such items and whether management approval is required; consider any special cultural expectation in particular countries where, for example, refusing a gift could case offense; and identifying employee and third-party populations must at risk for giving or receiving gifts that could violate domestic or international laws.
  • Implementing a clear and concise code of conduct on gifts and entertainment.
  • Implementing a policy indicating what can and cannot be given, what should be recorded, and where employees can seek additional guidance.
  • Conscientiously documenting gifts and entertainment to help establish the absence of corrupt intent.
  • Monitoring the effectiveness of internal controls.
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