A Practical Solution to Gifts, Meals, and Entertainment Expenses

The increase in FCPA enforcement has lead to the growth in the legal cottage industry surrounding compliance and  enforcement.  More and more companies are advertising their due diligence services, their intelligence gathering services, and their overall ability to help companies comply with the law.

Lawyers are guilty of this mass marketing hysteria.  Webinars are offered every week; boot camps and other meetings are scheduled every quarter all around the world to lure companies and practitioners to meet, and exchange ideas.  

At the same time, lawyers are relying on their traditional avenues to disseminate some of their ideas – legal scholarship surrounding the FCPA has increased.  Some of it is helpful; some of it is not worth the paper it is written on. 

When it comes to compliance ideas, law review articles on compliance have not been very practical.  Instead, they tend to complicate issues which are straightforward.  Complexity is not necessarily an indication of thoughtfulness.  When it comes to gifts, meals and entertainment expenses, some have suggested companies institute complex scoring system, matrices for analysis, and other burdensome requirements, all meant to demonstrate a rational exercise of discretion. 

I prefer common sense and transparency.  The Justice Potter Stewart formula looks good to me — when looking for potential bribes, “”You will know it when you see it.”  Not to be trite but ensuring consistent review of such expenditures is a good thing and making sure the reviewers know what they are looking for — red flags — when they are looking at these kinds of expenses.  

 As a compliance attorney, the goal should be to assist companies in developing practical solutions to complex problems, not in demonstrating our intelligence by developing cumbersome, formula-driven solutions to problems which are only accessible to compliance officials.  Common sense and simplicity are important principles of any compliance system.  Complex formulas, ranking systems and simple guideposts are not.  Moreover, such systems are too complex for the nature of the risk. 

I have written before on the important guidepost for FCPA compliance – corrupt intent.  Negligent conduct does not mean criminal conduct.  Mistakes are not criminal.  Corrupt intent can include deliberate indifference – the ostrich with his head in the sand. 

 Transparency of a company’s actions operates to negate any legitimate inference of corrupt intent.  Gift policies which are transparent, based on common sense, and recorded, demonstrate an organization’s commitment to compliance and are contrary to corrupt intent.  Coupled with internal controls such a system can effectively guard against any inference of corrupt intent, as well as a systematic breakdown in a company’s compliance program. 

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  1. November 11, 2012

    […] a recent blog Michael Volkov in discussing gifts, hospitality and expenses confirms that common sense and simplicity are […]