Creating a Framework for Reviewing Gifts, Meals, Travel and Entertainment Expenses
Companies spend a lot of time and resources reviewing potential payments for gifts, meals, travel and entertainment. There are ways to make this process easier and more efficient.
There are three basic requirements for making the review process more efficient.
1. Prospective standards – Companies need to adopt and enforce a prospective policy which carves out standards for the review and approval of such expenditures. The policy has to be clear on the standards and the procedures to be followed.
2. Documentation – Companies have to document the process, maintain records, and audit the process. Without documentation, the policy is doomed to fail, and provides no protection when government prosecutors conduct an investigation.
3. Advice of Counsel – Outside counsel should be used to review and approve any close calls. The run-of-the-mill situations can be handled by the policy. In close cases, outside counsel should review the matter, provide a short memo analyzing and approving the expenditure. The memo should be added to the file and available to auditors and the government if needed.
In designing appropriate standards, the Justice Department has provided important guidance through its opinion release procedure (hereinafter “Op. Rel.”). A careful review of the Justice Department’s opinion releases can help companies develop important guideposts in defining the contours of the affirmative defense for expenditures that are “reasonable and bona fide” and “directly related to…the promotion, demonstration, or explanation of products and services.”
Most recently in Op. Rel. 12-02, a group of non-profit adoption agencies inquired about paying the travel and trip costs for foreign adoption officials to visit the US. In Op. Rel. 07-02, the requestor desired to pay certain expenses for mid-level Foreign Officials to participate in an educational program at the company’s headquarters. In a third example, Op. Rel. 07-01, a company sought to pay costs associated with a six-person delegation of Foreign Officials to attend promotional tours of the company’s operation sites.
In each of these situations, as well as others (see also Op. Rels. 11-01, 82-01, 81-02, 81-01), DOJ agreed the conduct was not a violation of the law because all proposed expenditures were (1) reasonable and (2) related to a legitimate business purpose. DOJ considered the following to reach its conclusion:
- Travel expenses proportionate to foreign officials’ rank (business class for Ministers and Parliament members but coach for subordinates (Op. Rel. 12-02));
- Reasonable lodging accommodations nearby location of business purpose (all);
- No “walk-around” money or cash directly to foreign officials (all);
- Only expenses of select foreign officials, not spouses or children (all);
- Opinion by an established US law firm stating the payments were consistent with applicable domestic and foreign laws (Op. Rel. 07-01);
- US company did not select the foreign government officials (all);
- Foreign officials did not have direct authority over award of business (Op. Rel. 07-01);
- Expenses paid directly to US service suppliers such as restaurants and hotels (all);
- Gifts or souvenirs of modest value only (i.e., individual gifts not to exceed $500 (Op. Rel. 82-01));
- Event occurs only where Company maintained facilities or operations (all);
- Entertainment to occur locally (i.e., a four-hour sightseeing trip in the city where the US Company was located (Op. Rel. 07-02));
- “Expenses are commensurate with legitimate and generally accepted local custom for such expenses by private business persons in the country.” (Op. Rel. 81-02);
- All expenses to be recorded accurately, with sufficient detail (all).
The Opinion Releases are important examples of prosecutorial discretion and should be built into a Company’s gifts, meals, travel and entertainment policy.