FCPA Compliance: Automation and Mitigating Gifts, Meals, Entertainment and Travel Expenditures Risks (Part III of V)
The laundry list of companies that have been prosecuted for FCPA violations surrounding gifts, meals, entertainment and travel expenditures is lengthy.
Consider just two examples:
In SEC v. Diageo (2011) (copy Here), Diageo agreed to a $16 million settlement for a variety of illegal bribe payments and GMET expenses, including $64,184 spent on rice cakes and other gifts for the South Korean military over a four-year period, in small amounts of $100 to $300 per recipient.
In SEC v. Delta & Pine Land Company and Turk Deltapine, Inc. (2007), (copy Here), Monsanto discovered during pre-acquisition due diligence of Delta & Pine Land Company and Turk Deltapine that a Turkish subsidiary made payments of approximately $43,000 to Turkish government officials for the sale of cotton seed varieties. The GMET expenses included cash, payment of travel and hotel expenses, air conditioners, computers, office furniture and refrigerators to multiple government officials.
Taking a step back, the corruption risks in this area are fairly obvious. Gifts, meals, entertainment and travel expenditures are legitimate ways for companies to develop business and promote cordial relations with its customers, third parties and other entities with whom the company interacts. As a legitimate source of funding, corrupt actors can abuse this source of funding to advance corrupt schemes and bribery. As a result, gifts, meals, entertainment and travel expenditures remain a potential risk for companies.
The FCPA Guidance explains:
A small gift or token of esteem or gratitude is often an appropriate way for business people to display respect for each other. Some hallmarks of appropriate giving are when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.
In particular, the FCPA Guidance provides some examples of prohibited GMET expenses:
- A $12,000 birthday trip for a Mexican decision maker that included dinners and visits to wineries
- $10,000 spent on dinners, drinks, and entertainment for a government official
- A sightseeing trip to Italy for eight Iraqi government officials that included $1,000 in “pocket money” for each official
- A chauffeur-driven trip around Paris for a government official and his wife
These examples are egregious. For a compliance professional, the challenge is to provide your sales people with the examples that fall in the middle, to provide information that will help them make the close-call decisions confidently.
Many companies are purchasing or developing internal software solutions to promote GMET compliance. In the past, companies relied on paper or electronic emails that was a time-consuming process requiring close manual review of GMET expense forms and chasing down approvals. Today, compliance departments have the opportunity to leverage technology to automatically oversee GMET compliance.
With the help of automated solutions, companies can now more effectively monitor GMET expenses and intervene proactively to prevent possible abuse of a company’s GMET system for nefarious purposes.
Using automated solutions, companies are able to monitor on a real time basis GMET amounts spent by a variety of categories and specific risks, including:
- Overall amount spent
- Specific Recipients
- Government Officials
- Purpose of Expense
For global companies, the challenges of GMET are more significant given the varying demands for GMET expenditures depending on local customs and business practices. Many companies adhere to a single standard in all of its operations, while some may vary the specific policies depending on the local needs. An automated solution provides increased capabilities to craft local policies, if warranted. The need for locally-tailored poloicies always raises a significant tension with a global company’s desire to maintain consistent policies across the organization. For that reason, many companies stick to a single, global-wide policy.