Earning a Gold Medal in Olympics Anticorruption Compliance

Alexandra Wrage

Corporate Counsel

07-27-2012

The Olympic Games in London begin this week, but many companies will be sitting out the 2012 sports summit. Gifts, hospitality, and travel standards vary by country, and some companies are left confused as to what is and isn’t acceptable in different jurisdictions. Indefinite guidance from regulators further complicates matters for companies looking to have a presence at the Olympics.

Below are some steps that companies with an eye on London may take in navigating the grey area posed by corporate gifts, hospitality, and travel in situations like the Olympics.

Have in Place a Robust, Consistent, and Clear Compliance Policy

Every company should have a robust antibribery compliance policy in place, including clear guidelines on gifts, hospitality, and travel. The policy must be accessible to, and understood by, all employees and officers.

The value of a strong antibribery compliance policy is illustrated by two separate U.S. Foreign Corrupt Practices Act enforcement actions, one involving Lucent Technologies Inc., and the other with a Morgan Stanley employee.

In the Lucent case, the company was accused by the U.S. Department of Justice and the Securities and Exchange Commission of spending over $10 million to send Chinese government officials on hundreds of trips to the United States and other countries. Many of the trips were primarily for leisure, entertainment, and sightseeing, although they were often characterized as “training” or “factory inspections”—sometimes where no factories existed, but where beaches and tourist attractions did exist.

In fining Lucent for these activities, the DOJ criticized Lucent for, among other issues, “failing to provide adequate internal controls to monitor the provision of travel and other things of value to Chinese government officials.” As a result, the DOJ required Lucent to conduct a review of its internal controls, policies, and procedures to address deficiencies—not an inexpensive undertaking.

On the other hand, Morgan Stanley’s compliance program shielded it from liability for FCPA violations committed by one of its employees. The SEC recently alleged that a former Morgan Stanley managing director, Garth Peterson, acquired millions of dollars’ worth of real estate for himself and the former chairman of a Chinese state-owned entity, and enriched himself and the government official by $1.8 million. In exchange for the payments, the Chinese official helped Peterson obtain business for Morgan Stanley. As a result, the SEC barred Peterson from working in the securities industry and levied fines against him. In addition, Peterson pleaded guilty to conspiracy to evade the company’s internal controls and faces a maximum penalty of five years in prison and a maximum fine of $250,000.

Significantly, however, neither the SEC nor the DOJ acted against Morgan Stanley. The SEC pointed out that Peterson had received numerous “compliance reminders” regarding Morgan Stanley’s Code of Conduct, including its gift-giving and entertainment policies and other policies “addressing specific high-risk events, including the Beijing Olympics.” Similarly, the DOJ lauded Morgan Stanley for maintaining a system of internal controls meant to prevent employees from offering, promising or paying anything of value to a foreign government official.

Know the Local Antibribery Laws

It is important to have a compliance program in place that provides crisp guidance for your employees on gifts, hospitality, and travel, because the many laws that touch on this area are far from clear. Indeed, they bring to mind U.S. Supreme Court Justice Potter Stewart’s definition of pornography: I know it when I see it. Enforcement agencies are also very good at telling you when legitimate marketing activities and acts of hospitality cross the line into bribery: when they’ve seen it, typically long after the fact.

The FCPA, generally speaking, prohibits providing “anything of value” to a foreign official in order to obtain an improper advantage. It does, however, provide an exception for “reasonable and bona fide” expenditures, such as travel and lodging, which are directly related to a legitimate business purpose, such as promoting products or services.

In comparison, the U.K. Bribery Act is much broader, flatly banning the transfer of any financial or other advantage to a foreign public official. Official guidance accompanying the Bribery Act, however, indicates that reasonable and proportionate hospitality that is motivated by the desire to burnish a company’s image or build goodwill is not the type of behavior the Act is intended to criminalize (note that this aside is not terribly comforting when a person’s liberty is at stake).

Most other countries have their own variations on what constitutes permissible gifts, hospitality, and travel, particularly as they relate to government officials. Companies need to refer to local antibribery laws in the countries where they operate before hosting events to ensure their anticorruption policies and local hospitality practices comply with these laws.

Clearing the London Olympics Compliance Hurdles

The London Olympics underscore the issues faced by companies in attempting to comply with laws governing corporate hospitality, where criminal conduct turns on whether or not something is “bona fide,” “reasonable,” or “proportionate.” Corporate hospitality involving the Olympics is, by definition, lavish: there is great value in simply securing a ticket to one of the most coveted sporting events in the world. Indeed, if you conduct a Google search for “How much do tickets to the Olympics cost?”, one answer that is returned is, “A lot.” In light of this, it appears that many companies are proceeding with great caution. According to news reports, corporate hospitality packages are still available for sale.

For those companies that are hosting a corporate event during the 2012 Olympics, bear in mind the following practical points:

• Make sure your own house is in order first: long before cocktails are served, you should have in place a robust compliance program, strong internal controls, and a history of consistent internal messaging around the importance of compliance.
• Retain local counsel to confirm that any arrangements you make comply with local laws.
• Provide invitations openly and transparently—and with the knowledge and consent of the invitee’s employer.
• Limit invitations to a diverse group of business associates, as opposed to targeting a select group of government officials.
• Do not invite spouses and do not provide “per diems” or cash to cover incidental expenses.
• Document and properly record the event, the reasons for hosting the event, the attendees, and related expenses.
• Leverage the event to achieve legitimate corporate goals. That is, really use it to build relationships or increase product awareness.
• Enjoy the Games!

Alexandra Wrage is the president of TRACE, an antibribery compliance organization offering practical tools and services, including Gifts & Hospitality Tracking Software, to multinational companies. TRACE offers several other services to members and non-members ranging from tailored due diligence to online antibribery training. TRACE recently launched TRAC, a publicly accessible platform that establishes a global standard for baseline due diligence and makes the information available to companies at no cost.