- FCPA Professor - http://fcpaprofessor.com -

Regarding Charitable Foundations …

This previous post [1] highlighted Hillary Clinton’s corruption perception problem.

With additional revelations about the Clinton Foundation recently in the news (see here [2] for AP report, here [3] for a Los Angeles Times report), this post highlights Foreign Corrupt Practices Act enforcement actions that have involved, in whole or in part, donations to foundations founded by or favored by foreign officials.

To be sure, Hillary Clinton is not the only U.S. official or candidate for office who has been under the microscope regarding a charitable foundation (this recent article “The Uncomfortable Truths and Double Standards of Bribery Enforcement [4]” details other examples).

However, the irony is that as Secretary of State Clinton championed the U.S. crusade against foreign bribery under the FCPA stating that the Obama administration “has taken a strong stand when it comes to American companies bribing foreign officials” and that any perceived weakening of the FCPA “would not give us the leverage and the credibility that we are seeking” on the world stage.

The below FCPA examples of course are not perfect parallels (among other things the actions were against the giver of the charitable donation not the recipient because the FCPA is only a supply-side statute). Nevertheless, the clear inference advanced by the U.S. government in the below enforcement actions was that the “foreign official” connected to the charitable foundation was corrupt.

A couple of other observations before highlighting the FCPA enforcement actions concerning charitable foundations.

After reading the below summary of FCPA enforcement actions that have involved, in whole or in part, donations to foundations founded by or favored by foreign officials, readers can decide for themselves whether a double standard exists between U.S. enforcement of the FCPA (a law that targets interaction with foreign officials and candidates for foreign office) and other U.S. laws that target interaction with U.S. officials or candidates for office.

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Schering Plough

In the 2004 enforcement action [5], the SEC alleged that the company violated the FCPA when its subsidiary companies made a charitable donation to a bona fide Polish castle restoration foundation (the Chudow Castle Foundation) given that the founder/president of the foundation was also the director of a government health fund that provided money to hospitals throughout Poland for the purchase of pharmaceutical products.

Although the company ultimately resolved the matter via a SEC neither admit nor deny settlement charging only FCPA books and records and internal controls violations, the SEC’s tacit interpretation of “anything of value” was significant because there was no allegation or indication that any tangible monetary benefit accrued to the Director.  Rather, the SEC seemed to conclude that the bona fide charitable donations constituted a “thing of value” to the “foreign official” because the donations were subjectively valued by the official and provided him with an intangible benefit of enhanced self-worth or prestige. The take-away point for FCPA practitioners was that the perception of the recipient and the subjective valuation of the thing conveyed may be a key factor in an enforcement agency analysis of whether “anything of value” has been given to a “foreign official.”

Eli Lilly

The 2012 enforcement action [6] included similar allegations regarding the same Polish castle restoration foundation discussed above.

In addition, the enforcement action contained the additional relevant allegation.

“From 2005 through 2008, Lilly-Vostok [a wholly-owned subsidiary of Eli Lilly] made various proposals to government officials in Russia regarding how Lilly-Vostok could donate to or otherwise support various initiatives that were affiliated with public or private institutions headed by the government officials or otherwise important to the government officials. Examples included their personal participation or the participation of people from their institutions in clinical trials and international and regional conferences and the support of charities and educational events associated with the institutes. At times, these proposals to government officials were made in a communication that also included a request for assistance in getting a product reimbursed or purchased by the government. Generally, Lilly-Vostok personnel believed these proposals were proper because of their relevance to public health issues and many of the proposals were reviewed by counsel. Nonetheless, Lilly-Vostok did not have in place internal controls through which such proposals were vetted to ascertain whether Lilly-Vostok was offering something of value to a government official for a purpose of influencing or inducing him or her to assist Lilly-Vostok in obtaining or retaining business.”

VimpelCom

The 2016 enforcement action [7] included the following allegation:

“VimpelCom also made what were ostensibly charitable payments in order to improperly influence Local Partner A. In connection with corruptly influencing Local Partner A, representatives of Local Partner A directed VimpelCom to make at least $502,000 in payments to charities directly affiliated with Local Partner A.

Unitel [a VimpelCom wholly-owned subsidiary] had insufficient internal accounting controls and maintained inaccurate books and records regarding its charitable contributions. From 2009 and through 2013, Unitel provided approximately $38 million in sponsorships or charitable contributions in Uzbekistan. Despite the presence ofred flags, these transactions were not vetted to ensure that they were not improperly benefitting government officials.”

Alstom

The 2014 enforcement action [8] contained the following allegation:

“Alstom and its subsidiaries paid $2.2 million to a U.S.-based Islamic education foundation associated with [an Saudi Electric Company (SEC) official believed to have 70% of the decision-making responsibility for SEC matters]”

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(Disclosure of interest: I was an intern in the Clinton White House)