Category: Gifts

Indirect Mexico Subsidiary Exposes Key Energy Services To $5 Million FCPA Enforcement Action

Last Friday, the SEC announced this administrative order finding that Key Energy Services violated the books and records and internal control provisions of the Foreign Corrupt Practices Act.

In pertinent part, the SEC found that certain employees of an indirect Mexico subsidiary “abused their privileges, approving suspect arrangements with and payments to consultants and gifts to Mexican government officials at Pemex, and concealing these arrangements and payments from Key Energy.”

Without admitting or denying the SEC’s findings, Key Energy agreed to pay $5 million in disgorgement.

Two For Tuesday In FCPA Enforcement Land – Akamai Technologies

Just when you think you’ve seen all possible combinations of Foreign Corrupt Practices Act enforcement, along comes yesterday’s “two for Tuesday” in which the SEC announced in the same press release two non-prosecution agreements against two separate companies and the DOJ simultaneously released two so-called “declination” letters against the same two companies.

This post highlights the enforcement action against Akamai Technologies and today’s first post highlights the enforcement action against Nortek Inc.. From there future posts will highlight issues to consider from the enforcement actions (and there are many including the question of just what charges – based on the SEC’s statement of facts – did the DOJ actually decline?”).

Two For Tuesday In FCPA Enforcement Land – First Up Nortek

Just when you think you’ve seen all possible combinations of Foreign Corrupt Practices Act enforcement, along comes yesterday’s “two for Tuesday” in which the SEC announced in the same press release two non-prosecution agreements against two separate companies and the DOJ simultaneously released two so-called “declination” letters against the same two companies.

This post highlights the enforcement action against Nortek Inc. and a second post today highlights the enforcement action against Akamai Technologies. From there future posts will highlight issues to consider from the enforcement actions (and there are many including the question of just what charges – based on the SEC’s statement of facts – did the DOJ actually decline?”).

The FCPA Need Not Be The Grinch That Steals The Holiday Spirit

In running FCPA Professor, I have conducted daily searches six years running for Foreign Corrupt Practices Act content. The flow of FCPA and related information is often predictable at certain times of year.

This time of year, FCPA Inc. and others look for fresh angles regarding FCPA topics.

So as the holidays approach, it was not surprising to find articles discussing the FCPA risks of holiday gift giving. (see here “Don’t Let a Season of Giving Turn Corrupt;”  here “Tis the Season to Revisit Gift Giving Policies and Procedures;” here “Monitoring Gifting Policies During the Holiday Season;” here “Giving Corporate Holiday Gifts Without the Bribery Risk;” here “Giving the Perfect Gift: 4 Tips for Avoiding Compliance Risks This Season;” here “Corporate Holiday Gift Giving and Anti-Corruption Compliance.”).

Yes, certain FCPA enforcement actions have involved gift giving, including in connection with holidays and festivals – such as Chinese New Year and India’s Diwali Festival.

However, as previously highlighted in this post (a review of the book “Suspicious Gifts“), throughout human history gifts have been a respected and legitimate form of gratitude and generosity, serving as a social glue important to any cohesive society. Yet, and invoking a concept from the book, in this current era of anti-corruption enforcement, everything it seems is viewed through a “bribery gaze.”

• When you want to be generous – it could be bribery!
• When you want to be friendly – it could be bribery!
• When you allow yourself to be invited – it could be a bribe!
• When you accept a present or prize – it could be a bribe!

This “bribery gaze” has social and public policy consequences. As the author of the book argued:

“Campaigns to eliminate these gift exchanges are at the same time campaigns to restrict the gamut of courtesy or ritual exchanges. The manifestations of courtesy, gratitude, and social bonds, which are so important as social glue in any cohesive society, are not just called into question, but criminalized.”

This holiday season ought not be gift-less because of the FCPA or any other similar law.

Indeed, as the DOJ/SEC issued FCPA Guidance states:

“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 gift-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.  […] The FCPA does not prohibit gift-giving. Rather, just like its domestic bribery counterparts, the FCPA prohibits the payments of bribes, including those disguised as gifts.”

My own two cents on the FCPA risks of gift giving around the holidays is as follows.

During this season of giving, I think it would be wise for companies not to view everything through a bribery gaze, but with a sense of practicality. The corporate community – which is frequently bombarded with doomsday scenario after scenario by FCPA Inc. – sometimes needs to take a step back to realize that in order to violate the FCPA’s anti-bribery provisions there has to be corrupt intent. While it may seem a bit counterintuitive, gift giving during the holidays can actually be less risky because it is the holiday season and gestures of good will are common.  Companies should be more concerned with a gift that occurs outside the normal periods of gift giving.

Navigating The ‘Gift, Entertainment And Hospitality’ Landscape In India

(MZM Legal Advocates & Legal Consultants in Mumbai, India). Panag is the India Expert for FCPA Professor.

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FCPA enforcement actions in 2014 have seen companies such as HP Poland, Bruker and Avon (in part) face heat as a result of alleged bribes being paid under the alleged guise of gifts and corporate hospitality.

The risk for multinational companies operating in countries with engrained ‘gift giving’ and ‘hospitality extending / accepting’ cultures is thus a real compliance concern. India happens to be one such country where its cultural and ethnic diversity, multitude of festivals and high levels of public corruption, make the already complex compliance task all the more challenging.

In the ‘Resource Guide to the U.S. Foreign Corrupt Practices Act’ the DOJ and SEC recognize that a small gift is often an appropriate way for business people to display respect for each other. It further goes on to lay down some hallmarks of appropriate gift giving as “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.”

The focus of this post will be to help facilitate a better understanding of what gifts, entertainment and hospitality to public servants is permitted under Indian law.

Background:

India’s principal anti corruption legislation – the Prevention of Corruption Act, 1988 (PCA) recognizes that bribes paid to public servants are not limited to pecuniary gratifications or to gratifications estimable in monetary terms. This is further emboldened by the use of the term ‘any gratification whatever, other than legal remuneration’ in the substantive text of the bribery provisions. The gratification would be deemed to be illegal or a bribe if it is paid/given with the intention to:

• motivate, influence or reward the public servant to perform or forbear performance of an official act;
• show favour or disfavour to any persons;
• render or attempting to render any service or disservice to a public servant.

Therefore, gifts given or hospitality extended to public servants beyond the threshold limits or in improper circumstances that are likely to influence the public servant, would be deemed as a bribe under Indian law.

Who is a Public Servant?

Section 2(c) of the PCA provides the definition of who would be deemed to be a public servant. The definition is extremely broad and includes among others government officials, local authorities, judicial officers, any holder of office to perform a public duty and employees of government owned or government controlled entities. Broadly speaking state control and financing is a reasonable test to determine whether an individual would be a public servant or not.

 What Gifts Can be Given and Hospitality Extended to a Public Servant?

Every public servant is governed by the conduct rules / code of conduct of his or her service or organisation. For example, the ‘All India Services (Conduct) Rules, 1968’ would cover services such as the Indian Administrative Services and the Indian Police Service, the state owned Oil and Natural Gas Corporation (ONGC) has the ‘ONGC Conduct, Discipline and Appeal Rules, 1994 (Amended 2011)’, Ministers of both the Union and States are governed by the ‘Code of Conduct for Minsters’ so on and so forth. These Conduct Rules establish the threshold limits on the value of gifts and hospitality that can be accepted by the concerned class of public servant and the circumstances thereof.

While the threshold value varies among the different services and organisation based on the class and seniority of the public servant, few standard aspects are prevalent:[1]

• Public servants shall not accept nor have any member of his / her family or person acting on his/her behalf accept any gift for him / her.
• Gifts shall include free transport, boarding, lodging or other service or any other pecuniary advantage when provided by any person other than a near relative or personal friend having no official dealings with the Government servant.
• Gifts of the specified value may be accepted by public servants from his / her near relatives or personal friends having no official dealing with him/her when the same is in conformity with prevailing religious and social practices.
• Public servants shall not accept any gifts from any foreign firm which is either contracting with the Government of India or is one with which the public servant had, has or is likely to have official dealings.
• Generally a casual meal, lift or other social hospitality shall not be deemed to be a gift.
• Public servants are to avoid accepting lavish hospitality or frequent hospitality from any individual or commercial organisation that have official dealings with him /her.
• It is imperative to read the conduct rules / code of conduct alongside the applicable provisions and objectives of the PCA.

Best Practices That Corporations Should Bear in Mind While Framing Their ‘Gift, Entertainment and Hospitality’ Policies in India:

As noted above specific threshold limits as specified in the public servants code of conduct / conduct rules are applicable to them. Therefore, a ‘Gift, Entertainment and Hospitality’ policy must cater to these specificities and variations by keeping the following best practices in mind:

• Companies should maintain a database of up to date and official conduct rules / code of conducts of the public servants it regularly interacts with.
• Employees of the company should be adequately briefed on the legal need to carefully evaluate the specific gift, entertainment and hospitality provisions and corresponding threshold value of each class of public servant before giving a gift or extending hospitality to them.
• Threshold values in the company policy must ideally be mentioned in Indian Rupees in order to ensure clarity and prevent any misunderstanding / misconduct that may inadvertently occur due to fluctuating foreign exchange rates.
• Business courtesies should be accurately documented and reported in the company’s books and records.