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The Charitable Donation That Did Not Occur


If you have a pair of “FCPA goggles” (in other words – knowledge of the FCPA and how it is enforced) you no doubt know that some Foreign Corrupt Practices Act enforcement actions have involved, in whole or in part, charitable donations.

See here and here for the Schering Plough and Eli Lilly enforcement actions involving the Chudow Castle Foundation in Poland, here for the Nu Skin enforcement action, here for the KT Corp. enforcement action, here for the Fresenius enforcement action, and here for the MTS enforcement action.

When an FCPA enforcement action is based on conduct that is otherwise legal and acceptable in most instances, a risk averse compliance response may be to avoid the conduct altogether for fearing of FCPA scrutiny.

Yet, excessive risk aversion can have negative consequences as this republished guest post demonstrates. The post, originally published in 2018, was authored by Corporate Counsel at a well-known U.S. based publicly traded company.


Most people can agree that preventing corruption is a good thing, and that vigorous enforcement of the FCPA can help in advancing this compelling public policy aim. But can it go too far? Can vigorous enforcement create an environment that not only limits corruption but that also prevents businesses from acting altruistically, and potentially improving communities and lives, because of risk aversion made necessary by that enforcement?

Here is a real world example, with names and locations omitted. Take the case of my company – US-based company that trades publicly on the New York Stock Exchange. My company operates principally in the US, but has an operational footprint that includes North America, Latin America, and Asia. As such, my company is aware that its operations implicate FCPA risk. Consistent with enterprise risk-ranking methodology, and on the advice of external vendors specializing in FCPA compliance, my company categorizes vendor and third-party relationships based on degree of risk (whether low, medium, or high). My company further specifies that vendor and third-party relationships need to be managed in accordance with guidelines that are aligned to risk category. These guidelines run from sanctions/watch-list screenings, to contractual language requirements, enhanced due diligence, written certifications, training, and billing requirements. All of which looks objectively reasonable and which would seem to protect the company from FCPA risks while also providing operational flexibility.

But, let’s look at a situation where one of my company’s units operating in a high-risk jurisdiction was interested in making a modest charitable donation to a worthy humanitarian organization. Consistent with the aforementioned guidelines, the company considers foreign charities to be high risk relationships. Why? Because of the expansive way in which the “anything of value” element has been interpreted and enforced. We know that prosecuting authorities are likely to view foreign charitable contributions as a possible method for bribery. Accordingly, in order to mitigate against the risk of having a charitable donation being seen as corrupt, a prudent actor should follow the same steps for these relationships as it would for other high-risk relationships. In my company’s case, the steps for vetting a high-risk relationship involve a strenuous due diligence requirement consisting of outsourced screening and internal review with follow up. All of this costs time and money.

Returning to our example, let’s assume that the proposed donation is of surplus cleaning and office supplies which have little value to the company, but which might be assessed objectively at $500 USD. In order to follow protocol, however, the steps for vetting the charitable organization implicate many thousands of dollars in due diligence fees, and several hours of employee time. So what should my company do? Assume that there is no risk in making the donation and throw caution to the wind? Or should my company insist on following protocol thereby making the process of vetting and documenting the relationship so costly so as to remove any incentive for making the donation in the first place?

Is there a right answer? For my company, the business sponsors decided that making the donation was not worth the expenses of time and effort that would have been required to comply with the applicable compliance policies. In other words, the juice was simply not worth the squeeze.

As a result, a few things happened:

  • A needy organization was deprived of useful goods and equipment;
  • My company was deprived of the opportunity to act altruistically and to gain good will in the local community;
  • Trust between the company’s internal groups was affected because it was difficult for compliance to articulate the need to follow controls and procedures without seeming unreasonable.

Looked at another way, everyone lost out.

Is this the type of situation that the FCPA was enacted to address? It is hard to imagine that it was, or that a compelling argument can be advanced that preventing nominal value charitable donations is aligned with US foreign policy interests. But, in light of aggressive enforcement theories, this is the effect that the FCPA can have. Companies become risk-averse to the point that they avoid efforts with the potential to benefit all parties involved.

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