What Compliance Teams Need to Know About G&E Management

Breaking it down to help you proactively manage Gifts and Entertainment

Gift and entertainment (G&E) costs are a natural part of doing business. But like all good things in life, there is a fine line that shouldn’t be crossed. Giving a prospect a weeklong vacation to a tropical island may be an obvious no-no, but other types of hospitality, gifts and entertainment payments can also run foul of federal laws without employees realizing.

While there isn’t a hard and fast rule about what constitutes a gift or what should be avoided, here are some common activities that can be considered illegal under the Foreign Corrupt Practices Act and other compliance regulations and best practices. Some won’t come as a surprise; others might catch you off guard.

Actual Payment of Gifts

When it comes to trying to win business, any cash or gift (no matter the value) can be considered an illegal bribe. This includes authorizing a payment, even if you (or your company) are not the one actually making it.

Offers and Promises

It doesn’t take a physical exchange to be a violation. Offering a bribe or making a promise of some non-business-related benefit to come later is just as bad as handing over cash. Take note: Even a promise made jokingly can land you in hot water.

Donations to Charity

While not wholly prohibited, larger than normal donations, donations made to a charity that a prospect is intimately involved with, donations that are specifically requested (particularly at times of negotiation or bidding) or donations that can be reasonably construed to insight favor with a prospect can signal corrupt intent.

Outlandish Entertainment, Hospitality and Travel Expenses

This is the trickiest category because these expenses are a common part of doing legitimate business. However, they cross the threshold of corruption and bribery if they exceed normal and socially acceptable levels. While a business dinner in a big city can easily top $1,000, it’s harder to explain that bill if you’re entertaining a client in a small town. Flying a prospect to see your facilities is reasonable, private jets and first class tickets likely aren’t.

In 2015, BHP Billiton faced charges from the SEC stemming from inappropriate hospitality expenses. The company invited foreign officials to attend the 2008 Olympic Games and ultimately paid for 60 officials and guests—a clear violation of the FCPA. “BHP Billiton footed the bill for foreign government officials to attend the Olympics while they were in a position to help the company with its business or regulatory endeavors,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.(http://www.sec.gov/news/pressrelease/2015-93.html)

Undocumented Loans or Favorable Financing

Deals are deals, but undercutting market rate or offering an exorbitant discount out of line with your regular business practices raises red flags. Make sure all loans, financing and discounts are properly approved and documented.

Solicited or Unsolicited

Whether the gift or payment is proactive (you offered it) or reactive (it was offered in response to a request) doesn’t matter. If you make an illegal payment or gift it is considered corrupt intent and you are liable. Even gifts and payments customary in some cultures can be considered bribery regulation violations if your company is based in the United States, United Kingdom or some other countries.

Third Parties

Don’t give gifts or pay for the expenses of someone related or closely connected to your prospect, but who is not involved in the deal — such as a family member. (There is no reason to give your prospect’s wife a pearl necklace!)

So, What is Okay?

  • Bona fide business expenses are ok. These include legitimate expenses during the normal course of business (not a bribe or something that might sway favor). These expenses must be within reason and on par with general practices and local customs.
  • General practices written into contracts—such as X number of hours of free training or a typical (and reasonable) signing incentive.
  • Gifts of gratitude for service or a life event that are well documented and clearly not tied to influencing business. Examples include a reasonable wedding or retirement gift for a client.
  • Charitable donations of a reasonable level, in line with your company’s standards and practices and not tied to corrupt intent.
  • Small items of nominal value—such as branded pens or shirts—as long as they are acceptable by local law.

Since pictures are always a little more exciting than words, we’ve also put the above information together in an illustration for your viewing pleasure. Check it out here!