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7 potential FCPA pitfalls for the holiday season.

Summary: All around the world, the fall and early winter months represent what many have come to call the “holiday season.” From Chanukah to Christmas to ...

All around the world, the fall and early winter months represent what many have come to call the "holiday season." From Chanukah to Christmas to Chinese New Year, a number of these holidays involve traditions of gift giving. And, while swapping presents between friends is a lovely way to show appreciation, when multinational companies want to give gifts to partners, clients or suppliers in other nations, they face the risk of running afoul of the Foreign Corrupt Practices Act (FCPA).

InsideCounsel recently spoke with Bill Pollard, a partner at Deloitte Financial Services, about the potential dangers of gift giving in relation to the FCPA, what companies should be aware of, how they can prevent problems and what to do if anything crops up. Click through the slides below to learn more about the perils of gift giving.


The biggest minefields during the holiday season, according to Pollard, are the areas of travel, gifts and entertainment (TGE). If, for example, you are visiting customers or bringing them to you during the holiday season, this can be as much of a danger as the giving of physical gifts. Whether you want to bring a team of clients out to karaoke or buy them a bottle of wine, you need to be aware of gifts that could exceed thresholds or are viewed by the Department of Justice (DOJ) or Securities and Exchange Commission (SEC) as exorbitant or excessive. This is the challenge that companies face during this time of year.

And the timing of the holiday season can create problems as well. "You trained all your people in January when the new year started. As part of their overall compliance activities, they took their FCPA training and probably saw something in there about TGE and even took a test and moved on. Now, 11 months later, they have not been reminded and people fall back into old habits," Pollard explains.

Location, location, location

Gift-giving is certainly common in the United States, but it is a way of life in certain parts of the world. And with a range of holidays, from Chanukah (which is in mid-December this year) to Chinese New Year (which is in February this year), there is a long period of gift-related danger.

"China is a gift-giving culture," says Pollard. "In general, countries like Brazil, Russia, China and some Latin American countries, from Mexico on south, are places where you'll run into those same type of gift-giving cultures. Central Europe and African countries are less of an issue."


Pollard recommends a three-pronged approach to handling FCPA matters during the holiday season: people, process and technology.

Getting the word out to all of your people is key, he says. "Communicating to employees what the company's expectations are, is essential. You can put together a specific TGE online training, a reminder of what expectations are. You can make a video message from the CEO or chief compliance officer reminding employees of their obligations."


Having all of your people on the same page is a good start, Pollard explains, but the next step is to ensure that you have processes and controls in place that those people can use.

"Companies that allow travel, gifts and expenses should have a pre-approval process in place and monitor those pre-approvals. If you're not getting requests for approval for gifts in China, for example, that is a red flag and you need to monitor that to ensure that the processes and controls are in place and operating effectively," he says.


These days, companies have technology in place that gathers an enormous amount of data. How, then, can companies leverage that technology and data to help avoid bribery scandals?

Using an analytical, risk-based approach, you can use the data to gain insights into the compliance of your organization. "Look at expense reports, focus on regions of the world where there is a higher likelihood where bribery can take place. Look at the individuals working in those countries and the businesses that would be higher risk candidates for having interaction with government officials. You don't have to look at all your sales people, but look at those who sell to the government, for example, or a person who interfaces with regulators. Look at their expense reports," Pollard advises.


No matter what processes are in place, what training is done and what data is analyzed, it's conceivable that companies will indeed run into gift-related problems. The key, then, is to have a response plan in place, rather than waiting to see if something does go wrong.

"Can you answer the question, 'Who is going to take the lead when the FCPA red flag comes to your attention?' Will it be compliance, legal or audit? You need to determine if you have the resources to address the issue, what you have done from a tech perspective to ensure that you can capture information and preserve it, whether it's emails, hard-copy documents, information from mobile devices or accounting data. Who is gong to collect it? Will it be maintained with integrity? Who will conduct an investigation if warranted? These are all items that need to be thought about in terms of a response," Pollard says.

If you have answered those questions and have a response plan in place, one that is thoughtful and risk-based, you should employ it when you see a red flag. Too often, Pollard says, in light of DOJ or SEC zealousness, companies can overreact. "Just because you see a red flag does not mean you have a bribe," he advises, suggesting a discrete review of emails or accounting transaction data that can be done without raising awareness. "When you identify that you do have a problem, it's a matter of putting the right scope around it. How big is the problem? How many people should be involved? How much do I need to preserve? How much do I have to review to get to the bottom of the issue? Companies that don't have the sophistication in doing this -- and most don't -- need to reach out to a consultant or outside counsel to meet these challenges."


Once the holiday season is over, companies may feel they can rest on their laurels once gain. But after the dust has settled, the gifts have been opened and the wrapping paper thrown away, it's time, Pollard says, to proactively monitor behavior. "When companies are looking to find out where they need to audit in the New Year, they should spend time early in the year looking into TGE. Spending time with high-risk employees and business units in high-risk geographies is a great place to start." That way, you can see who might end up on the naughty list come NEXT January...

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Publication:Inside Counsel
Date:Nov 24, 2014
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