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Illegal gratuities and gifts: primer and reminder.

As was reported in National Defense last month, the Army's Office of General Counsel reminded government executives about "the number one gift rule: Nothing requires a person to accept a gift--you may always decline."

Rejection of a gift sometimes is the wisest course. Indeed, many companies' policies prohibit offering anything of value to government employees. Yet, the complex interaction between businesses and their government customers sometimes requires independent judgment, particularly in policy areas and marketing activities.

Occasionally, a true "Washington scandal" casts clouds upon the industry and government. Typically, the scandal involves an exchange of favors, gifts, or some other prohibited business conduct. Recent scandals included allegations of prostitutes, extortion, and money laundering in the relationship between a Pentagon official and contractors.

Although rare, these events show that the defense industry must maintain vigilance in promoting ethical behavior. In this context, one error by one employee could be critical.

Sometimes misconduct arises because common business practices in the private sector may be illegal in government transactions. The rules governing these issues include criminal provisions of bribery and illegal gratuities, applicable Federal Acquisition Regulation (FAR) provisions, and government ethics regulations.

Under criminal law, bribery occurs when someone directly or indirectly gives, offers or promises anything of value to any public official with the intent to influence any official act. Essentially, a bribe requires a corrupt intent to influence an official--seeking a "quid pro quo"--but the official need not reciprocate to constitute a crime. The criminal illegal gratuity statute is violated when someone directly or indirectly gives, offers, or promises anything of value to a public official for or because of any official act. Unlike bribery, an illegal gratuity does not require a corrupt intent. The illegal gratuity statute prohibits rewards for past or future public acts.

The FAR conflict-of-interest provisions bar government employees from soliciting or accepting any gratuity, gift or item of value from a prohibited source. Those sources include anyone seeking business with the employee's agency, anyone conducting business regulated by the agency, or anyone with interests affected by an employee's official duties. Also, the FAR Gratuities Clause, found in most contracts and solicitations, allows contract termination if a contractor offered or gave a gratuity intending to obtain favorable treatment.

Finally, government-wide gift rules and the Defense Department Joint Ethics Regulation govern permissible gifts. These regulations bar government employees from seeking or accepting gifts from a "prohibited source" or gifts offered as a result of the employee's official position. A prohibited source includes a contractor or contractor personnel. "Gift" is broadly defined to include "any gratuity, favor, discount, entertainment, hospitality, loan, forbearance or other item having monetary value."

These definition-intensive legal distinctions sometimes raise more questions than answers. One resolution to these questions is a zero-gift policy, as suggested by Army counsel. But companies may decide to pursue legitimate activities--company-sponsored seminars, marketing or networking events, promotional items, meetings and sponsored travel. In those cases, practical, common sense ground rules should apply.

Exceptions often define the rule. For example, "modest items of food and refreshments, such as soft drinks, coffee and donuts, offered other than as part of a meal" are excluded. Also excluded are items with "little intrinsic value," or nominal value items. The law presumes that any gift with an aggregate market value of $20 or less (per occasion) is legal, provided that the market value of multiple gifts to the same official does not exceed $50 in a calendar year. This exception does not apply to gifts of cash or items such as stock, bonds or certificates of deposit.

An effective corporate policy on gifts should be tailored to company activities. For instance, if a company distributes promotional items or conducts seminars, those particular scenarios should be addressed. For sake of clarity, concrete examples should be integrated into policies. For instance, the "$20-$50" rule prohibits gifts with a market value above $20. But an official may not pay the excess value over $20 in order to accept the gift. Thus, an NBA basketball ticket costing $60 and offered to a contracting officer for $40 does not make the gift proper. Moreover, it bears repeating that no matter the value of a gift, if motivated by influencing official duties, it is illegal. So, giving a contracting officer a $I0 minor league baseball ticket to influence a GSA schedule buy is wrong.

Another example--the "coffee and donut" rule--could be helpful. Serving coffee and donuts out of the box and using paper cups on-site to a group of government employees is usually proper. If the coffee is served on fine china with full breakfast in a company's facilities, then it is improper. If a contractor pays the bill for brunch at the Ritz, then you and the official probably are breaking the law.

Policies reinforce the good judgment of employees if they are clear and simple. One final point: The overwhelming majority of government officials know where the lines are, and actually hold in higher esteem contractors who err on the side of no gifts. Questioning whether an action is ethical is a mark of professionalism.

James C. Fontana, a member of the NDIA Ethics Committee, is senior vice president, general counsel and corporate secretary of Alion Science & Technology Corporation. David Hickey, an attorney at the Greenberg Traurig law firm, and former U.S. Army officer, specializes in procurement law. Opinions expressed here are solely of the authors and are not intended to provide legal advice.
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Title Annotation:Ethics Corner
Author:Hickey, Dave
Publication:National Defense
Geographic Code:1USA
Date:Apr 1, 2005
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