The affirmative defense for promotional expenses has always been a riddle, which explains why it appears so often among the Justice Department’s Opinion Procedure Releases, including both Releases so far this year. Congress added it to the U.S. Foreign Corrupt Practices Act in 1988, to allow businesses to pay travel expenses of foreign officials. The expenses, the law says, must be “reasonable and bona fide” and related directly to “the promotion, demonstration, or explanation of products or services.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A).
That sounds simple enough, but there’s a problem. If an expenditure is reasonable and bona fide, it is not a corrupt payment. If it is not a corrupt payment, it is not prohibited by the FCPA. In that case, what’s the purpose of the affirmative defense? Congress itself created this conundrum with its eyes wide open. The notes to the 1988 House and Senate Conference agreement say in relation to promotional expenses: “If a payment or gift is corruptly made, in return for an official act or omission, then it cannot be a bona fide, good-faith payment, and this defense would not be available.” In other words, if the payment violates the FCPA to begin with, this affirmative defense doesn’t work, period.
So when is it safe to pay for a foreign official’s trip? Only when there is no corrupt intent — that is, no expectation that in return for the trip, the foreign official will misuse his or her authority to obtain or retain business or gain an unfair advantage for any party. To be practical, proving the absence of a corrupt intent in this scenario is difficult. Why invite foreign officials for a visit unless they have some connection with the company’s business in the first place? But if they have the power to help the business, inviting them on the trip implies an expectation that they will use their power corruptly. That implication has to be refuted by the weight of the evidence.
That’s why prudent companies and their lawyers produce long lists of facts showing the host’s innocent state of mind concerning the visit. No role in selecting the guests. No company-related new matters in their ministry. No advance funds or reimbursements in cash. No expenses for spouses, family, or other guests. No funding or organizing of any entertainment or leisure activities. No side trips. No stipends or spending money. No souvenirs unless they carry the host’s name and/or logo and are of nominal value, e.g., shirts or tote bags. It all sounds less like hospitality and more like a stay in the hospital.
True, the affirmative defense for promotional expenses was never intended to be a blank check to buy influence from foreign officials. But at least it should give Americans a chance to invite guests home, show them some basic hospitality, and brag a bit about the goods and services on offer. That cannot happen, however, as long as the law is tied up in knots and American businesses are caught in the tangle. The question is whether Congress, the DOJ or the courts will ever come to the rescue?
View Other Posts Dealing With Promotional Expenses Here.