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If It Might Be Fun, It Must Be Illegal

Prague to Perth is a long haul — more than 15 hours of flying time. Breaking up the trip with a layover in Hong Kong is common, and for some people, necessary. And after long business meetings anywhere, walkabouts are expected. A chance to stretch the legs and clear the cobwebs.

No big deal. Except, apparently, to the prudes at the SEC.

The agency’s civil complaint against Pfizer said its Czech subsidiary

. . . paid for a group of Czech government-employed doctors and pharmacists to visit a Pfizer manufacturing facility in Perth, Australia. In connection with the site visit, Pfizer Czech provided sightseeing opportunities for the government doctors, including layovers in Hong Kong, visits to Australian landmarks, and additional free time in Australia at the end of the program.

The SEC didn’t say exactly which travel-related activities were a no-no. Maybe it was all of them together and not any one thing. Or maybe because Pfizer also paid millions in actual bribes, according to the DOJ, all other payments to government-employed doctors became fair game for the feds.

The language of the ‘promotional expenses’ exception (technically it’s an affirmative defense) isn’t complicated. Supposedly permitted are payments to foreign officials to cover expenses related directly to ‘the promotion, demonstration, or explanation of products or services as long as the payments are ‘reasonable and bona fide.’ See 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A).

Pfizer granted government-employed doctors from the Czech Republic a bit of R&R during and after their properly comped trips to Australia. But if the Pfizer folks were relying on the statutory exception, they got it all wrong.

They forgot, to paraphrase H. L. Mencken, that the SEC’s enforcement attitude is based on the  terrible, pervasive fear that someone, somewhere, is having fun.

The result? Companies will be afraid to pay any of the expenses mentioned in the Pfizer complaint. That means the exception will become even more meaningless, if that’s possible.

Did Congress ever intend such a dour and stingy interpretation of the promotional expenses exception? We doubt it.

Congress — like the rest of us — would know that customary business hospitality and normal human courtesies aren’t bribery. And any enforcement policy that says otherwise is silly and destined for failure.

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  1. Wow. I think this article misses the mark. Stop-overs in Hong Kong? Seriously? What about that relates to legitimate promotion.

  2. The site seeing and the extra time at the end in Australia a clearly out of bounds. It is a clear violation.

  3. You may be right. The problem is that when the SEC lists extra curricular activities, all of them are thereafter out of bounds. So now we have a laundry list of off-limit reimbursements that is hamstringing corporate hospitality. And every indication (from the Pfizer case and others) is that the list will always get longer and never shorter. So where does it end? — rlc

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