IKEA’s charitable giving in Russia and the FCPA (Part One)

When I was about to go work in Russia in 2012, somebody suggested that I read Lennart Dahlgren’s memoir, Despite Absurdity: How I Conquered Russia While It Conquered Me. Dahlgren, the CEO of IKEA Russia during the late 1990s and early 2000s, was instrumental in establishing the furniture giant there.

In addition to addressing Dahlgren’s impressions of Russia on a spiritual level, the book chronicles IKEA’s attempts to maneuver through the corruption-riddled landscape without giving in.

Considering the significant presence today of the company there, many view IKEA’s experience as a template to doing business in Russia ethically. In spite of this, the book still isn’t available in English four years after its publication.

Throughout the book and in subsequent blog postings, Dahlgren touts his company’s ethical backbone. He details how he personally waited hours on end (and often, in vain) to speak with local officials, how he rejected legal advice to just “pay them,” and how he negotiated with corrupt officials without giving in to their demands. Leaving little doubt of his earnestness, Dahlgren discloses officials’ real names, how the company started construction before securing necessary permits, and he admits paying off a police officer in his personal life. In short, the account feels genuine, and it’s easy to accept Dahlgren’s repeated claims that Ikea never paid bribes in Russia.

But multiple times IKEA made donations to social programs in the Moscow Region. In this series of six posts, I’ll look at some of those contributions, and analyze whether they were compliant with the Foreign Corrupt Practices Act. I’m not assuming IKEA or anyone involved in its Russia business were subject to the FCPA or committed any FCPA offenses. Rather I’m using IKEA’s experience there to gauge how other companies and executives might analyze and confront the compliance landscape in Russia.

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While charitable contributions are certainly not prohibited, the FCPA guidance has placed a lot of parameters on the practice. The guidance says companies “cannot use the pretense of charitable contributions as a way to funnel bribes to government officials.”

It’s important to note that IKEA’s expansion in Russia occurred years before the FCPA guidance was published in late 2012, but the DOJ had released several opinions on that topic, and those opinions helped form the basis of the guidance.

The common theme in the opinion releases is that companies must conduct extensive due diligence on the recipients of a donation. At the same time, the donors have to maintain comprehensive internal controls that facilitate compliance.

The guidance boils down the assessment of donations into five questions, as follows:

1)     What is the purpose of the payment?

2)     Is the payment consistent with the company’s internal guidelines on charitable giving?

3)     Is the payment at the request of a foreign official?

4)     Is a foreign official associated with the charity and, if so, can the foreign official make decisions regarding the business in that country?

5)     Is the payment conditioned upon receiving business or other benefits?

While I can’t say how familiar Dahlgren might have been with the FCPA, it’s evident that he knew that charitable giving presented certain problems. In discussing alternatives on how IKEA might have dealt with the obstacles to opening a shopping mall, he writes, “We could have made a contribution, for example, to the construction of a stadium, but even this could have been construed in multiple ways.”

The next five posts in this series will analyze the interplay between the FCPA and IKEA’s donations in Russia, as described by Dahlgren (and translated by me from Russian into English).

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Ilya Zlatkin is a Chicago attorney focusing on business planning, intellectual property, and international entrepreneurship. Having passed the CFE exam, he is on track to become a Certified Fraud Examiner in early 2015. He can be contacted here.