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

This is the second post in a series analyzing IKEA’s charitable contributions during its expansion efforts in Russia during the late 1990s and early 2000s. In the first post, I talked about Lennart Dahlgren’s memoir, Despite Absurdity: How I Conquered Russia While It Conquered Me, which has not been published in English. And I summarized the DOJ’s guidance on charitable contributions under the FCPA.

Let’s look now at examples of how IKEA managed its expansion and operations in Russia while trying to remain completely compliant.

As mentioned in the prior post, we aren’t assuming Ikea was subject to the FCPA during its Russia expansion or that any FCPA violations happened. But we’re using IKEA’s experience to analyze some practices under the FCPA.

The first example involves IKEA’s second store in the Moscow Region. Here’s what Dahlgren said:

“[Having succeeded in rezoning land to IKEA’s needs], we still needed to cut down existing trees – of course, only after receiving all necessary permits. But who could have known that it would be impossible to receive a permit to cut trees in a forest that didn’t formally exist . . .

“How could we get permission to cut down the trees? We didn’t know. The problem was resolved with assistance from Mikhail Men’, the deputy governor of Moscow Region, who was a big sports aficionado. The Russian branch of IKEA made a large contribution to the development of youth sports in the Moscow Region. After this we could cut down trees and we were permitted to start construction.”

If we take Dahlgren’s words on their face, the purpose of the contribution was to obtain permits to cut down trees that were obstructing IKEA’s construction program

The FCPA guidance, as we said in the prior post, 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?

Let’s assume this donation is consistent with IKEA’s guidelines on charitable contributions and that the donation wasn’t made at the request of Men’, the foreign official. At the same time, we cannot determine whether Men’ was directly associated with the charity or whether there were any conditions attached to the gift.

We do know, however, that Men’ could influence the outcome of decisions relevant to IKEA, and Dahlgren seems pretty explicit in this regard. Even if Ikea performed all the necessary due diligence on the charity, the direct effect on IKEA’s business operations supports that this particular donation could have violated the FCPA.

In the next post, we’ll look at another example of IKEA’s business practices in Russia, as described by Dahlgren.

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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.