In this series, we’re looking at IKEA’s charitable contributions in Russia during its expansion there in the 1990s and early 2000s. In Parts Two and Three, I presented quotes from the memoir of the former CEO of IKEA Russia, Lennart Dahlgren. He describes with apparent candor why some of the charitable contributions were made and the impact they had on IKEA’s business. We continue the analysis here, reviewing an episode related to IKEA’s attempt to open a shopping mall, MEGA.
“At a meeting with [an official within the administration of Khimki, a district in Moscow Region], I promised that the Khimki district would receive $1 million to support youth sports. This charitable contribution would only become payable after we received all necessary permits, and after the shopping mall in Khimki opened its doors to customers. I purposefully made this statement in the presence of mass media, in order to provide maximum transparency and properly inform the residents of the city about this.”
IKEA faced numerous obstacles from the Khimki and Moscow Region governments in implementing this plan. Ultimately, IKEA succeeded in opening the mall.
As to the donation Dahlgren promised? “Speaking in front of journalists,” he writes, “we confirmed our intent to pay $1 million to support youth sports in Khimki, regardless of the fact that the administration did not allow us to open completely on time.”
But the incident doesn’t end there. Around that period, there were civil protests by pensioners and the mayor of Khimki was feeling the heat. The mayor sent a letter to Dahlgren requesting to reallocate the donated funds to other social issues, specifically the needs of the elderly. “Understanding that the mayor was in a difficult situation, I acquiesced to his request,” Dahlgren writes. But he also says that even after this compromise, the mayor continued to be an opponent of IKEA.
In this example, we see how a charitable gift might be conditioned on the receipt of a particular business advantage. (As I outlined in Part One, that is one of the questions that the FCPA guidance wants answered.) At the same time, it is clear that Dahlgren does not see anything wrong with IKEA’s actions, as he specifically invited journalists to record his offer.
When the mayor asked for permission to reallocate the funds toward the needs of the elderly, did IKEA investigate the recipient? The FCPA guidance and, more importantly, DOJ FCPA opinion releases 80-01, 95-01, and 97-02, which existed at the time of these events, require due diligence about the organization receiving the gift.
Did IKEA in this instance choose a legitimate youth sports program to begin with? Dahlgren does not delve into details about how the company chose the recipients — aside from having discussed an official’s affinity for sports, which, in itself, seems like a problematic criterion for FCPA purposes.
We’re not assuming IKEA was subject to the FCPA during the 1990s and early 2000s when these events happened, or that any FCPA violations might have occurred. But we’re looking at IKEA’s Russia experience to learn more about charitable giving under the FCPA.
In the next post, I’ll provide a final instance of charitable contributions discussed in Dahlgren’s memoir.
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.