In the e-book we wrote as a guide to navigating corruption challenges in emerging markets, we talk in one chapter about guarding against anti-corruption problems in connection with philanthropic and grant-giving activities.
Many individuals and corporations actively support charitable causes around the world. The need to support worthwhile charitable projects in many developing markets is particularly acute due to local needs, the
lack of government funding, and the lack of an adequately developed infrastructure.
Local officials in developing markets often ask multinational companies for support and funding for philanthropic activities. While support for such activities is often appropriate and worthwhile, interactions with government officials in connection with such activities can raise corruption risks under applicable anti-corruption laws, including the FCPA, when anything of value is given in expectation of a benefit in return.
In this regard, the FCPA prohibits paying, giving, offering, promising, or authorizing any “payment” (the term includes “anything of value”) to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person. The scope of the FCPA is not limited to payments made directly to foreign officials; it also prohibits payments to nominally charitable organizations, if those payments are made for improper purposes.
Accordingly, effective compliance controls involving charitable contributions are essential in designing and implementing an effective compliance program in developing markets.
Anti-corruption issues may arise when for-profit business make philanthropic contributions: for example, where foreign officials have a direct or indirect interest in a particular charitable donation or have asked that a contribution be made to a particular charity. When something “of value” is provided and a government official receives a direct or indirect benefit, there is a risk that anti-corruption laws, including the FCPA, may be violated.
Nonprofits, NGOs, and charitable organizations also operate in emerging markets. Anti-corruption issues may also arise when a charitable organization or persons acting on its behalf operate in developing markets.
Violations can occur as a result of interaction with any foreign official, which may include the following:
- regulatory authorities
- customs or taxation officials
- employees of a state-controlled business or other entity (including, for example, medical personnel in a state-controlled hospital or public health service), or
- any other government employees.
The foreign official’s rank is not determinative, because anti-corruption laws apply to interactions with junior as well as senior government officials. The focus is on whether the payment’s purpose is corrupt, rather than on the rank of the party receiving it.
Notably, concerns could arise in connection with conduct that is common in the cultures of many developing markets and might be expected by some foreign officials as a condition for doing business in a market. For example, corruption issues may arise whenever travel, lodging, meals, or entertainment are provided for foreign officials in interactions with charities, such as in connection with visits to facilities, meetings, and other business-related or philanthropic activities.
Charitable contributions and grants made or offered with the intent to influence a government official improperly to obtain new, or retain ongoing, business are prohibited by the FCPA, the U.K. Bribery Act, and other anti-corruption laws.
Proscribed charitable contributions can take many forms, including:
- Direct or indirect payments in support of a charitable organization, whether in the form of a donation or a grant
- Corporate sponsorships
- Product donations (e.g., product samples used for fundraising or distribution for disaster relief)
- Donation of office spaceWork performed by company or foundation employees for a charity during paid work hours
- Purchase of tickets to fundraising events, or
- Payment for advertisements, printing, product donations, or other expenses on behalf of charities.
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In the next posts, we’ll talk about choosing partners and donee organizations to minimize anti-corruption risks, establishing clear guidance for your organization on charitable giving, and ensuring that the appropriate compliance controls are in place and effective.
Our e-book, Anti-Corruption Compliance in Emerging Markets: A Resource Guide, is available here (pdf).
Keith Korenchuk is a partner in Arnold & Porter’s Washington, DC office. He counsels and advises global companies on regulatory and compliance matters worldwide, with a focus on compliance program effectiveness, compliance program implementation, operations and evaluation, and related regulatory counseling and advice.
Samuel Witten is counsel in Arnold & Porter’s Washington, DC office. He helps companies develop and implement FCPA compliance programs. He also represents clients in arbitrations at the International Center for Settlement of Investment Disputes. He joined Arnold & Porter in 2010 after serving for 22 years in legal and policy positions at the U.S. Department of State.
Arthur Luk is a partner in Arnold & Porter’s Washington, DC office. He represents corporations; directors, officers, and executives; and “Big 4” accounting firms and individual auditors in investigations conducted by the DOJ SEC, and Public Company Accounting Oversight Board, and in securities class actions and shareholder derivative suits.