Last month Amsterdam-based VimpelCom Limited and its wholly owned Uzbek subsidiary, Unitel LLC, paid U.S. penalties of $397.6 million to resolve FCPA offenses.
In its enforcement action, the SEC said that at least $114 million in bribe payments were funneled through an entity affiliated with an Uzbek official, and approximately a half-million dollars in bribes were disguised as charitable donations made to charities directly affiliated with the Uzbek official.
The head of the SEC’s Enforcement Division observed: “These old-fashioned bribes, hidden through sham contracts and charitable contributions, left the company’s books and records riddled with inaccuracies.”
The VimpelCom settlement is the latest example of FCPA enforcement involving philanthropic activities overseas. In our e-book on navigating anti-corruption compliance in emerging markets, we discuss enforcement actions and guidance for charitable contributions.
In 2004, for example, the SEC levied a US$500,000 civil penalty against Schering-Plough related to charitable contributions with corruption implications in Poland. The SEC alleged that Schering-Plough, through a local subsidiary, made payments to a Polish charitable organization in order to persuade the head of the charity — a government official — to purchase Schering-Plough’s products.
The charity was bona fide and not set up by a government official as a conduit for bribery. As a result, due diligence on the charitable organization itself would not have been sufficient to identify the foreign bribery risk. But had Schering-Plough implemented procedures to vet the underlying purpose of the donation, the corrupt intent might have been identified.
While the SEC did not allege that the U.S. parent knew about the improper payments by the local subsidiary, it nonetheless held the U.S. parent liable for the actions of its subsidiary.
The DOJ also provides guidance on the FCPA implications of charitable contributions (and other payments) through opinion procedure releases issued in response to the specific inquiries of businesses and nonprofits. Although each opinion procedure release is explicitly confined to the facts presented in the opinion, the principles discussed are instructive for companies and their foundations in connection with international charitable giving.
In Opinion Procedure Release 95-01, the DOJ expressed the view that a $10 million donation by a U.S. energy company in South Asia for the construction of a medical facility near one of the company’s energy plants would not violate the FCPA.
The company had stated to DOJ that it would make the donation via a U.S. charitable organization and a public company in the host nation; would require certifications that “none of the funds [would] be used, promised, or offered in violation of the FCPA”; and would ensure “that none of the persons employed by or acting, on behalf of the charitable organization or the limited liability company are affiliated with the foreign government.”
The company also stated that it would “require audited financial reports from the U.S. charitable organization, accurately detailing the disposition of the donated funds.”
This example demonstrates that implementing safeguards and conducting due diligence on a donee can minimize the risk of FCPA violations.
The DOJ has issued opinion procedure releases regarding charitable organizations funding training or travel for foreign government representatives.
In Opinion Procedure Release 08-03, the DOJ advised that it did not intend to take any enforcement action in connection with a payment by TRACE, a membership organization specializing in anti-bribery initiatives, to journalists from the People’s Republic of China to enable them to attend a TRACE-sponsored press conference in Shanghai.
The DOJ noted that the payments for travel expenses fell “within the FCPA’s promotional expenses affirmative defense in that the expenses [were] reasonable under the circumstances and directly relate[d] to ‘the promotion, demonstration, or explanation of [TRACE’s] products or services.’”
And in Opinion Procedure Release 96-01, the DOJ did not find any issue with an environmental nonprofit organization providing travel, lodging, and meal expenses for government representatives from regional countries to attend training courses in the U.S. The key fact appeared to be that the nonprofit did not seek to obtain or retain business with the regional governments.
Critically, the DOJ emphasized that anti-corruption risks can be minimized if funding is provided directly to a government entity, rather than to an individual government official or a charity designated or suggested by the government official.
In Opinion Procedure Release 97-02, the DOJ stated that the FCPA did not apply to a $100,000 donation to construct an elementary school in Asia, because the money would be given directly to a government entity as opposed to an official of that government.
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Our e-book, Anti-Corruption Compliance in Emerging Markets: A Resource Guide, is available here (pdf).
In addition to discussing enforcement actions and guidance , our e-book explains the importance of clear policies on charitable contributions and the critical role of controls, which we wrote about for the FCPA Blog here and here.
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.