In Uber’s first-ever SEC filing last week, it disclosed a two-year old FCPA investigation in five countries, including Indonesia and Malaysia. What might have gone wrong in those countries? Here are some clues.
Indonesia. Uber said the DOJ is asking about “small payments to police in Indonesia.” Uber didn’t say what the payments were for, or how “small” they were.
But press reports from 2017 said the police were paid to “turn a blind eye to the fact that [Uber] was operating a support office for local drivers outside the registered business zones of the capital, Jakarta.”
Who knows what happened at Uber? But when companies talk about “small payments,” as Uber did in last week’s FCPA disclosure, that can be a reference to supposed facilitating payments.
Some countries allow grease payments overseas. Among them are Australia, New Zealand, Switzerland, and the United States. But the U.S. exception for facilitating payments is narrow and it’s easy to confuse a legal facilitating payment for a bribe that’s illegal under the FCPA.
In the FCPA, an exception allows payments for “routine governmental action . . . which is ordinarily and commonly performed by a foreign official.” See 15 U.S.C. §§78dd-1 (b) and (f) (3) [Section 30A of the Securities & Exchange Act of 1934].
More often than not, bribes first identified as permitted grease payments do not fall within the exception after all. Sometimes the purpose of the payments makes them unsuitable, or the recipient’s identity or role, or even the timing or size of the payments. In other words, a lot can go wrong.
Anyone relying on the exception should be prepared to defend it — that is, the burden of proof is on the one asserting the exception as a defense to an FCPA violation. Dollar thresholds alone aren’t reliable. Bribes aren’t facilitating payments just because they’re small.
Malaysia. According to reports from 2017, Uber made a corporate donation of “tens of thousands of dollars” that it made to the Malaysian Global Innovation and Creativity Center, a government-backed accelerator for entrepreneurs.
“Within a year, a Malaysian government pension plan sponsor had invested $30 million in Uber and Malaysia’s government had passed legislation favorable to Uber.” MGICC denied any improper quid-pro-quo, reports said.
Can charitable contributions violate the FCPA? Yes, if they benefit government officials and are intended to obtain or retain business or gain an unfair advantage. But there isn’t much enforcement precedent to go by.
In 2016 Utah-based Nu Skin Enterprises, Inc. paid almost $766,000 to settle SEC charges that it violated the internal controls and books-and-records provisions of the FCPA. The FCPA violations arose from a $150,000 payment Nu Skin’s China subsidiary made to a charity so that a high-ranking Chinese Communist party official would intervene in an on-going provincial agency investigation.
Before that, Schering-Plough — the maker of Afrin, Claritin, Coricidin, Cipro, and other drugs. It was once charged under the FCPA for its overseas giving. According to the SEC’s 2004 complaint, Schering’s Polish subsidiary donated about $75,000 to a charitable organization. The organization was headed by an individual who was the director of the Silesian Health Fund when the donations were made. The Silesian Health Fund was a Polish governmental body that funded the purchase of pharmaceuticals by government hospitals.
In its settlement with the SEC, Schering-Plough paid a $500,000 civil penalty and retained an independent consultant to review its FCPA compliance program.
During a 2007 conference, Mark Mendelsohn, then head of the DOJ’s FCPA unit, said charitable donations have to be considered on a case-by-case basis. Is there a nexus between the charity and any government entity from which the company is seeking a decision? If the governmental decision-maker holds a position at the charity, that’s a red flag. Is the donation consistent with the company’s overall pattern of charitable contributions?
Other smell tests: Who’s idea was the donation? If it benefited a government official, did that person hint or beg for a payment to the charity?
Will there be a tax deduction for the donation? In most countries, one important result of any gift to charity is tax relief. Therefore, not seeking the tax benefit can become another warning sign.
These are some of the questions the feds may be asking Uber about its donation to the Malaysian Global Innovation and Creativity Center.
Here’s the FCPA disclosure from Uber’s S-1 filed April 11, 2019, courtesy of FCPA Tracker:
We received requests from the DOJ in May 2017 and August 2017 with respect to an investigation into allegations of small payments to police in Indonesia and other potential improper payments in other countries in which we operate or have operated, including in Malaysia, China, and India. The investigation is ongoing, and we are cooperating with the DOJ in this investigation. If we are determined to have violated the FCPA or similar laws, we may be subject to criminal sanctions and other liabilities, which would adversely affect our business, financial condition, and operating results.
Richard L. Cassin is editor at large of the FCPA Blog.