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Harry Cassin
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Thomas Fox
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Russell A. Stamets
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Eric Carlson
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At Large: Will Covid-19 ‘crony charities’ trigger the next wave of FCPA fumbles?

The first reports appeared Saturday. They said businesses and individuals in some countries are under pressure to donate to Covid-19 relief charities that have close ties to government officials.

In Kazakhstan, the ruling political party registered a social fund in March, a week after the country reported its first case of Covid-19, the RFE/RL said. The party appointed the fund’s managers and named the deputy prime minister as chair.

In nearby Uzbekistan, the RFE/RL’s local service said “teachers, bankers, state employees, and others are being forced to donate to the Generosity and Assistance (Sahovat va Komak) Fund that was established on April 22 under orders of President Shavkat Mirziyoev.”

So-called crony charities aren’t new. In Myanmar, after a cyclone hit in 2008, international relief efforts were allegedly funneled through a well-connected local businessman and bank owner with ties to the then-ruling junta.

Two of last year’s biggest FCPA enforcement actions involved crony charities.

Russian telecom MTS Systems donated $1.1 million to charities linked to Gulnara Karimova, daughter of the late Uzbek leader Islam Karimov. Those donations were among the corrupt payments that came to light when MTS settled with the DOJ and SEC for $850 million.

Germany’s Fresenius Medical Care paid two doctors in Saudi Arabia at least $283, 000 in total. They didn’t do any work for Fresenius. But one of the doctors served as CEO of a charity founded by a senior government official, and the other doctor was on the board of a charity that the government owned and operated. Fresenius knew the Ministry of Health would award dialysis contracts only to companies supporting the charities. The firm resolved those and other FCPA violations in a $231 million settlement with the DOJ and SEC.

In 2016, the China subsidiary of Utah-based Nu Skin Enterprises, Inc. donated $150,000 to a charity, to buy the intervention of a party official into a local investigation. The SEC charged Nu Skin with violating the FCPA, and the company paid $766,000 to settle the case.

In an earlier enforcement action, drug-maker Schering-Plough’s Polish subsidiary donated about $75,000 to a charity. The head of the charity ran a government agency that paid for drugs purchased by state hospitals. Schering-Plough paid the SEC a $500,000 civil penalty to resolve that FCPA case.

The DOJ-SEC Resource Guide warns about donations to overseas charities. “The FCPA does not prohibit charitable contributions or prevent corporations from acting as good corporate citizens. Companies, however, cannot use the pretense of charitable contributions as a way to funnel bribes to government officials.”

The Resource Guide advises companies to consider five questions before donating to a charity in a foreign country:

  • What is the purpose of the payment?
  • Is the payment consistent with the company’s internal guidelines on charitable giving?
  • Is the payment at the request of a foreign official?
  • Is a foreign official associated with the charity and, if so, can the foreign official make decisions regarding your business in that country?
  • Is the payment conditioned upon receiving business or other benefits?

Also relevant is whether there will be a tax deduction for the donation. In most countries, an important result of any gift to charity is tax relief. The absence of a tax benefit can signal that the charity or a particular contribution isn’t legitimate.

When the SEC charged Walmart last year with violating the FCPA, the agency cited the “lack of a charitable donation policy” at a China subsidiary. Part of Walmart’s compliance remediation was to put in place global controls for charitable donations.

At least two current FCPA-related investigations involve overseas charitable contributions, according to data from FCPA Tracker. So far, no reported investigations involve Covid-19 crony charities. Will that change?

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