With the world economy significantly affected by the COVID-19 pandemic, many companies are struggling to survive and facing an acute need to retain existing business and obtain new business. This puts pressure on their business and marketing teams. As a result, proper management of the anti-corruption risks associated with business hospitality is even more important to avoid possible breach of applicable anti-bribery laws such as the US Foreign Corrupt Practices Act (FCPA).
Business hospitality, including gifts, meals, entertainment, transportation, lodging and per diems, that legitimately promotes cordial business relations or demonstrates a company’s products or services is a normal part of business relationships across the globe. However, business hospitality that improperly influences the behavior of the recipient to obtain or retain business advantages may result in actual or perceived anti-corruption violations, causing economic as well as reputational damage to the company. So, what are the things to look at when reviewing business hospitality expenses? This blogpost provides some practical advice to in-house legal and compliance professionals on the review and approval of business hospitality expenses.
As a general principle, business hospitality given to or received from third parties should be infrequent, modest in nature and consistent with the local law/regulations and standard industry practice in the country in question. It should have a legitimate business purpose. For example, meals on the company’s premises or modest refreshments as part of business meetings are typically acceptable, as well as low-value promotional items bearing the company’s name and logo such as calendars, pens, golf hats and tee shirts. However, cash or cash equivalents are generally prohibited because such gifts are rarely justified by a legitimate business purpose. Lavish or extravagant hospitality which is disproportionate or excessive when compared to normal business practices also generally is prohibited since it may improperly enrich the recipient in exchange for business benefits or create an expectation of a quid pro quo.
Besides the nature of the business hospitality, the circumstances of the giving or accepting may also provide insight about the underlying intent of the transactions and raise red flags of increased anti-corruption risks, for example:
- Is it given openly and transparently?
- Is it provided in response to a request by a public official?
- Is it given during a tender or contemporaneous with the award of any contract or the grant of any government license, permit or approval?
- Is the giver present when the business hospitality was/is received?
- Is the recipient a public official or family member of a public official?
- Is the recipient involved in the granting of business or government approval to the company?
- Is the business hospitality appropriate for the occasion?
- In the case of travel, lodging or related expenses, are the travel arrangements (stopovers, itinerary, etc.) and costs reasonable and directly connected to the legitimate business purpose of the travel, and are they transparent to and/or approved by the traveler’s supervisor or head of the relevant government agency to help avoid the risk of “double-dipping”?
Internal controls and approval procedures should be in place for business hospitality. For example, companies often use questionnaires to gather detailed information about the proposed business hospitality including its nature, recipient, circumstances, business purposes, etc. High-risk hospitality, usually meeting certain value and frequency thresholds or being given to high-risk recipients, often is subject to enhanced scrutiny by management and the legal/compliance department. During the review, it is important to make sure that the business hospitality is permissible under all applicable anti-corruption laws and regulations as well as any internal rules of the recipient’s organization, including any applicable government ethics rules. It is also important for the company to maintain accurate and complete records of the review process, including the questionnaires and approval records, and to record the business hospitality accurately in its books and records.
A basic checklist to consider for business hospitality would include:
- The business hospitality should be permissible under all applicable laws and regulations, including any internal rules or policies of the recipient’s organization or agency;
- The business hospitality should be offered, given or received for a legitimate business purpose;
- The business hospitality should not be given or received during a tender or bidding process to anyone involved or influential in the tender or bidding process or contemporaneous with the granting of any government license, permit or approval in the case of business hospitality for an involved or influential government official;
- The business hospitality should not be too frequent when combined with all other business hospitality provided to a particular recipient over the course of twelve months;
- The business hospitality should be given or received openly and transparently, including in the case of more significant expenditures (such as travel and lodging) with written notification to and/or approval from appropriate supervisors of the traveler and other safeguards to avoid “double dipping”;
- The business hospitality should not be lavish or extravagant;
- The business hospitality should not be inappropriate in the circumstances, indecent, illegal or of a type that could cause damage to your company’s reputation;
- Cash or cash equivalent gifts (e.g., gift cards or loans) are not permissible unless approved in advance by senior management and the legal/compliance department; and
- Business hospitality above specified monetary or frequency limits should be approved in writing by the senior management and the legal/compliance department before it is offered or accepted.
- Business hospitality should be accurately recorded in the company’s books and records, including all supporting documentation, and should reflect whether recipients are government officials.