Nearly every anti-corruption compliance programme needs to include the implementation of policies and procedures for overseeing third party payments to entities – such as government officials and business partners – and other costs incurred in external activities – such as promotions and demonstrations. Failure to correctly record third party payments and gift exchanges can lead to penalties for keeping inaccurate books and records.
Given the confusion which may arise as to which gifts and entertainment can and cannot be given or accepted, companies are progressively implementing discrete gifts and entertainment policies to provide guidance for employees and avoid potential conflicts of interest. Some of these policies have involved a method of recording gifts exchanged to help uncover potentially improper payments (hidden behind “business meals”, etc.) and to provide a platform for future reference.
Such policies will prevent ambiguity and help to guide employees when they face potentially unethical and illegal conduct. In addition to these policies, companies must also provide on-going support on how their employees should comply with the rules, especially those employees who interact regularly with business partners. Transparency should be encouraged so each member of staff can feel comfortable about asking their manager or compliance officer how to deal with difficult situations involving gifts and entertainment.
The recently-published A Resource Guide to the US Foreign Corrupt Practices Act, released by the Department of Justice and Securities Exchange Commission, has a section on gifts, travel and entertainment. Using hypotheticals, the guide explains that promotional items (such as pens, or beverages at a trade show) are legitimate, as are bona fide expenses which would not motivate an enforcement action. However, the DOJ and SEC stated that “the larger or more extravagant the gift, however, the more likely it was given with an improper purpose”. Monitoring should be focused on those larger-valued gifts, ensuring that there is a legitimate reason for those gifts, whether they have been given or received.
Considering the increasing and on-going risk in this area, and the different approaches that can be taken by a company in managing the exchanging of gifts between them and their business partners, The Red Flag Group has conducted a study on the gift policies of companies from different industries, to identify similarities, differences and gaps.
The companies chosen for this study are on the Fortune and Global 500 list. They have also been categorised into the following industries:
- parcel services
- pharmaceutical and healthcare.
The criteria used when conducting this study came from The Red Flag Group’s consideration of what a comprehensive gift policy should cover, and includes
- gift limit (i.e. whether a company provides a limit on what a member of staff is permitted to accept or give)
- what a company employee is permitted to accept
- what a company employee is permitted to give
- what a company employee is not permitted to accept
- what a company employee is not permitted to give
- the existence of a recording system for any gifts accepted or given
- the existence of an approver or a consulting body which an employee goes to when exchanging gifts.
We have also identified phrases which a company uses to describe its gifts and entertainment, which, apart from the words “gifts” and “entertainment”, were found to include “gratuities” and “favours”. Some companies have provided a definition on these terms in their policies, and some companies followed up with examples.
During the study, the following observations were made:
- Many of the organisations were not found to have publicised gift, travel and entertainment policies. Related information was found on the company websites or in their codes of conduct; some had one page on this topic, whilst others had one section.
- Some companies had greater focus on receiving gifts and entertainment, rather than what they were authorised to provide. Going on from this, companies seem to be more adamant on expressing the principle “we do not accept bribes” rather than focus on “we do not provide bribes”, the former of which they have less control of, and thus feel a need to publicise more, whilst leaving the latter for an internal policy. Some businesses provided general guidelines on when a gift is inappropriate, rather than an exact dollar limit or a list of what can be exchanged. This may be because they include these limits or lists in their internal policies, or that the nature of their business means there are not many dealings with third parties, thus only warranting an outline of the approach.
- Several companies made reference to the FCPA in their gift policies, and had dedicated paragraphs or sections on the exchange of gifts with government officials (see Wells Fargo, Shell and Verizon).
- If specific monetary limits were stipulated, they were either a global limit across all business units, or dependent on the location or business function.
- Compliance as a function was not mentioned in the gift-exchange rules of several organisations; employees were generally directed to their manager, human resources department or the local legal department. This may mean that compliance does not exist as a separate function, or that the structure within these companies means that compliance only comes in as a training function, whereas the daily consultative role is left to managers, human resources and legal.
- There was no significant difference in the gift rules between different industries. Many stipulated US$50 as the dollar limit, and had the same approach on cash or cash equivalents (that they could not be given or accepted).