Charitable Giving, Government Support and Concession Requests, and Anti-Corruption Compliance in the Time of the Coronavirus Pandemic
The COVID-19 pandemic has created hardships across the globe at unprecedented levels – with practically no region or industry unaffected. Governments at all levels across the globe, along with non-governmental and transnational organizations, are struggling to address the overwhelming and urgent public needs created by the pandemic. Public services are being disproportionally impacted, particularly as governments and aid organizations try to obtain increasingly scarce essentials, such as cleaning and medical supplies, as well as personal protective equipment (“PPE”). In the face of this new reality, the private sector is being asked to alleviate some of the burden on government agencies and public programs, leading to an increase in requests, not only for donations of goods, but also critical services such as employee transportation.
Despite the unprecedented circumstances created by the pandemic, companies should still consider the legal requirements and restrictions of applicable anti-bribery and anti-corruption laws, such as the Foreign Corrupt Practices Act (“FCPA”), and the possible consequences of not following those laws. While companies should be commended for “doing good” during these unprecedented times, the pandemic is not a defense to violating the law, and charitable contributions, the donation of goods and services, concessions, and other assistance should continue to be evaluated and carried out within the framework of the company’s anti-corruption compliance program, the company’s charitable contributions policy and the legal requirements of the FCPA and other anti-corruption laws.
Under the FCPA, charitable contributions, concessions, and donations of goods and services cannot be provided where: (1) they will benefit, either directly or indirectly, a foreign official; or (2) the purpose is to influence any act or decision of that foreign official, induce a foreign official to do or omit any action in violation of his/her lawful duty, secure an improper advantage, or induce the foreign official to use his/her influence to affect an official act or decision. Maintaining a line of impartiality and applying appropriate anti-corruption compliance procedures is critical to the determination of whether the charitable contribution or donation of goods or services is allowable.
While the COVID-19 pandemic is a recent phenomenon, one can look at past cases brought by the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) to understand how U.S. government enforcement authorities will likely enforce the FCPA against companies for blurring the lines between corporate social responsibility and illegal actions. The following are examples of government enforcement actions involving charitable contributions:
- Between 1999 and 2002, Schering-Plough Corporation’s (“Schering-Plough”) Polish subsidiary made improper payments to a charitable organization that was headed by an individual who was the director of a Polish health fund. The health fund was a Polish government body that, among other things, provided funds to purchase pharmaceutical products and influenced other entities, such as hospitals, to purchase certain pharmaceutical products through the allocation of heath fund resources. According to the SEC, Schering-Plough’s Polish subsidiary paid approximately $76,000 to influence the health fund’s purchase of Schering-Plough’s products. In 2004, without admitting or denying the SEC’s allegations, Schering-Plough consented to pay a $500,000 civil penalty. (See https://www.sec.gov/litigation/litreleases/lr18740.htm).
- Between 2000 and 2003, Eli Lilly & Company’s (“Lilly”) Polish subsidiary made payments totaling $39,000 to a small charitable foundation that was founded and administered by the head of one of the regional government’s health authorities. According to the SEC, Lilly’s Polish subsidiary was making these payments at the same time it was seeking the same official’s support for placing its drugs on the government reimbursement list. As part of a larger settlement, in 2012, Lilly agreed to pay over $29 million in penalties and disgorged profits. (See https://www.sec.gov/news/press-release/2012-2012-273htm).
- More recently, in 2013, the Chinese subsidiary of Nu Skin Enterprises, Inc. (“Nu Skin”) made a decision to donate approximately $150,000 to a charity identified by a foreign official. The purpose of the donation to the charity was to obtain the influence of that foreign official to impact an on-going provincial investigation against Nu Skin’s Chinese subsidiary. Ultimately, Nu Skin paid nearly $800,000 in disgorged profits, prejudgment interest and a civil monetary penalty. (See https://www.sec.gov/litigation/admin/2016/34-78884.pdf).
There are a number of ways companies can mitigate the potential risks of violating the FCPA while still offering assistance to strapped and deserving governments and programs. What follows are some questions to think about when considering making a concession or donation of goods and services:
- Who is making the request? Is the request coming in from an individual foreign official? Does the company have any open matters before the government agency? Are there any risks the contribution could be viewed as an improper quid pro quo? Without a doubt, requests made by a foreign official in an individual capacity are more likely to raise red flags than a request made by an agency or entity, particularly if that individual has any discretionary authority over matters that could impact the company. Companies should consider the optics of any request to evaluate any semblance of reciprocity. If the company has an open matter before a government agency, such as permit application, the charitable contribution or donation of goods and services may merit more scrutiny. When possible, the company should endeavor to make the donation through a legitimate and reputable charitable organization to increase the distance between the company and government agency or official.
- Who will benefit from the donation or concession? Will the donation be provided to a needy population? Or will the donation be benefiting an individual in some capacity? The purpose of the donation is paramount. Donations that benefit an individual or public official – especially one who has regulatory oversight or who can influence a company’s business – should not be made. However, if the donation will contribute to a broader relief effort, it is less likely to cause concern. In any case, the company should verify that the donation will be used for the legitimate purpose for which it was intended. Additionally, wherever possible, the donation should go to an entity, not an individual.
- Who else was asked to donate? Was the company specifically targeted? Or was a group of companies approached? A targeted request is more likely to be seen as a suspicious solicitation, whereas a more generalized request to a group of companies or an industry as a whole is generally less concerning.
- Was the request made publicly? If the official or agency is attempting to limit publicity of the request or is otherwise controlling the transparency of the charitable contribution or donation of goods and services, the company should be cautious. The more public the request, generally, the lower the compliance risk. Any efforts on the part of the requester to limit that transparency should raise questions about why the requester is seeking to maintain secrecy. The company should attempt to extensively document the donation, including retaining a letter from the requester outlining the request and the reason for the donation, wherever possible. The documentation should make clear what was requested, what is provided, and where it is going, and the more detailed, the better. For example, if medical devices are being provided, the serial numbers should be inventoried to ensure the devices are traceable. Indeed, the company should make sure that information is publicly available (such as by listing the serial numbers on the transmittal letters and on its website), so that the product can be traced to the donation and the entity accepting the donation. Public disclosure will also minimize the risk that the charitable contribution or donation of goods or services are not converted to the personal use or benefit of a foreign official.
- What is the value of the donation? Under the FCPA, providing anything of value can cause FCPA liability, as there is no de minimis exception. Thus, the company should always consider the value of any charitable contribution or donation of goods and services and whether such value would violate any company policies or local laws limiting the value of anything that can be given to a foreign public programs and government agencies. If a service is being provided, the value of the donated service may accrue over time, making the monetary value limits problematic. Additionally, companies should always be incredibly cautious of purely monetary requests, as it is more difficult to trace monetary instruments after they have been provided to a foreign public program or government agency.
Answering these questions and applying applicable anticorruption compliance guidelines will go a long way towards minimizing a company’s risk under anti-bribery laws, including the FCPA. Importantly, private companies should use common sense when deciding how to move forward with any charitable contribution or donation of goods and services. Indeed, any decision to donate should be made in an open and transparent manner and based on objective criteria – in compliance with its own anticorruption compliance guidelines and charitable contributions policies. Moreover, the company should also make sure that any actual concession or donation is described accurately and with adequate detail in the books and records. Beyond the serious but more limited natural disaster or relief efforts we have seen in the past, this scenario has made it clear that companies may want to consider anticipating how to handle an emergency response in the future, including the development of some sort of expedited review procedure.
There is no bright line rule for how to respond to requests for charitable contributions, concessions, or donations of goods and services, particularly in a true emergency like the COVID-19 pandemic the global community is now facing. The specific circumstances of each request or opportunity merits an individualized analysis, but with proper consideration, companies wanting to contribute and offer assistance will be able to take comfort that they are not only “doing good,” but are doing so in a way that will not also increase the risk of government enforcement.
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