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Best Practices to Avoid Common FCPA Violations: Gifts, Meals, and Entertainment

As our previous posts illustrate, violations of the Foreign Corrupt Practices Act (“FCPA”) can carry a hefty cost. Two issues are commonly the impetus for FCPA violations and, practically speaking, pose significant FCPA compliance challenges. Automotive companies which conduct international business should be particularly sensitive to (1) providing gifts, meals, and entertainment to potential and existing customers, and (2) using third-parties abroad. This post will cover the first issue, and we will discuss the issue of third-parties abroad next week.

auto industry FCPA foreign corruption

Gifts, Meals, and Entertainment

In short, automotive companies may provide meals and entertainment, if in good faith, without corrupt intent, and with no expectation of a favor. For example, business meetings commonly occur over a meal, and one party may pick up the tab as a business courtesy or marketing expense. In many cultures, to forego gift giving would offend the sensibilities of potential customers. Unfortunately, these practices create a “grey area” in which it is difficult to understand what violates the FCPA and what does not.

As mentioned in our post regarding FCPA defenses, meals, gifts, and entertainment must be (1) directly related to a legitimate business purpose and (2) reasonable in value. Consider the following best practices to avoid providing improper meals, gifts, or entertainment:

  • Cash, or its equivalents, should never be provided to government officials.

  • Company personnel should always be in attendance at the meal or event.

  • Meals, gifts, and entertainment should be provided only in accordance with generally accepted business standards.

  • Meals, gifts, and entertainment expenses need to be properly documented and recorded.

In addition, problems with gifts, meals, and entertainment often arise in the context of customer visits. Automotive companies may pay for a customer’s legitimate expenses incurred to visit a production facility or a product demonstration. But, if that customer is a “foreign official” as defined by the FCPA, the host company should carefully analyze the scope of expenses incurred. For example, the host company may not cover the expenses of a foreign official’s spouse, unless there is a legitimate business reason for doing so (i.e.that person is also a decision maker).

Similarly, the host company may not pay for the foreign official to spend a few days sightseeing. Moreover, the host company must avoid reimbursing the foreign official directly for expenses incurred. Instead, the host company should pay the expenses directly to the vendors and service providers. These practices may complicate logistics, but properly handling gifts, meals, and entertainment will substantially reduce the chances of an FCPA violation.

Of course, FCPA analyses depend on specific facts and circumstances, but automotive companies should be mindful of the foregoing guidelines. And automotive companies should contact counsel when dealing with potential FCPA problems or designing compliance programs and materials. Check back next week for the post discussing the use of third-parties abroad.

© 2020 Foley & Lardner LLPNational Law Review, Volume V, Number 344

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About this Author

Jaime Guerrero, White collar criminal defense attorney, Foley law firm
Partner

Jaime Guerrero is a partner and litigation lawyer with Foley & Lardner LLP. Mr. Guerrero focuses in the areas of government enforcement actions, white collar criminal defense, Foreign Corrupt Practices Act ("FCPA") investigations, accounting litigation, securities litigation, and partnership disputes. He represents companies and individuals in parallel civil and criminal proceedings initiated by regulatory and prosecuting agencies for a variety of alleged wrongdoing and business disputes. Mr. Guerrero has conducted internal investigations, in both English and Spanish...

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Associate

Nicholas Williams is an associate and litigator with Foley & Lardner LLP. His practice focuses on general commercial litigation, including non-compete, construction, white collar defense, and bankruptcy litigation. Mr. Williams has successfully obtained judgments and negotiated settlements for clients, including regional and national banks, in commercial disputes. He is a member of the firm's Legal Innovation Hub® for NextGen Manufacturers.

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