Gifts & Hospitality & Travel Facilitation Payments Federal Government Debarment

Transcription

1 Gifts & Hospitality & Travel Facilitation Payments Federal Government Debarment December 8 & 11, 2014 Lexpert Anti-Bribery and Corruption Compliance: Coping with the Onslaught Calgary/Toronto Brenda C. Swick bswick@mccarthy.ca

2 CFPOA Provisions Related to Gifts, Hospitality and Facilitation Payments 1 Exceptions Promotional expenses Facilitation payments Accounting Charitable Donations Federal Government Debarment Best Practices/Red Flags/Compliance

3 Gifts Hospitality & Travel Payments Permissible gifts, entertainment or travel expenses must be: Reasonable and bona fide Directly related to (i) (ii) the promotion, demonstration or explanation of products and services; or the execution or performance of a contract with the foreign government Examples include: Sponsorship of seminars or educational programs for foreign officials on your company s products or services Tours of company facilities Payments should be fully documented, supported by original receipts and properly approved 2

4 Factors for Consideration 3 Determine whether gifts, entertainment or travel expenses are reasonable and bona fide by considering several factors; 1. Purpose of the expenditure (articulated & business-related) 2. Whether expense complies with local law 3. Whether the amount is reasonable 4. Whether the method of selecting the recipients is reasonable 5. Whether method of payment for travel is made directly to official or third party 6. Whether expenditure is accurately reported in books and records

5 1. PURPOSE of expenditure 4 Business-related: should be Gifts Related to promotion, demonstration or explanation of company product/service Necessary for the performance of an existing contract with the foreign government Gifts of nominal value for promotional purposes souvenir items with company logos Product Sample provided for explanation/demonstration purposes Gifts given with corrupt intents would be not reasonable or bona fide Travel & Entertainment Travel expenses paid for promotion, demonstration or explanation of products or services Includes expenses paid for educational instructional and training purposes Payments for entertainment and travel expenses solely for sightseeing, entertainment and leisure are not acceptable

6 2. Whether expense complies with local law 5 Obtain written confirmation that payment is not contrary to local law Government may place little or no weight on consistency of such expenditures with local business practices; emphasis is on compliance with Canadian law No guarantee

7 3. Is the amount of the expenditure is reasonable? Gifts 6 Nominal value bearing Company s name Generally distributed to customers as tokens of goodwill (e.g. souvenirs) Little guidance on reasonableness beyond very small items Travel/ Entertainment Moderate value Avoid lavish meals or travel arrangements Strict limits on leisure side trips Avoid cash If cash amount (such as per diem or stipend), must be reasonable estimation of legitimate expense Avoid paying for expenses relating to family members or others expenses relating to destinations that are not directly related to the company s facilities or business travel expenses in excess of those that would likely be incurred by Canadian company employees of equivalent status

8 4. Selecting Recipients 7 Do not select the officials who will participate Allow the government to select the recipients of the benefit Otherwise be transparent with superiors of recipients Alternative select on basis of pre-determined transparent merit-based criteria Do not pay expenses for spouses, family, or other guests of officials

9 5. Method of Payment 8 Ensure that expenditure is transparent Both within company and to foreign official Do not advance funds Pay all costs (airlines, hotels, car services etc.) directly to vendors rather than to the officials officials cannot convert the benefit to cash Enhances transparency & easier for record-keeping Otherwise obtain receipt and reimburse official only upon presentation of receipt Do not reimburse in cash

10 6. Whether expenditure accurately reflected in books & records 9 CFPOA prohibits certain bookkeeping practices; 4. (1) Every person commits an offence who, for the purpose of bribing a foreign public official in order to obtain or retain an advantage in the course of business or for the purpose of hiding that bribery, (a) establishes or maintains accounts which do not appear in any of the books and records that they are required to keep in accordance with applicable accounting and auditing standards; (b) makes transactions that are not recorded in those books and records or that are inadequately identified in them; (c) records non-existent expenditures in those books and records; (d) enters liabilities with incorrect identification of their object in those books and records; (e) knowingly uses false documents; or (f) intentionally destroys accounting books and records earlier than permitted by law.

11 6. CFPOA: Accounting Requirements 10 Ensure costs and expenses on behalf of foreign officials are accurately recorded in the company s books and record Companies should have a robust system of accounting and financial controls which Accurately record transaction with enough detail to identify the transaction (quantitatively and qualitatively) Provides reasonable assurances that transactions are executed as management has authorized Brenda C. Swick, International Trade and Investment Law and Gov ernment Contracting, McCarthy Tétrault LLP / mccarthy.ca

12 Enforcement Actions 11 Pfizer (2012): Paid $60 million Admitted to systemic corruption over more than a decade in Russia and Bulgaria, China, Croatia, the Czech Republic, Italy, Kazakhstan and Serbia Payments made to help boost Pfizer's presence in the market Payments of cash/other benefits to officials to obtain regulatory approvals relating to Pfizer products One payment made in 2003 was to fund a "motivational trip" for Deputy Health Minister to help win the inclusion of Pfizer products in state orders customs officials to avoid delays and penalties associated with the importation of Pfizer products to doctors to influence them to prescribe Pfizer products

13 Enforcement Actions 12 Diageo (2011): Paid $16 million to US SEC to settle improper gift giving, travel and entertainment practices: Spent $64,184 in gifts for South Korean military over four years Gifts ranged from $100 to $300 per recipient. Many of the recipients officials were responsible for procuring Diageo products. Provided more than $100,000 in travel and entertainment expenses to South Korean customs and other officials to inspect scotch facilities in Scotland, adding purely recreational side trips to Prague and Budapest. Several expenses recorded as Entertainment-Customer, hiding the fact that the recipients were officials Spent $165,287 on hundreds of non-traditional and non-seasonal gifts for the South Korean military. The SEC found that these payments were actually for the purpose of influencing specific purchasing decisions.

14 Enforcement Actions 13 Aon Corporation (2011): US insurance brokerage company training funds that were purportedly used to educate Costa Rican insurance officials on industry issues by providing travel to seminars and conferences. Paid $16.2 million in penalties: The training funds reimbursed officials for non-training related activities, like travel, hotel and meals, sometimes with their spouses, at tourist destinations including Paris, Zurich, Munich, and Cairo. These trips had only a minor, if any, business related component. Many of the invoices and records did not provide the business purposes or otherwise show that the trips were related to legitimate business activities. Some of the subject matters recorded, like a literary conference and a Mexican information technology conference, which had no logical connection to the insurance industry.

15 Enforcement Actions 14 Lucent Technologies (2007): Paid $2 million in penalties. Spent over $10 million over 3 years to take hundreds of Chinese officials to the US to inspect facilities in 315 trips. The officials were all from state-owned and state-controlled telecom entities. They visited Hawaii, Las Vegas, New York, Disneyworld, Grand Canyon, even though no company facilities existed in those places. The company improperly recorded the expenses as business trips. The company benefitted from this activity with an estimated $50 million in contracts.

16 Enforcement Actions 15 Control Components, Inc. (2009): Paid $18.2 million criminal fine based on corrupt payments to officials in China, Malaysia and the UAE. Gifts included the payment of college tuitions of at least two officials who were company clients Provided officials with five-star hotel rooms and charger boat trips in Hawaii and Las Vegas under the guise of training or inspection trips. DOJ stated that the actual propose of the trips were to reward the customers officers and employees for causing their employees to purchase the company s products, to retain current business and to obtain new business for the company.

17 Charitable Contributions Charitable gift giving permissible Due diligence What is purpose? Local outreach and not a vehicle to conceal corrupt payments Was request made by government official Check background of charity/npf Is foreign official associated with charity If so, can he/she make decisions regarding your business Make sure contribution is not conditioned upon receiving a benefit 16

18 Facilitation Payments Another narrow exemption for facilitating or expediting payments made as part of routine government action Small payments to low-level officials to secure or expedite performance of 'acts of a routine nature' In Canada, exception for facilitation payments will eventually be removed Timing for removal by way of further order by the Governor in Council Companies whose anti-corruption policies currently allow for facilitation payments should consider modifying their policy accordingly 17

19 Facilitation Payments Routine government action performed by official includes: Issuing permits to qualify a person to do business Processing official documents, such as visas and work permits Providing services normally offered to the public mail pick-up and delivery telecommunication services power and water supply Providing services normally provided police protection loading and unloading of cargo scheduling of inspections related to contract performance scheduling of inspections related to transit of goods across country 18

20 Facilitation Payments Factors: Whether official's action is required is it discretionary? Action must involve no exercise of discretion by the official Size of the payment larger could suggest corrupt intent Whether isolated or repetitive Authorized facilitation payment must be properly recorded in books and records Both qualitatively and quantitatively 19

21 Enforcement 20 Panalpina (2010) Panalpina logistics company and 6 of its customers in oil industry paid over $257M in fines and penalties Pride International Royal Dutch Shell Tidewater Inc. Transocean Inc. GlobalSantaFe Corp. Noble Corp. Panalpina acting as freight forwarder for its customers made payments to circumvent import laws, reduce customs duties and tax assessments and to obtain preferential treatment for importing certain equipment into West Africa 20

22 Enforcement 21 Con-Way Inc. (2008) Global freight forwarder paid $300,000 penalty for making hundreds of relatively small payments to Customs officials in the Philippines made to induce the officials to violate customs regulations, settle customs disputes and reduce or not enforce otherwise legitimate fines for administrative violations Helmerich and Payne (2009) Paid $1.3M penalty for payments made to secure customs clearances in Argentina and Venezuela Payments ranged from $2.000 to $5,000 to import illegal goods and evade the payment of customs duties 21

23 Corruption and Debarment 22 Integrity Provisions: Bidder certifies that neither it nor its affiliates have not been convicted of certain prescribed offences in last ten years including: Bribery of Canadian government officials (Criminal Code of Canada) Bribery of Foreign government officials (Corruption of Foreign Public Officials Act) Bid Rigging (Competition Act) Tax Evasion If convicted during term of contract- Government may terminate contract on terms very unfavourable Bidder also certifies that neither it nor affiliates in ten years prior to bid submittal have been convicted of any similar foreign offence Means convictions of similar offence in US or other country could give rise to ten year debarment in Canada 22

24 Corruption and Debarment Prime bidder must ensure that its subcontracts include Integrity provisions no less favourable to Canada than those imposed in the resulting contract Prime must ensure that subcontractor is able to sign onto Integrity Provision terms Prime should obtain certifications from subcontractor that they have read and fully comply with the Integrity provisions and confirmation inter alia, that neither the subcontractor not any of its affiliates have been convicted of an Integrity Offence or a similar foreign offence Subcontract should include provision about what happens if during the subcontract, the Prime learns from its subcontractor that it or its affiliates has been convicted of an Integrity Provision of similar foreign offence Brenda C. Swick 23

25 Compliance Approving Gift and Hospitality & Facilitation Requests Identify and empower responsible person to review and approve requests Identify person to receive and review concerns and questions 2. Train your employees Training targeted based on duties and exposure to risk Informed about approval process and where to get help 3. Approval process Documented Who approves Standards for approval Dollar limits 4. Approved expenses must be adequately described Nature and reasons for travel, meals, gift & hospitality Recipients names/positions/duties Actual costs per person 24

26 Brenda C. Swick McCarthy Tétrault LLP International Trade and Investment Law/ Government Contracting Law Direct Line: