Limited Circumstance Travel Expenses Will Not Violate FCPA
Written by Jeff Johnston, Amy Riella and Imad Khan
In a recent advisory opinion, the U.S. Department of Justice (DOJ) provided guidance as to the circumstances pursuant to which domestic entities may host foreign government officials on trips to the United States. See FCPA Opinion 12-02 (Oct. 18, 2012). Whether such sponsorships violate the U.S. Foreign Corrupt Practices Act (FCPA), as amended, remains one of the most prevalent DOJ FCPA opinion topics and the DOJ’s most recent advisory opinion is largely consistent with prior guidance. Although binding only as to the requesting entities, in FCPA Opinion 12-02, the DOJ reiterated that paying for foreign government officials’ business-class and coach airfare, business-class hotels, meals and transportation during their trip to the United States would not result in an enforcement action if such expenses are reasonable, bona fide, and offered in connection with the promotion, demonstration, or explanation of the requesting entities’ products and services.
The FCPA prohibits corporate entities that are organized under the laws of a U.S. state or that maintain their principal place of business in the United States from corruptly giving or offering anything of value to a foreign official “in order to assist…in obtaining or retaining business for or with, or directing business to, any person….” 15 U.S.C. § 78dd-2(a)(1). Pursuant to the affirmative defenses provided for in § 78dd-2(c), however, entities are permitted to pay for a “reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official” so long as the expenditure “was directly related to the promotion, demonstration, or explanation of products or services….” 15 U.S.C. § 78dd-2(c)(2). Thus, this affirmative defense requires entities to establish that: (1) the expenditure is reasonable and bona fide; and (2) the purpose of the expenditure directly relates to the promotion, demonstration, or explanation of the products or services.
FCPA Opinion 12-02 was requested by a number of U.S. non-profit adoption agencies that assist U.S. families with the process of adopting children from a particular foreign country and subsequently submit annual reports regarding the status of the adopted children to the foreign government. These agencies sought to host 18 government officials: 13 officials from the adoption ministry, an adoption court judge, the director of the foreign agency that oversees orphanages, a minister from the head of government’s office, and two members of the foreign legislature. The agencies represented that they would not give money directly to the foreign officials, but through third-party vendors would pay for:
- Business class airfare for ministers, members of the legislature, and the director of the orphanage agency for the internal portions of the trip;
- Coach airfare for the other government officials;
- Hotel accommodations at a business-class hotel for all 18 government officials;
- Meals during the officials’ stay in the United States; and
- Transportation between agencies and local transportation.
The requesting entities represented that the purpose of the foreign officials’ visit to the United States was intended to: (1) demonstrate to the foreign officials the work conducted by the agencies; (2) show the foreign officials how adopted children from their country have adjusted to life in the United States; and (3) learn from the foreign officials how the agencies can ensure that the foreign government receives appropriate information during the adoption process.
Based on the adoption agencies’ representations, the DOJ determined that the proposal to pay for the trip satisfied both conditions of the affirmative defense provided for in § 78dd-2(c)(2). Perhaps most importantly, the DOJ found that the expenses proposed by the adoption agencies (including the business-class airfare for high-ranking officials) are reasonable under the circumstances, and also directly relate to the promotion, demonstration, and explanation of the services provided by the adoption agencies. In particular, the requesting agencies represented that they would demonstrate and explain the services they provide by allowing the foreign officials to interview the staff members of the agencies, to inspect the agencies’ files, and to meet with families who have adopted children from the foreign officials’ country. The DOJ concluded that “the proposed expenses reflect no corrupt intent and appear to be bona fide promotional expenses.”
The DOJ’s conclusions in FCPA Opinion 12-02 are hardly surprising, as the DOJ has previously issued numerous favorable advisory opinions and opinion releases regarding sponsoring travel and related expenses for foreign officials. In particular, under similar circumstances, the DOJ expressed in 2011 that it would not take any enforcement action where an adoption agency proposed sponsoring expenses for a trip to the United Stated by foreign officials of two agencies of a Central American government. See FCPA Opinion Release 11-01 (June 30, 2011). Through the more than a half-dozen advisory opinions and opinion releases in the last decade, the DOJ’s guidelines for the sponsorship of foreign officials remain largely unchanged. Although these opinions bind only the requesting entities, companies subject to the FCPA are encouraged to look to the DOJ’s FCPA Opinions for recommended guidelines before considering the sponsorship of government officials travel expenditures. Most notably, companies should (1) assure that the proposed expenses are directly related to the promotion of services or goods or the performance of a contract, and document the same; (2) pay third-party providers for any expenses and not offer payment directly to the government officials; (3) provide only reasonable expenditures, such as commercial airfare and business grade hotel accommodations; (4) avoid any side excursions unrelated to the business purpose of the trip; (5) refuse to pay for the travel expenditures and accommodations for any spouses or family members; and (6) avoid any per diem or other form of compensation.
