As part of the growing culture of corporate social responsibility, many companies seek to give back to the communities in which they conduct business. But when the charitable giving takes place outside the United States, this practice may raise concerns.
While it is important to be a good corporate citizen, it is equally important to make sure that corporate charitable giving is done responsibly. Given the potential risk for misuse, companies must balance the tension between charitable giving and complying with the Foreign Corrupt Practices Act (FCPA).
While there is no one-size-fits-all solution to monitoring charitable giving, the key component is to ensure that proper due diligence is conducted and that you put in place adequate internal controls (including ongoing monitoring). Below are six simple steps companies can take to ensure that they are giving responsibly.
1. Have a charitable giving policy in place. One of the most significant steps a company can take to prevent the misuse of charitable contributions is to establish a written charitable giving policy. It is important that this policy set forth the company’s approach to charitable giving. For example, a company may limit its charitable giving to a particular focus area (i.e. educational programs) or programs that impact a specific geographic region or community. Since charitable contributions can take many forms (such as monetary gifts, grants and scholarships, donation of goods), the policy should also state the type of contributions the company is permitted to make and tailor its internal controls to the risks associated with that type of contribution. Once a policy is established, additional controls should be put in place to confirm that charitable contributions are consistent with the policy.
2. Relationships matter. Conducting thorough due diligence before making a charitable contribution is essential. It is important to determine whether the selected charitable recipient has any affiliation or connection with foreign officials. Indirect connections to government officials, such as connections to family members, close advisors or entities in which the foreign official has a financial interest in, must also be considered.
3. The purpose of giving must be proper. The primary objective of the FCPA with respect to charitable giving is to prevent the use of charitable contributions as a vehicle to funnel funds or other benefits to foreign officials. Accordingly, extra care should be taken to confirm that the contribution is not conditioned on the retention of business, the receipt of future business or the receipt of some other benefit. Ask probing questions like these: “How are the contributions viewed internally?” “How was the recipient selected?” “What does the company expect to happen after the contribution is made?” “Does the donation violate the company’s charitable giving policy?” “Was the contribution made at the request of a foreign official?” The answers can alert the company to potential red flags and help prevent the misuse of charitable contributions. In addition, seeking approval from legal counsel before making a contribution can help determine whether such red flags exist and whether the contribution is proper.
4. Check the local law. Before making any type of charitable contribution in a foreign country, you must ensure that the contribution is not illegal under local law. In addition, local law may require that certain disclosures be made or dictate that only certain amounts and types of contributions are permitted.
5. Following up is a must. There are a host of measures a company can take to ensure that its charitable contributions are being used properly. For example, if money is being donated, a company can make sure that the funds are indeed directly deposited into an authorized account of the recipient. If the contribution was to assist in building a facility or developing an area, then ongoing monitoring should be used to confirm that the project is actually progressing. Consider making your contribution using a combination of control measures, such as auditing rights, compliance certifications, anti-corruption provisions and the staggered release of contributions. The key thing is to follow up to confirm that the charitable contribution is being used for the stated purpose and not being funneled to a foreign official.
6. Transparency helps. Special circumstances may arise in which a company (or an individual within that company) will want to make a unique or unusual contribution which may directly or indirectly benefit a foreign official. While this type of contribution does not in and of itself violate the FCPA, special attention must be given to determine the purpose of the payment and the power, if any, that the foreign official has on the company’s ability to retain or obtain business. In this type of situation, it is essential to discuss and seek approval or clearance from upper management in the company, the agency or department where the government official is employed, and legal counsel before any contribution is made. Transparency on all sides of the charitable contribution, coupled with the appropriate controls, can help show that the charitable contribution is not being used to corruptly influence a foreign official.
Find out more about FCPA issues in charitable giving by contacting the author.