Chinese New Year is upon us. This important Chinese holiday is celebrated not just in the world’s most populous country, but also in many other countries with significant Chinese populations. With the holiday comes the tradition of gift giving, intended to wish relatives and close friends good luck in the coming year. As many multinationals know, this tradition also extends to business relationships, and gifts are commonly exchanged among customers, suppliers and partners, as well as regulators and government officials with whom the businesses frequently interact.
This gift-giving tradition often collides with company compliance policies and, for U.S. companies or companies listed on a U.S. exchange, the restrictions imposed by the Foreign Corrupt Practices Act (FCPA). As every compliance professional knows, the FCPA generally prohibits giving anything of value to a foreign official for the purpose of obtaining or retaining business or securing an unfair business advantage. This generalized restriction results in thorny problems when it comes to Chinese New Year gifts to state-owned customers (whose employees are deemed foreign officials under the FCPA) or regulators. After all, what is the point of giving a gift to the customs inspector if not, at least in some small way, to improve your relationship and, hopefully, ease your regulatory difficulties?
On Nov.14, 2012, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) issued their long awaited Resource Guide to the U.S. Foreign Corrupt Practices Act. Through the guidance, the DOJ and SEC set out the government’s view on a wide range of FCPA enforcement topics. One of the most practical sections relates to gift, entertainment and travel expenditures. Given that Chinese New Year is here, it seems the perfect time to look at the guidance to see if it can help multinationals think through how to manage the cultural expectations surrounding gifts and harmonize them with the FCPA’s often vague and misunderstood expectations.
At a high level, the guidance confirms that certain gifts, entertainment and travel are appropriate and necessary for conducting business in the modern world:
“A small gift or token of esteem or gratitude is often an appropriate way for business people to display respect for each other. Some hallmarks of appropriate gift-giving are when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.”
The guidance also pointed out that gift and entertainment expenses, standing alone, will rarely, if ever, form the basis for an enforcement action:
“DOJ’s and SEC’s anti-bribery enforcement actions have focused on small payments and gifts only when they comprise part of a systemic or long-standing course of conduct that evidences a scheme to corruptly pay foreign officials to obtain or retain business.”
The guidance goes on to provide examples of permitted activity, some of which are directly relevant to the kinds of gifts often associated with Chinese New Year. For example:
- Establishing a booth at a trade show which provides free pens, hats, t-shirts and other promotional items
- Taking government officials who are prospective customers out to drinks and paying a moderate bar tab
- Providing a “moderately priced crystal vase” to a foreign public official who is the General Manager of a client as a wedding gift and token of esteem.
Taken together, these general principles and examples limn in what should be a safe harbor of sorts when it comes to Chinese New Year gifts. As a threshold matter, they seem to recognize that traditional gift giving occasions are appropriate, even with foreign officials. After all, officials are people too and are entitled to the common courtesies and respects afforded anyone else. Second, they focus on low- or moderately-priced gifts, drinks and likely meals. No Rolexes wrapped around mooncakes. And finally, the gift should not be concealed. If it is truly just a holiday gift, there should be no need to hide or disguise it.
The FCPA criminalizes efforts to corruptly influence officials. Gifts given with the intent to recognize an important cultural custom and nothing more fall outside of it by definition. So what qualities should Chinese New Year gifts have to evidence their legitimate purpose and intent? The holiday reminds me of festive dragons parading through the streets, so keep these concepts in mind:
- Don’t hide it
- Record it
- Account for it
- Gratitude or esteem
- Open and transparent
- Not too expensive