Travel expenditures have long been, and continue to be, a popular way of facilitating bribes. First, the travel accommodations themselves can function as a bribe- flying foreign officials first class to exotic destinations and pampering them with luxury hotels, meals, and so forth. Second, the travel expense accounts can be exaggerated and kicked back to a company slush fund, and then this invisible money is used to pay bribes.
REASONABLE AND BONA FIDE EXPENSES
The FCPA permits companies to cover “reasonable and bona fide” travel expenses for foreign officials conducting business with the company. It is legal to pay for the travel expenses of an official for things like conferences, negotiations, product demonstrations, sales pitches, training, and the like. Reasonable and bona fide expenses would include airfare, food and lodging, and a small per diem for other expenses. The primary purpose of the travel must be business, not pleasure. Of course many companies mix the two, providing entertaining outings in the evening as a pleasant diversion from the day’s business. If the expenses are reasonable the Justice Department is unlikely to categorize the expenses as violations, but obviously the more ostentatious the activities and accommodations the more scrutiny it will raise. The DOJ’s guide to the FCPA offers the following useful guidance to companies to avoid the appearance of impropriety and possible violation of the statute:
- Do not select the particular officials who will participate in the party’s proposed trip or program or else select them based on pre-determined, merit based criteria.
- Pay all costs directly to travel and lodging vendors and/or reimburse costs only upon presentation of a receipt.
- Do not advance funds or pay for reimbursements in cash.
- Ensure that any stipends are reasonable approximations of costs likely to be incurred and/or that expenses are limited to those that are necessary and reasonable.
- Ensure the expenditures are transparent, both within the company and to the foreign government.
- Do not condition payment of expenses on any action by the foreign official.
- Obtain written confirmation that payment of the expenses is not contrary to local law.
- Provide no additional compensation, stipends, or spending money beyond what is necessary to pay for actual expenses incurred.
- Ensure that costs and expenses on behalf of the foreign officials will be accurately recorded in the company’s books and records.
Some of these measures may seem overly cautious, but it is important to remember that reasonable travel expenditures are considered an “affirmative defense” by the FCPA. An affirmative defense in this case means that it is incumbent on the defendant to prove that the expenses were legal. In an FCPA prosecution if the government decides that travel payments to foreign officials were unlawful, the corporation must prove otherwise. If a foreign official abuses his travel account and overbills the company, they can be liable under the FCPA unless they can show they made the effort to prevent such abuse. If they can’t, the DOJ can assume that this money was meant as a bribe.
In 2011, Rockwell International paid a $2 million fine to the SEC to settle FCPA violations by its Chinese subsidiary. Part of the violation was for spending $450,000 on sight-seeing and leisure travel for Chinese officials. The settlement agreement states: “Some trips appeared to have no direct business component, other than the development of customer good will. For example, RAPS-China arranged for so-called design meetings in New York City despite the lack of any Rockwell facility there because ‘everyone likes New York.’” Furthermore, by reporting the trips as legitimate business expenses, Rockwell violated the accounting provisions of the FCPA- thus the reason for the SEC’s involvement: “These trips were recorded in Rockwell’s books and records as business expenses, without any designation that there were reasons not directly connected to the negotiation or execution of contracts or to the promotion of the company’s products.” However, to Rockwell’s credit, they self-reported these violations after discovering them in an internal audit, and took steps to fire responsible parties and strengthen compliance training and oversight over its Chinese operations- a fact that the SEC clearly took into consideration in handing down the very small $2 million penalty.
LAUNDERING MONEY THROUGH TRAVEL EXPENSES
There are numerous ways to make money appear and disappear with the help of a corrupt travel agency. This practice is especially common in China. One of the most common scams is to book “ghost” conferences with an agency- your company pays an agency or hotel $10k to rent a conference room for the weekend, they falsify some receipts, take $1500 off the top as a fee, and secretly give you back $8500 to put in your slush fund or pass the money along to a government official for a bribe. The conference never takes place, except on paper.
Another method is to book airfare with a corrupt agency and pay them from the company account. The employee who is supposed to be traveling later returns the ticket for a refund, but no record is kept of the return. The agency takes a fee and once again the rest of the money can now be spent indiscriminately.
In 2011, the SEC settled an FCPA case with IBM for $10 million. Abuse of travel agencies and accounts in China played a prominent role. IBM China created slush funds with local travel agencies that it used to give money and gifts to Chinese officials. To accomplish this, IBM China employees would create fake training conferences (Delegation Travel Requests, or DTRs) and submit them with fake invoices from the travel agencies. The funds were used for bribes and also for pleasure trips for IBM China employees. According to the SEC’s complaint, this happened at least 114 times from 2004-2009.
Whistleblower Justice Network Can Help You
Whistleblower Justice Network partners with whistleblowers worldwide to expose worldwide bribery schemes that violate the Foreign Corrupt Practices Act. Payments for travel expenses which are merely bribes in disguise are a clear violation of the FCPA. Utilizing the SEC Whistleblower Program, we aid whistleblowers in bringing corporations that expand their business interests through bribery to justice.
If you have meaningful information regarding corporate bribery that you believe is in violation of the FCPA, Whistleblower Justice Network can help. Working alongside world-class legal counsel, we will ensure you are protected to the fullest extent of the law and that you receive credit for the information you bring to the U.S. government. Partnering with whistleblowers is all we do. Visit us at www.whistleblowerjustice.net, or call us at 844-WJN-4ALL, to learn if we can help you.