United States: Are Your Sponsorship And Hospitality Controls Enough To Satisfy The FCPA? Maybe Not.

On May 20, 2015, the US Securities & Exchange Commission (SEC) settled an administrative proceeding with global mining /commodities producer BHP Billiton, resolving allegations that the company violated the books and records and internal controls provisions of the US Foreign Corrupt Practices Act (FCPA) in connection with its practice of inviting government officials and their spouses to attend the 2008 Olympics.1 Without admitting or denying the allegations, BHP Billiton agreed to pay US$25 million in civil monetary penalties, and to report on the operation of its FCPA and anti-corruption compliance program to the SEC for a one-year period.

BHP Billiton was no stranger to the world of anti-corruption investigations, having reportedly been under investigation by US and Australian authorities at multiple points since 2010. The conduct alleged in the Cease-and-Desist Order could be ripped straight from an FCPA training presentation or law school exam hypothetical. According to the SEC, BHP Billiton was an official sponsor of the 2008 Olympics in Beijing, China. In exchange for providing the raw materials for the Olympic medals, BHP Billiton received a number of hospitality packages and perks at the games. BHP Billiton sought "to strengthen relationships with key local and global stakeholders" by inviting 650 people to attend the games at the company's expense, 176 of whom were government officials and employees of state-owned enterprises. According to the SEC, the majority of these were "government officials from countries in Africa and Asia that had well-known histories of corruption."

Of the 176 officials invited, 60 ultimately attended with guests or spouses, receiving luxury hotel accommodations, sightseeing trips and event tickets provided by the company. Some also received business class airfare. Each package was valued between about US$12,000 and US$16,000. While the SEC did not allege that the hospitality resulted in BHP Billiton securing any improper business advantages, or that the company otherwise acted with corrupt intent in providing these personal benefits to the government officials, according to the SEC, various business units of BHP Billiton did have direct contracts and other matters pending before some of the attendees.

Instead of charging a violation of the anti-bribery provisions of the FCPA (which would have required a sufficient US jurisdictional nexus that may not have existed as a factual matter), the SEC alleged that BHP Billiton, a US issuer, recognized that inviting government officials to attend the Olympic games could violate anti-corruption laws and the company's own code of ethics, and yet it (1) failed to adopt sufficient internal controls to prevent such violations, and (2) maintained internal books and records that did not, in reasonable detail, accurately and fairly reflect that at the time it extended the invitations to government officials, BHP Billiton had pending negotiations or ongoing business dealings with some of the invitees. The controls that BHP Billiton did adopt, along with the shortcomings in those controls identified by the SEC, are useful to consider as you assess your company's own controls around hospitality and sponsorships.

BHP Billiton's controls

After identifying the corruption risk created by its Olympic hospitality program, BHP Billiton implemented a hospitality application process, requiring its business personnel to answer a series of pointed questions about the proposed invitees, including whether they were in a position to influence the outcome of any pending or anticipated business decisions and whether the hospitality might create the impression of an improper connection to any business decision. The cover sheet to the form briefly described the anti-bribery provisions of the Company's Guide to Business Conduct and referred employees to the section of the Guide concerning travel, entertainment and gifts. BHP Billiton even created an "Ethics Panel," staffed by compliance and legal personnel, to respond to business inquiries about the hospitality forms. Sounds pretty good, right?

Where the controls fell short in the eyes of the SEC, however, was in the follow-up. First, the company did not require all the completed applications to be reviewed by the Ethics Panel. Instead, the Ethics Panel had a purely "advisory" role and only reviewed a handful of forms including questions from the business. Second, a number of the forms were only partially completed, or were completed incorrectly. Third, the company failed to train its employees on how to complete the forms or how to apply its compliance policies to the invitations to government officials. Fourth, the company did not require the forms to be updated if circumstances changed prior to the Olympics, such as new business being pursued from the invitee. Fifth, the company had no process to verify whether a proposed invitee from one arm of the business might have pending business with another arm of the company.

According to the SEC, these deficiencies resulted in BHP Billiton "invit[ing] a number of government officials who were directly involved with, or in a position to influence, pending negotiations, efforts by [the Company] to obtain access rights, or other pending matters." For example, in mid-2007, BHP Billiton's MinEx group submitted a hospitality application form for an unidentified Burundi Minister of Mines and his spouse. At the time, BHP Billiton was not in negotiations with the Minister of Mines, so the application form contained a statement to that effect. However, BHP Billiton had a joint venture in Burundi with an entity that was in danger of losing a nickel exploration permit unless it made a large financial investment in the project or could negotiate a renewal/amendment of the exploration permit. In Burundi, the Minister of Mines was responsible for reviewing renewal and amendment applications for such permits, and later in 2007 and early 2008, BHP Billiton did negotiate directly with this Minister regarding the permit. Thereafter, however, the hospitality application was not updated or re-reviewed. The Burundi Minister of Mines and his wife attended the Olympics as BHP Billiton's guest for four days. The SEC cited this and other examples from the Philippines, the Democratic Republic of the Congo and the Republic of Guinea to demonstrate the insufficiency of the company's internal controls and to establish the inaccuracy of corporate books and records.

Implications for your sponsorship/hospitality program

While US$25 million may not sound like a record-breaking penalty in the world of FCPA enforcement actions, it is actually believed to be the largest based solely on internal controls or books and records violations. Dollars aside, there are some valuable lessons to be learned from this enforcement action regarding corporate hospitality and sponsorship programs:

  1. High risk expenditures should be reviewed by independent compliance officers or lawyers: While lawyers and compliance officers love to cite the adage "the business owns the risk," the BHP Billiton action underscores the importance of having riskier transactions reviewed by an independent Legal or Compliance Department, with both a critical eye and an eye on potential enterprise-wide (rather than business line-specific) risk. A "check the box" form to be completed by the business will not cut it. No doubt this places a heavy burden on Legal/Compliance, who can only offer advice based on the facts presented to them by the business. But it is critical to establish a protocol whereby independent compliance/legal experts are sufficiently "looped in" to the decision making so that they may pose the right questions to the right people.
  2. Don't "set it and forget it": Internal compliance forms, such as BHP Billiton's hospitality applications, which have become a cornerstone of many global compliance programs, are corporate books and records, and as such, must be (a) properly filled out and (b) appropriately updated. Be mindful that where there is lag time between a sponsorship or hospitality request/approval and the event itself, it may be prudent—particularly when government officials are involved—to affirmatively verify that there has been no change in circumstances that might affect the approval.
  3. There's no substitute for good training: Compliance policies are only as effective as the training that accompanies them. Even though BHP's Guide to Business Conduct included a "case example" highlighting the risk of paying travel expenses for a government official's spouse, that did not stop the business from offering luxury travel packages to many spouses of government officials. Perhaps more rigorous training would have prevented this.

Does cooperation and remediation pay off?

In addition to providing important takeaways to consider as you proactively review your compliance program, the BHP Billiton Cease-and-Desist Order also demonstrates that should an FCPA problem arise, meaningful cooperation with the government, coupled with timely remediation, may indeed, as the SEC has repeatedly proffered, result in reduced penalties. As highlighted by the SEC, some of the things a business can do to provide meaningful cooperation, all of which it credited BHP Billiton with doing, are: (1) retaining outside counsel to conduct an internal investigation and report its findings to the government; (2) voluntarily producing business, financial and accounting documents from around the world and (3) voluntarily producing translations of key documents.

The remedial actions taken by BHP Billiton can be implemented at any company seeking to enhance its compliance culture, whether under government investigation or not, and include: (1) creating a compliance group wholly independent from the business units; (2) embedding independent anti-corruption managers into the business; (3) enhancing financial and auditing controls, including policies on how to conduct business in high-risk markets; (4) conducting extensive anti-corruption training for employees; (5) overhauling the processes for internal investigations and (6) reviewing and enhancing policies and procedures concerning hospitality, gift giving, use of third-party agents, business partners and other high-risk compliance areas.

Conclusion

The SEC's enforcement action against BHP Billiton should serve as a warning that to avoid violating the FCPA in connection with the high-risk practice of sponsoring travel by government officials and their guests, reliance on business must be tempered, tested and confirmed by independent legal or compliance professionals. At the same time, policies designed to mitigate corruption risk should not lay dormant on the shelves collecting dust; companies must regularly train the business on how to identify potential issues and when to seek guidance from Compliance and Legal.

Footnote 

1. SEC Exchange Act Release No. 74998; In the Matter of BHP Billiton Ltd. and BHP Billiton Plc, (May 20, 2015) (hereinafter, "Cease-and-Desist Order"), http://www.sec.gov/litigation/admin/2015/34-74998.pdf.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
30 Jan 2019, Other, Chicago, United States

Please join us on January 30, 2019, for the Fifth Annual Courageous Counsel Leadership Institute. This year's theme is "Risk and reward: Creating a culture that promotes innovation, change and growth.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions