Originally published in The Government Contractor, Vol. 47, No. 5, February 2, 2005
Government contractors are bound by stringent rules surrounding gift giving to Government employees. For example, last year a contractor was sentenced to 18 months of incarceration and over $60,000 in fines and restitution for providing gifts to General Services Administration employees in return for contracts. The rules can be confusing because some laws focus on the contractor’s actions, while others focus on the Government official’s ability to accept gifts. Although a gift may fit within the parameters of what a Government employee may accept, the contractor may still be in violation of the laws that govern its behavior.
The bribery and illegal gratuities statutes, which apply to contractors, attempt to delineate between ethical and unethical contractor conduct. The statutes focus on the intent in giving the gift and whether it is considered an attempt to influence an official action or to reward a prior action by a Government employee. In contrast to the rules for contractors, the rules for Government employees focus not on the intent of the giver of a gift, but on the strict definition of what a gift is, and the source of the gift.
Laws Governing a Contractor’s Actions— Under the federal bribery statute, 18 USCA § 201(b) (Bribery Statute), it is a crime to directly or indirectly give, offer or promise anything of value to any public official, or person selected to be a public official, with the intent to influence any official act. "Public official" is defined as any officer or employee or person acting for, or on behalf of, the U.S., or any department, agency or branch of Government. To find the required intent, there must be an expectation of a favorable official act in return for the gift or favor. However, even if the true intent is simply to generate goodwill, in the procurement arena there is a strong presumption of ill intent.
The federal gratuity statute, 18 USCA § 201(c) (Gratuity Statute), is similar to the Bribery Statute, but requires a lesser degree of intent. Under the Gratuity Statute, it is a crime to directly or indirectly give, offer or promise anything of value to any public official, former public official or person selected to be a public official, for or because of any official act performed by that official. It is illegal to reward Government officials and former Government officials for any public acts performed. For example, a violation of the Gratuity Statute can be as simple as sending a public official a gift for that individual’s favorable handling of a procurement action. The act is violated when there is a link between the thing of value conferred upon a public official and a specific "official act" for which it was given. While a gift given in an effort to build goodwill might not satisfy the necessary linkage to create a violation of this particular statute, if a procurement relationship with that official exists, such intent may be inferred.
The critical and distinguishing element of both crimes is the intent of the giver of the bribe or illegal gratuity. This element of intent was clarified in U.S. v. Sun-Diamond Growers, 526 U.S. 398 (1999), in which an association was charged with violating the Gratuity Statute when it gave sports tickets, meals and other gifts to then-Agriculture Secretary Alphonso Michael Espy. Sun-Diamond moved to dismiss one count of the case for the Government’s failure to connect the alleged illegal gratuity with any specific action by Espy. The ultimate question before the Supreme Court was whether there must be a specific link between the giving of an illegal gratuity to a Government official and the latter’s performance of a spe cific act in order to sustain an illegal gratuity conviction. The Supreme Court unanimously rejected the Government’s contention that a conviction under the Gratuity Statute merely requires a showing that the donor gave the recipient a gift because of the recipient’s official position. The Supreme Court, in siding with the Court of Appeals, adopted a more narrow interpretation of the statute in holding that "to establish a violation of 18 USCA § 201(c)(1)(A)[Gratuity Statute], the Government must provide a link between a thing of value conferred upon a public official and a specific ‘official act’ for or because of which it was given." While stopping short of finding that the Government must prove specific intent as required under the Bribery Statute, the Supreme Court reasoned that under the Gratuity Statute, there must at least be a correlation between the act of giving the thing of value and an official act.
The Supreme Court based its holding on two grounds. First, adoption of the Government’s reading of the case would produce criminal violations by a contractor giving token gifts. An example used by the Supreme Court in its decision would be criminalizing a high school principal’s gift of a school baseball cap to the Secretary of Education, by reason of his office, during the Secretary’s visit to the school. Under the Government’s interpretation, the high school principal would violate the Gratuity Statute by providing the baseball cap to the Secretary of Education. Second, the Court reasoned that if Congress had intended to adopt such a broad criminal prohibition, the statute would have explicitly been drafted to reflect that intention.
Penalties for a contractor violating the Bribery and Gratuity Statutes reflect their respective seriousness. For bribery, the penalty is up to $500,000 per organization, $250,000 per individual, or three times the amount given; and up to 15 years in prison. Penalties for a contractor violating the Gratuity Statute include an organizational fine of up to $500,000 per organization, $250,000 per individual, and two years imprisonment. In addition, indictment or conviction under either statute may result in the company being suspended or debarred from Government contracting. If a contractor gave an illegal gratuity to affect a contractual decision, the Government can also terminate the contract, seek contract damages and recover exemplary damages of three to ten times the gratuity cost.
Laws Governing a Government Official’s Acceptance of a Gift—Both the standards of ethical conduct for employees of the executive branch (5 CFR Part 2635), and the policies and procedures for Government employees to avoid improper business practices and personal conflicts of interest while conducting Government business (Federal Acquisition Regulation Part 3), regulate a Government official’s acceptance of a gift. Government employees are prohibited from soliciting or accepting any gift or gratuity from a "prohibited source," which includes any entity that (1) does or seeks to conduct business with the employee’s agency, (2) conducts activities that are regulated by the employee’s agency, (3) seeks any official action from the employee’s agency or (4) has interests that the Government employee may substantially affect by performing or failing to perform his or her official duties. FAR 3.101-2; 5 CFR Part 2635. Under these regulations, the intent of the prohibited source in giving the gift to the Government employee is not a factor.
The term "gift" includes any item having monetary value. However, according to the Government ethics regulations, a "gift" does not include modest items of food, refreshments, greeting cards, items with "little intrinsic value" (i.e., plaques, certificates and trophies), and prizes in events open to the public. 5 CFR § 2635.203(b)(1). In addition, there are a number of exceptions to when a gift can be accepted by a Government employee.
Gifts of $20 or Less (5 CFR § 2635.204(a)): The $20/$50 rule is the most widely used exception to the gift rules. Under the $20/$50 rule, Government employees can accept gifts on any one occasion worth $20 or less in value. However, the total value of gifts given to a Government employee from any single source cannot exceed $50 per calendar year. Companies and organizations are considered a single source, thus gifts from company employees are aggregated. This gift exception does not apply to gifts of cash or of investment interests such as stock, bonds or certificates of deposit, which are prohibited regardless of amount, absent specific approval by the agency.
Gifts Based on Bona-Fide Personal Relationships (5 CFR § 2635.204(b)): Gifts based on family relationships and personal friendships are excepted from the gift-giving prohibitions. However, even if a Government contractor develops a friendship with a Government employee, their relationship does not convert a gift from the Government contractor to the Government employee to one based on friendship. In general, if a Government contractor’s relationship with a Government employee predated the business-related contacts, gifts will be subject to less scrutiny than if the friendship arose by virtue of the business dealings. In addition, it is safe to assume that if a Government contractor seeks reimbursement for the gift as a business expense, the gift is not based on a personal friendship.
Discounts and Similar Benefits (5 CFR § 2635.204(c)): Government employees may accept reduced membership or other fees for participation in organizational activities offered to all Government employees or all uniformed military personnel. This acceptance can only be provided through professional organizations where restrictions on membership relate only to professional qualifications. The exception only applies if the discount is offered to all employees; it would not apply if there were discrimination among employees based on rank or position. However, employees may not accept for their own personal use any benefit that the Government is entitled to as a result of the expenditure of Government funds. For example, an assistant secretary may not accept a local country club’s offer of membership to all members of department secretariats that includes a waiver of its $5,000 membership initiation fee. Even though the country club is not a prohibited source, the offer discriminates in favor of higher-ranking officials. Conversely, an employee of the Consumer Product Safety Commission (CPSC) may accept a $50 discount on microwave ovens offered to many organizations, including members of the CPSC employees’ association. Even if the CPSC is currently conducting studies on the safety of microwaves, the employee may accept this discount since this is a standard offer that the manufacturer has made broadly available to a large segment of the public without improper discrimination.
Awards and Honorary Degrees (5 CFR § 2635.204(d)): An employee may accept gifts, other than cash or an investment interest, with an aggregate market value of $200 or less if the gift is given for meritorious services. However, the gift must be given from a person or organization that does not have interests that may be substantially affected by the performance of the employee’s official duties. Gifts with an aggregate value in excess of $200 and awards of cash or investment interests may be accepted upon a written determination by an agency ethics official that the award is made as part of an established program of recognition. For example, an employee of the National Institutes of Health (NIH) may accept the Noble Prize for Medicine, including the cash award which accompanies the prize, even though the award was based upon laboratory work performed at NIH. But this acceptance by the NIH employee must be based upon approval by the NIH ethics official.
Gifts Based on Outside Relationships (5 CFR § 2635.204(e)): Government employees may accept meals, lodging, transportation and other benefits when based on outside relationships, such as outside employment activities of the Government employee or business activities of a Government employee’s spouse.
Gifts in Connection with Political Activities (5 CFR § 2635.204(f)): Under the Hatch Act Reform Amendment, 5 USCA § 7323, certain Government employees may take an active part in political management or political campaigns. Under this gift exception, those employees may accept, from a political organization, meals, lodging, transportation and other benefits, including free attendance at events, when provided in connection with their active participation in political management or campaigns. For example, the Secretary of Interior may accept airline tickets and hotel accommodations furnished by the campaign committee of a candidate for the U.S. House of Representatives in order to give a speech to support the candidate.
Widely Attended Gatherings (5 CFR § 2635.204(g)): Government employees and their spouses may attend widely attended gatherings free of charge, provided that other invitees are also invited free of charge. If the employee is speaking at the event, the employee’s free attendance is permissible because the employee’s participation is viewed as a customary and necessary part of the employee’s duties. If the employee is simply attending the event, the agency must determine whether its employee’s attendance at the "widely attended gathering" is in the agency’s interest. The term "widely attended" describes an event that is open to members from a given industry or profession, or from a diverse group that is interested in a given matter.
Social Invitations From Other Than Prohibited Sources (5 CFR § 2635.204(h)): An employee may accept food, refreshments and entertainment, not including travel or lodging, at a social event attended by others where (1) the invitation is from a person who is not a prohibited source and (2) no fees are charged to attendees. For example, an employee of the Department of Defense press office may accept an invitation to a cocktail party given by a noted Washington hostess who is not a prohibited source. The employee may attend even though the employee believes the invitation was extended because of her official position.
Travel to Foreign Areas (5 CFR § 2635.204(i)): An employee assigned to duty in, or on official travel to, a foreign country may accept food, refreshments or entertainment that is provided as part of an event, if the market value of the food, refreshment or entertainment does not exceed the per diem rate for that foreign area. However, non-U.S. citizens or representatives of foreign governments must participate in the event, the event must be part of the employee’s official duties and the gift may not be from a prohibited foreign government.
Gifts Specifically Authorized (5 CFR § 2635.204(k)– (l)): Gifts specifically authorized by supplemental agency regulations or under specific statutory authority may be accepted by Government employees. For example, an employee of the Department of Commerce may receive a gift from a foreign government under the Foreign Gifts and Decorations Act, 5 USCA § 7342 (Act). As a condition of accepting the gift, the Commerce employee must comply with the requirements imposed by the Act and implementing regulations.
The laws governing a Government employee’s acceptance of a gift regulate only Government employees’ acceptance of gifts, not the Government contractor’s giving. None of the gift exceptions shield a contractor that provides a gift in return for a Government employee performing an official action or because of an official act already performed. In those cases, in effect, the "gift" becomes a bribe or an illegal gratuity. In addition, companies implicated in a Government employee’s violation of these rules can face public embarrassment, a tarnished reputation within the marketplace and the possibility of suspension or debarment.
The Government Contractor’s Policy—As exhibited by recent procurement integrity scandals, the Federal Government takes these and other ethical violations seriously. Contractors and those seeking to do business with the Government must take these provisions seriously as well. Standard practices in commercial contracting can lead to stiff fines and penalties when offered in the Government contracting arena. Compliance programs should be updated and employees should be trained on the risks associated with giving gifts to Government employees. Also, for Government contractors to avoid scandal and scrutiny in the marketplace, legal counsel should be consulted prior to giving any gifts.
This article is presented for informational purposes only and is not intended to constitute legal advice.
