Which of the following prohibits US companies from making illegal payments or other gifts?

The Foreign Corrupt Practices Act [FCPA] prohibits USC employees and third party subcontractors from directly or indirectly giving or receiving improper payments or other benefits to a foreign official to gain a commercial or other advantage in violation of the Foreign Corrupt Practices Act [FCPA].  The types of payments covered by the FCPA are broad and cover anything that may confer a benefit on someone in a position to provide a commercial or other advantage to USC.  FCPA issues may arise in one or more of the following areas of activity:

• Immigration
• Licensing
• Obtaining building permits
• Constructing facilities
• Maintaining premises in accordance with local laws
• Obtaining and maintaining work visas
• Maintaining health and safety regulations
• Routine law enforcement

Overview of the FCPA

In general, there are six elements that must be present in order to show an FCPA violation:

• The company must be based in the United States or traded on a United States stock exchange.
• The payment in question must be made to a foreign official [including any employee or a foreign government regardless of level], a foreign political party or party official, or any candidate for foreign office; or executives and other employees of state-owned or controlled businesses [including, for example, a professor at a state-run university].
• A payment or offer of payment of money or anything else of value, including gifts and excessive meals, hospitality, entertainment, travel expenses, or favors [i.e. an internship for a family member outside the normal hiring process or admittance to an educational program outside the normal admission process because of the student’s relationship to a foreign official].
• The payment must be for the purpose of obtaining or retaining business, even if the business relationship is not with a foreign government or foreign government-controlled entity.
• The person making the payment must intend to induce the recipient to misuse his or her official position to direct business to the business on whose behalf the payment is made.
• The company must know or be aware of a high probability that an improper payment was made.

The FCPA applies to all university employees as well as all USC partners and other third parties that may be engaged to represent USC’s interests in a foreign business transaction.

Due Diligence

USC faculty, staff, and student employees are expected to exercise care and take all necessary precautions to ensure they are conducting business with reputable and qualified business collaborators [e.g., partners, representatives, recruiters, distributors and any other representatives collaborating with or on behalf of USC].  This can include determining whether potential foreign representatives and joint venture partners are  qualified to do business with USC, whether the foreign entity or person has personal or professional ties to a foreign government, the number and reputation of a company or person’s other clientele, and the person or company’s reputation with the U.S. embassy or consulate and with local bankers, clients, and other business associates.

There are certain so-called “red flags” to be aware of, including:

• Unusual payment patterns or financial arrangements
• A history of corruption in the country
• Refusal by a foreign company or person to accept contractual FCPA language
• Unusually high commissions
• Lack of transparency in expenses and accounting records
• Apparent lack of qualifications or resources on the part of a foreign company or person to perform the services offered
• Whether a foreign company or person has been recommended by an official of the potential governmental customer.

If a foreign company or person exhibits any red flags, contact the Office of Culture, Ethics and Compliance at your earliest opportunity.

Prohibited Payments

The following types of payments are prohibited under the FCPA:

• Any gift of cash or a cash substitute;
• Anything that is offered as a quid pro quo [a payment in exchange for favor or advantage];
• Any gift or entertainment that is illegal under the foreign country’s laws, or known to be prohibited by the foreign official’s department, agency, or organization;
• Anything that may have, or may be perceived as influencing the decision of anyone considered to be a foreign official;
• Anything given to foreign officials associated with a tender or competitive bidding process where the University is involved;
• Any inappropriate entertainment [such as entertainment that is illegal under local law or U.S. law];
• Any travel, entertainment, or gifts to family members of foreign officials.

Reach out to the Office of Culture, Ethics and Compliance for assistance in this area.

FAQ’s

What types of businesses does the FCPA cover?

The FCPA covers all “domestic concerns”, which includes for-profit and non-profits, including universities, and non-governmental organizations [NGO’s].

As long as I don’t put money in an envelope and hand it to someone, I have nothing to worry about, right?

Wrong.  Although cash payments certainly violate the FCPA, the law applies broadly to anything of value, including gifts and entertainment as well as anything else designed to influence the behavior of a foreign government or official in a way that benefits USC.

I only deal with foreign professors and university administrators.  Are they foreign officials as well?

They may be.  A foreign official includes employees of government-controlled or government-owned entities, including state-owned or run universities.  Therefore, a professor or administrator who works for a state-run university is considered a “foreign official” for FCPA purposes.

I travel to a country where it is customary to exchange gifts of nominal value, and it would be rude not to.  What do I do?

The FCPA applies to and prohibits the transfer of any and all things of value, including gifts.  There is no dollar threshold beneath which a payment or gift is permitted.  There are certain exceptions, however, if the payment or gift is modest and isolated and is not designed to influence the recipient’s objectivity.  This area is murky, however, and you should seek approval from the Office of Culture, Ethics and Compliance or the Office of General Counsel before giving any gift, regardless of value.

Can I give gifts to family members of foreign officials?

Although the FCPA does not explicitly cover family members, a gift or payment to a close family member could be considered so close to the foreign official that it is effectively a payment directly to that official.  You should never attempt to circumvent FCPA’s limitations by transferring anything of value to a family member of a foreign official.