In planning that trip to promote your products and to qualify under the FCPA affirmative defense of reasonable and bona fide expenditures, whatever you do, DO NOT take any foreign officials to Disneyland. On February 4, 2016, the SEC announced a books and records settlement with SciClone Pharmaceuticals Inc. in which the SEC alleged (and the company did not admit or deny) that from 2007 to 2012, its Chinese subsidiary “gave money, gifts and other things of value to foreign officials, including healthcare professionals (“HCPs”) who were employed by state-owned hospitals in China, in order to obtain sales of SciClone pharmaceutical products.” One focus of the settlement related to “educational” trips given to these HCPs. This alert discusses this recent settlement and considers how a good anti-corruption compliance program addresses requests for such trips.
The settlement noted the company hired local travel agencies to arrange travel and lodging “for what were ostensibly legitimate conferences, seminars, and other events.” But, according to the SEC, “[m]any events did not include a legitimate educational purpose or the educational activities were minimal in comparison to the sightseeing or recreational activities.” Two of the SEC’s examples were:
- Trips to “attend liver and oncology conferences in the United States” that involved significant sightseeing, including “travel to Las Vegas and Los Angeles with tours of the Grand Canyon or Disneyland.” BINGO!
- Travel to a seminar in Japan on its product that included a half day of educational activities and six days of “sightseeing and tourist locations such as Mt. Fuji.”
These trips and travel appear not to have been vetted by a compliance officer because these are precisely the kinds of trips that drive the SEC and DOJ crazy. There appears to be no balance between appropriate corporate hospitality and legitimate education, promotion, or demonstration of a company’s products. A strong anti-corruption compliance program should ensure that all trips arranged by the sales personnel for foreign officials be reviewed by legal/compliance personnel for an objective opinion on whether such trips might be viewed as constituting illegal bribes as opposed to reasonable and bona fide promotional activity.
The key is to ensure that any outside entertainment is something that appears reasonable in the context of the promotional or educational purposes of the trip. By transferring that decision from sales personnel (who may be motivated to seal the deal) to compliance personnel, the company takes a strong step towards ensuring compliance. The compliance professional can determine whether the trip for the foreign official itself is in compliance with the safeguards listed in the DOJ/SEC FCPA Resource Guide concerning what are reasonable and bona fide expenditures and whether the entertainment associated with the trips is reasonable.
This recent settlement emphasizes the need for you to review your company’s anti-corruption compliance program to ensure that it includes a mandatory review by legal/compliance personnel for trips and/or entertainment that may include foreign officials.