For years, the Securities and Exchange Commission (SEC) and Department of Justice have warned companies about potential Foreign Corrupt Practices Act (FCPA) liability associated with charitable giving. Recently, the SEC brought its first-ever FCPA enforcement action based solely on a one-time charitable donation.
The FCPA anti-bribery provision makes it unlawful for a U.S. person or certain foreign issuers to pay or offer to pay (directly or through an intermediary) money or anything of value to a foreign official for the purpose of obtaining or retaining business. The Act’s internal controls provision requires U.S. public companies to keep accurate books and records and maintain effective internal accounting controls.
A bribe may violate the FCPA even if it’s legal or tolerated in the country where it occurs. And because proving an accounting violation is easier than proving bribery, the SEC may penalize a company for having inaccurate records or internal accounting controls without evidence of a bribe.
Nu Skin case
In September 2016, the SEC settled an FCPA enforcement action against Nu Skin Enterprises (Nu Skin U.S.). Without admitting or denying guilt, Nu Skin U.S. agreed to a cease and desist order and to pay more than $750,000 in disgorgement, civil penalties and interest.
The case stemmed from an investigation of Nu Skin’s Chinese subsidiary (Nu Skin China) by a provincial government agency — the Administration of Industry and Commerce (AIC) — for doing business without a proper direct-selling license. In an effort to obtain the influence of a high-ranking Chinese Communist Party official on the outcome of the investigation, Nu Skin China donated approximately $154,000 to a charity with which the official was associated. Shortly after the donation was made at a public ceremony, the AIC notified Nu Skin China that it wouldn’t be charged or fined.
The SEC’s action relied on the internal controls provision to find that Nu Skin U.S. had violated the FCPA because its subsidiary had improperly recorded the payment as a “donation” rather than “a payment to influence the party official to favorably impact the outcome of the AIC investigation.” The SEC also found that Nu Skin U.S.A. had failed to maintain a reasonable system of internal controls to ensure the reliability and accuracy of financial records.
To avoid a potential FCPA liability, make sure your company has policies, procedures and controls in place. Doing so will help prevent and detect improper charitable contributions and other FCPA violations.