Cutting Edge Solutions For Managing GMET Risk

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1 Cutting Edge Solutions For Managing GMET Risk 1 MICHAEL VOLKOV THE VOLKOV LAW GROUP LLC MVOLKOV@VOLKOVLAW.COM (240) Business Courtesies Generally 2 There are many different reasons Business Courtesies are given and received. Encourage the business to give and receive proper Business Courtesies to conduct business in a polite, thoughtful, and friendly manner. However, Business Courtesies can create conflicts of interest between the recipient and the party giving the gift AND fund bribery schemes. 1

2 Focus Today on GMET Risk From 3 FCPA Corruption Risk Conflict of Interest Risk GMET Risk Gifts, Meals, Entertainment, and Travel ( GMET ) Also known as... Business Courtesies GMET Expenses can fund bribery schemes Weak controls cited in SEC & DOJ enforcement actions Failure to identify foreign government recipients (e.g. foreign healthcare professionals or state-owned officials; Monitoring of recipients, purpose of meals and contacts, and caps on expenditures per person or entity Lack of controls with third parties (e.g. travel agents) GMET can lead to conflicts of interest Biased decision making = bad deals for your company Or be used for employee fraud Why now? Technological advancements Many programs are out of date or ineffective 2

3 FCPA enforcement risk Soft Standard that companies attempt to translate into a monetary value limit for policy purposes. Prohibited Allowed Bribes Reasonable and modest business courtesies SEC and DOJ Resource Guide A small gift or token of esteem or gratitude is often an appropriate way for business people to display respect for each other. Some hallmarks of appropriate giving are when the gift is given openly and transparently, properly recorded in the giver s books and records, provided only to reflect esteem or gratitude, and permitted under local law. Examples of GMET Based FCPA violations Enforcement Action Examples SciClone Pharmaceuticals Evidence in s and documents confirming that items were given to foreign officials at state-owned hospitals with the expectation of increased sales. Examples: SciClone provided its VIP clients (including hospital presidents) attendance at a beer festival where they played golf and beer drinking. SciClone paid for family vacations and family dinners through an employee expense account to recruit VIP clients. SciClone earned a four-fold increase in its sales from these efforts. Avon Products Concealed $8 million in gifts, cash and non-business meals, travel, and entertainment to government officials Avon calling was code for providing gifts to government officials in return for business benefits 3

4 Examples of GMET Based FCPA violations Violation examples provided by SEC and DOJ A $12,000 birthday trip for a Mexican decision maker that included dinners and visits to wineries $10,000 spent on dinners, drinks, and entertainment for a government official A sightseeing trip to Italy for eight Iraqi government officials that included $1,000 in pocket money for each official A chauffeur-driven trip around Paris for a government official and his wife Your Challenge is training your employees on less obvious situations High FCPA Risk Gift-giving cultures Red envelopes in China High-Risk Industries Tradition of providing travel and entertainment associated with attendance at health care education functions Meals, entertainment, and travel for foreign government officials Visits to company facilities must be carefully planned Many industries require local JV-partners who may be conduit for improper GMET expenses 4

5 Conflicts of Interest 9 What one person may see as a gift, another may see as a bribe. Lavish, over-the-top, or illegal gifts are more likely to be seen as an attempt to buy the favor of the recipient. Conflicts of interest arise when gratitude or feeling like someone is owed interferes with independent business judgment. Conflicts of Interest 10 GMET can create conflicts of interest for your employees Create biased judgement bad for business! Personal relationships can interfere with neutral business judgment Ensure GMET Policies address conflicts of interest GMET given and received 5

6 Definitions Gifts Items given to third parties on behalf of company Meals Taking people out, if employee does not attend it is a gift Entertainment Non-food based activities, such as events or concerts Travel Payment for transportation or lodging Hospitality Given while attending an event funded by the company, such as a reception hosted by the company or a hospitality suite at a tradeshow or conference Reducing GMET Risk 12 New technologies offer significantly increased opportunity to reduce GMET risk Design your policies to leverage new technology Utilize software based vendor to operationalize policy or do it in-house by setting up appropriate procedures! Always follow the money! Focus on books and records create strong procedures that memorialize approvals. 6

7 Reducing GMET Risk Design your policies to align with metrics needed for successful oversight. Designing GMET policies to address risk Requiring Pre-Approval Historically approval is reactive Employees benefit from confidence and reduced uncertainty Managers have increased transparency Compliance has increased oversight Finance benefits from streamlined expense reimbursement approval procedure 7

8 Designing GMET policies to address risk Aggregate Expense Tracking Many, smaller expenses quickly add up Traditional tracking methods were manual entry of recipients and comparison over time Would your system catch the same person being taken out to dinner every month? Receiving a gift every month? Receiving paid travel more than any other recipient? Designing GMET policies to address risk Address Receipt of GMET Expenses Procurement employees may receive business courtesies Implement procedures to ensure gifts received are distributed within the business - and do not go directly to an individual Set dollar-limit for received gifts and provide examples Okay to accept a small branded item but lavish gift, such as large gift basket or case of win, should be raffled off internally or otherwise distributed 8

9 Transitioning corrupt intent into clear policies Amount Spent and Fact Based Data Basic element - reasonable amount spent Require context and proof - where, when, how much Require copy of receipt Traditionally the Basics Historically many companies only collected this information No longer enough Transitioning corrupt intent into clear policies Recipients? Who is receiving GMET expense? Is same person receiving multiple GMET expenses from one or multiple sales people? Reporting depends on employee to be honest about recipient Procedural Solution Track recipients over time and create automatic alerts when quantity or total spend thresholds are exceeded Can create drop-down selection box to ensure legible and consistency of name spelling to make easier for business to use 9

10 Transitioning corrupt intent into clear policies Is Recipient Government Official? Force employee to consider question Checkmark box on online software Captures employees knowledge of status of recipient Clear Definitions Requires training to reinforce definitions Transitioning corrupt intent into clear policies Purpose of Expense? Related to other event - trade show or product demonstration? Categorize GMET expenses according to pre-approved categories Procedural Solution Create dropdown box so purpose can be easily tracked easier for business to use Flag certain expenses for highrisk purposes 10

11 Policy design considerations Global vs. Local Policies Set global framework But allow for local limits or adaptations Cultural traditions differ When is something reasonable? Build into your procedures Customize limits for each country or geographic region Maintain single point of control for local thresholds single individual responsible for tracking any changes Operationalizing GMET management software has advanced significantly Oversee GMET Expenses on global scale Apply rules consistently Software solution can be built around your policy Manage GMET in-house For small-mid size companies manageable to do in-house Set procedures and train responsible departments on compliance Need to audit and monitor Can establish dashboard 11

12 Leverage Data Collected! Provides volumes of information in manageable format to reveal patterns Same individual providing excessive GMET expenses over and over? Same recipient of GMET expenses from multiple employees? Repeated failure to get pre-approval? Identify specific risk points and address them! Policy Best practices framework Set Detailed Standards Apply rules consistently Best Practices Require approval and preapproval Aggregate data Track patterns 12

13 And finally Make Compliance Easy Make procedures easy and efficient for business - automate and pre-fill boxes where possible Easy to gain buy-in and agreement across departments Managing GMET expenses benefits the business build cross-functional support Make finance s job easier by simplifying paperwork/ approvals Make sales job easier by giving clear rules and easy expense reimbursement procedures And finally Make Compliance Easy Make procedures easy and efficient for business - automate and pre-fill boxes where possible Easy to gain buy-in and agreement across departments Give your employees the confidence to provide reasonable and effective GMET Branded items are a great resource get the Marketing department on board! 13

14 Questions? The Volkov Law Group Anti-corruption due diligence, compliance, enforcement defense and internal investigations The Volkov Law Website: Follow Corruption, Crime & Compliance 28 Michael Volkov: (240)