‘Tis the Season for Giving — And for Compliance Risks

With the festive year-end holiday season underway, compliance officers are casting a wary eye on the types of gifts and entertainment their employees are offering.


Lavish gifts to non-U.S. government officials, for instance, can lead to complex (and expensive) investigations and charges under the U.S. Foreign Corrupt Practices Act (FCPA) as well as local anti-corruption regulations. FEI Daily spoke with Bill Pollard, Deloitte Advisory partner, about how companies can reduce risk and maintain anti-corruption compliance through the holiday season.

FEI Daily: Is this a stressful time of year for compliance officers?

Bill Pollard: If you ask your compliance officer, they'll say all 12 months of the year are stressful, but this time of year absolutely has an opportunity to be even more so. We are entering into a traditional gift-giving season around the globe where Western and Eastern cultures are engaging in behaviors where the requests for approvals related to gifts go up significantly.


Bill Pollard



The frequency of interactions with non-U.S. government officials, whether it's during Chinese New Year, or the Christian Christmas season, or Diwali in India, which just passed, raises the volume of activity for compliance officers along with a heightened level of concern.


Gifts and entertainment are compliance areas they’re focusing on because of the cultural elements of providing gifts around the holidays. Although more companies have policies and procedures in place to mitigate that risk, what may be a small meal in June or July during a normal interaction with a state-owned entity in China may turn out to be a much more lavish event at a five-star restaurant or hotel. That dinner may or may not include a group of employees from the customer, but may be represented as such on an expense reimbursement form because in actuality, the meal is meant to incentivize a particular behavior by the government official and may look like a bribe.

Or, what might have been a bottle of vodka during the year becomes a case of vodka shipped to someone's home during the holidays, instead of to their office. It's that type of behavior that puts companies at higher risk.

FEI Daily: What are the common or highest compliance risks?

Bill Pollard: The main focus is on the Foreign Corrupt Practices Act. In addition, in almost every one of these jurisdictions, it's illegal to pay bribes in the local jurisdiction as well. Russia has an anti-corruption law, China does, Brazil does. Not only could you run afoul of the U.S. FCPA, but in almost every instance, you could violate a local country's anti-corruption laws as well.

FEI Daily: Are you seeing heightened concern in some industries versus others?

Bill Pollard: I think you continue to see concern in some of the industries that have been typically subject to enforcement action, which would be pharmaceuticals and other life science industries, the energy industry, transportation, telecommunications. Some of the industries that have been subject to enforcement actions in the past are still a key focus for the government, but you're starting to see companies in manufacturing and retail, and a couple of other industries, showing more vigilance to protect themselves from these risks.

FEI Daily: Do companies have to balance risk management concerns against local practices or customer expectations?

Bill Pollard: Yes, to a degree. It's very easy for a company to minimize this risk by saying, "Well, that's just the way they do business in China," or, "That's just the way they do business in Brazil." But the reality is, 90 percent of the country is not out there with their hands out waiting for a bribe. It's still just bad people conducting corrupt behavior.

For example, in countries that have higher expectation of gift giving as a cultural norm, there are many companies that can stay within the expectation of the culture, but minimize the risk. You can still give a gift to a potential customer in China, but I would make sure that it's not an expensive gift. I would make sure that it is reflective of my business, I would make sure that it has my company's logo on it or in some way reflects the true purpose of that gift, which is to advertise or have someone remember who I am, versus an incentive to win favor or direct business toward me.

Even in those cultures where there is a greater expectation, there are still ways to manage that expectation.

FEI Daily: Given the heightened concerned as the year-end holidays approach, what do you recommend to customers to help get ready for that holiday season?

Bill Pollard: In most instances, the new year starts out with a refresher on policies and procedures. For this one in particular, I wouldn't be waiting until the new year. I would be sending out a message to my employees reminding them of our policy and our procedures around gift giving, entertainment and travel related to non-U.S. Government officials. I might even send a message from the president or the CEO of the company delivering that tone-at-the-top message.

Companies might also conduct annual training in the fall or early winter to ensure their folks are prepared for that risk and what it means to them. And I would think about potentially adjusting some of my audits to focus on that particular risk during this time of year as well, and testing and monitoring on a proactive basis to try to manage this risk.

FEI Daily: Do analytics play a role in that monitoring and compliance?

Bill Pollard: To date, it doesn't play as significant a role as I might expect, but I think that's because the use of analytics in managing many risks is still in more nascent stages. But for those companies who are deploying analytics, you're starting to see more sophisticated use of analytics than in the past.

Now you're seeing more sophisticated visualization tools, or companies hiring folks to come in with higher-order analytics that can do things like predictive and geospatial and network analytics and link analysis. Companies are trying to map people to transactions and emails, and looking for relationships there that may identify a risk. Or they’re looking at accounts payable data and expense data and sales data and looking for relationships among disparate sets of data.

As companies are evolving in their deployment of analytics, there will be more effective ways to use their data to help further create a more robust FCPA or an anti-bribery program, and a more defensible position for themselves.

FEI Daily: So far we've focused on government-related gifts. Is there also a potential issue with non-government customers?

Bill Pollard: Absolutely. It doesn't fall within the purview of the FCPA because the FCPA is focused on non-U.S. government officials, but there are plenty of other bribery and related statutes in the U.S. that are focused on corruption. For the last 10 years, companies have been looking outside of the U.S. to mitigate their risk, and maybe have taken their eyes off of what's going on in their own backyard, so to speak.

With that said, although the incentives and pressures to pay bribes in the US, to win favor or to secure contracts can be just as high as they are overseas, the visibility and the transparency into the transactions and the people executing those transactions is usually also much higher in the U.S. I think that helps to give companies comfort that the risk may be less in the States than it is outside the United States, because their procedures are more robust in the U.S. Although the risk profile exists, it generally may not be as high as it is outside of the United States.

FEI Daily: Although this is the season for giving, are there similar compliance-related concerns about employees accepting gifts?

Bill Pollard: The short answer is yes. Although there is no prohibition on the acceptance of gifts from a U.S. FCPA perspective, you are seeing more companies adopting a low tolerance to potentially zero-tolerance around the acceptance of gifts, and for similar reasons. The idea that a company's employees could be influenced or corrupted by the acceptance of gifts creates an environment where companies are looking to mitigate that risk, similar to what they would do on the giving of gifts.

FEI Daily: Are there other times of year that offer similar types of compliance challenges?

Bill Pollard: For any foreign jurisdiction, you have to look toward their high holidays. Whether it's Golden Week in China, which is in February, or Japan’s Golden Week in late April and early May, or India' Diwali, which just passed. It's the high holidays where there is a greater expectation of gifts and a need for a heightened sensitivity around the risk.

If I were a compliance officer, I want to have a calendar that shows where might be holidays for my businesses around the world because those are great reminders for me of sending out a message to my employees to let them know of the risks, and our policies, and procedures to mitigate those risks.