Question:
What do:
- Cuban cigars
- A gas line to a heated pool
- Dinners at a French restaurant
- A job with a prestigious bank
- A charitable contribution
Have in common?
Answer:
Each was considered a bribe in a corruption and/or racketeering scheme to improperly influence a government official or government employee to use their position to benefit someone or some organization. (See the end notes for the corruption and/or racketeering scheme where the items listed above were part of the illegal scheme.[i]).
Before moving on, an important note on definitions. I will refer to government official but that term includes government employees. If I had $5 every time a client argued with me that the laws on giving items of value to government officials only applies to government officials and not to lower-ranking government employees, I would have enough to start a fund to help clients who violated these regulations to pay their fines.
Overview on “Favors” To Government Officials
The above list also demonstrates why the U.S. government, state and local governments and many foreign governments have so many laws directed at government officials accepting items of value.
Governments regulate “anything of value” to:
- Avoid the slippery slope to full-on bribery and corruption.
- Assure objectivity and transparency in making governmental decisions
- Demonstrate the government’s commitment to ethical decision-making.
Bribery:
Bribery laws essentially make it a crime to exchange something of value for government action or inaction. Examples of such laws include the Foreign Corrupt Practices Act and the very basic crime of U.S. Federal crime “Bribing a Public Official.”
Gifts & Favors:
Regulations prohibit gifts; limit the value of gifts; and/or require government officials, and at times government contractors, lobbyists or whoever is giving the gift to file a public disclosure that a gift was given.
Depending on the scenario, even favors to a government official may run afoul of the law or at the very least create an appearance of impropriety.
For example, driving your contracting officer and his wife to the beach as a favor would violate certain federal government regulations. The Dimora and Fat Leonard prosecution discussed in the endnote demonstrate how gifts and favors turn into full-on corruption and bribery.
Meals and Beverages:
Regulations also either completely prohibit or limit government officials from being wined and dined. In the federal government space, generally those in the executive agencies may not accept a meal or cocktails but instead, may only accept “modest refreshments” such as coffee and bagels. Again, the Dimora and Fat Leonard scandals both included a lot of wining and dining of government officials that was part of the prosecution’s basis for corruption.
Invitations & Travel:
Invitations to government officials to attend or even speak at an event for free or for a reduced price, whether social, a seminar, or training are also often prohibited, unless the nature of the event meets certain criteria. For example, it would enhance the government official’s knowledge and the event is attended by a large number of people. Even so, in the federal government space, the government official must obtain approval to attend.
Additionally, paying for a government official’s travel whether to an event or otherwise, is also generally prohibited unless it is for some legitimate business purpose and for federal government officials, the travel has been approved.
Charitable Contributions:
Some regulations, U.S. federal regulations, for example, prohibit making contributions to a non-profit at the request of a government official. The endnotes in this article demonstrate this with the prosecutions of Schering-Plough Poland and the former Congressman Fattah.
Political Activity:
In the U.S., the federal government and most state and local governments regulate campaign contributions. Some of these regulations prohibit a business from contributing to a candidate at all. Regulations also may prohibit or limit a company’s board members; executives; sales and business development teams as well as their family members from making contributions.
It’s important to remember that in the world of campaign contributions, any kind of supportive political activity may be considered a campaign contribution. For example, using the company’s email system to ask for contributions; organizing a fundraiser at a company’s office; or paying someone with disparaging information about a candidate to keep quiet.
Lobbying & Business Development:
Lobbying and business development with the government may be limited, restricted or must be disclosed. Further, lobbyists often have additional restrictions on what they may give to a government official.
In some jurisdictions, communicating with the government to simply discuss your businesses capabilities or to sell your goods and services, may be considered lobbying.
Business and Personal Relationships:
Personal, professional and business relationships with government officials may also violate corruption or conflict of interest laws. Government officials and government contractors may be required to disclose outside sources of income, loans, investments, gifts, travel, businesses they own, where close family members work, and other investments or relationships.
Procurement Laws:
Governments usually have a defined process for soliciting and purchasing good and services in an attempt to assure transparency and objectivity in the process. As a result, solicitations and contracts often require contractors to disclose actual, potential or perceived conflicts of interest, a certification that they will follow all ethics laws and regulations, etc.
Recruiting & Hiring:
Generally, laws prohibit government contractors or others with matters before the government from recruiting and hiring government officials if it will create a conflict of interest or the perception of a conflict. When it comes to the U.S. federal government, doing so in some instances is a crime.
Similarly, recruiting and hiring a family member or close friend of a government official may violate bribery statutes or the Foreign Corrupt Practices Act if prosecutors can show it was done with the intent to influence the government official. See the endnotes for an example of DOJ accusing Credit Suisse, BNY Mellon, JP Morgan of violating the FCPA for hiring relatives of government officials.
And, improving a government official’s resume or passing their resume to your network, are also generally considered improper favors.
Exceptions:
There are many exceptions to these laws and regulations. Stay tuned for future posts on some of those.
But, asking a third party to do what you cannot, is not an exception and results in you committing a violation along with the third party. So, asking your subcontractor to hire the contracting officer’s son is a violation for you. And, turning a blind eye to your third parties’ improper behavior does not avoid liability.
Managing These Laws and Regulations:
Getting a grip around these laws and regulations may seem a bit overwhelming. However, a systematic, strategic approach makes compliance manageable.
First, identify exactly how your business interacts with governments. Then, based on that assessment, determine which laws you must comply with. For example, does your business engage in lobbying or business development with the government? If so, you know you need to think about complying with lobbying laws. If not, then you know you don’t need to worry about lobbying laws. Does your business pursue government contracts? If yes, then you need to comply with the laws that apply to contractors. If not, then you do not to.
Once you know the laws that apply to your business, then, review existing processes to see if they can be enhanced to include controls for compliantly interacting with government officials. You may be delighted to discover, some controls that are already in place facilitate compliance. Otherwise, it is worthwhile to enhance your controls or develop controls to manage compliance with these laws.
As one Joe Biden once advised:
Fighting corruption is not just good governance. It’s self-defense. It’s patriotism.
Check out this Cassidy Law resource for some questions to ask to determine how you interact with governments to get started on complying with these regulations, fighting corruption and establishing some good governance in your business.
[i] Convicted felon and former Cuyahoga County Commissioner Jimmy Dimora to Rob Rybak, business manager and financial secretary for the Journeymen Plumbers Union Local 55 in Cuyahoga County on a wiretap discussing Dimora’s use of his office for Rybak’s benefit in exchange for Rybak providing Dimora, among other things, free labor. (For all you outside of Ohio, Cleveland is in Cuyahoga County.)
[ii]
Cuban cigars:
Fat Leonard, also known as Leonard Glenn Francis, provided Cuban cigars, along with an unimaginable number of other items (travel, prostitutes, booze, dinners, watches, for example) to U.S. Navy military and civilian employees. In exchange, they gave Fat Leonard and his company, Glenn Defense Marine Group, over a couple decades, sensitive and even classified U.S. naval information so he could compete for and win substantial defense contracts with the U.S. Navy. According to the Washington Post, the U.S. government is investigating about 400 Navy military and civilian employees for ethics violations, corruption, bribery, conspiracy, fraud and other crimes for engaging with Fat Leonard.
A gas line for a heated pool:
Rob Rybak, former business manager and financial secretary for the Journeymen Plumbers Union Local 55, had the gas line installed at then Cuyahoga County Commissioner Jimmy Dimora’s home in exchange for Dimora using his office to do favors for Rybak. Dimora was a Cuyahoga County Commissioner from 1998 until 2010. For many of those years, he and others in local government engaged in corrupt activity – exchanging government benefits for travel, prostitutes, meals, limo service etc. Convicted at trial, Dimora is now serving a 28-year federal sentence. In 2011 Ryback was sentenced to 27 months for his involvement with Dimora’s corruption schemes. Ultimately about 60 government officials and business people were investigated and prosecuted for corruption, racketeering, fraud, lying to the government and other crimes in relation to Dimora’s activities.
Dinners at a French restaurant:
Fat Leonard – again
A job with a prestigious bank:
The US Department of Justice accused and reached settlements with Credit Suisse, BNY Mellon, JP Morgan for hiring relatives of government officials in exchange for obtaining or retaining work.
A charitable contribution:
In June 2004, the US Securities and Exchange Commission charged Schering-Plough Poland with violating the FCPA based on payments the SEC claimed Schering-Plough Poland made to the Chudow Castle Foundation to influence Polish government officials to purchase Schering-Plough Poland’s products.
More recently, in 2016, federal prosecutors in Philadelphia presented evidence at U.S. Rep. Chaka Fattah’s corruption trial that two charities he had established, were, in many instances, used to funnel money to him or others. Fattah was convicted and sentenced to 10 years in prison.