In our previous post, we discussed the ongoing corruption case against Princess Cristina of Spain and her husband, Duke Iñaki Urdungarin. Urdangarin, a former
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Olympian, is accused of using his position to skim money from government contracts. Princess Cristina, for her part, has been charged with tax fraud and money laundering.
Look past the headlines and you will see a risky scenario faced by many companies doing business abroad: contributing to foreign charities. The organization at the center of the Spanish case, Instituto Nóos, is a not-for-profit organization with extensive ties to public officials – including Spain’s Royal Family. Allegedly, Urdungarin channeled funds from corporations bidding on government contracts through the non-profit. Charities and not-for-profits with connections to public officials raise significant concerns under the U.S. Foreign Corrupt Practices Act (FCPA), as donations to these organizations can be used to buy influence – for example, by funneling funds or donating to an officials’ favorite charity or cause.
The cases of Schering-Plough and Eli Lilly show that the risk of a FCPA violation is not limited to charities that funnel money to public officials, but extends to bona fide, legitimate charities as well. Both companies, while negotiating product sales with Polish government officials, made donations to the Chudow Castle Foundation, allegedly at the request of the foundation’s founder and president, who was also the Director of the Silesian Health Fund and in a position to influence the negotiations. The SEC alleged that the donations had been made to influence the public official and win contracts.
As detailed in the SEC’s complaint, Schering-Plough donated approximately USD 76,000 and notably lacked a policy requiring due diligence of charitable entities. In 2004, in an agreement with the SEC, Schering-Plough agreed to increase their due diligence efforts and pay a USD 500,000 civil penalty for their actions. According to the SEC Complaint regarding Eli Lilly, the company donated USD 39,000 and failed to properly oversee and investigate the relationship between the foundation, the negotiations, and the contributions. It’s notable, however, that in both cases it was not alleged that any money was transferred to the public official, or that the non-profit was illegitimate. Rather, the donations allegedly violated the FCPA because they were made to influence an official by donating to a cause the official was associated with and apparently cared about.
How Companies Can Protect Themselves
There are several practices companies can employ to protect themselves from the risk of violating the FCPA while making charitable donations. As outlined in More…