A Royal Mess, Pt. 2: Non-Profits, Charitable Contributions and the FCPA 1

In our previous post, we discussed the ongoing corruption case against Princess Cristina of Spain and her husband, Duke Iñaki Urdungarin. Urdangarin, a former

[Courtesy of Flickr]

[Courtesy of Flickr]

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.

Key Cases

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…

Disclosure Requirement of Conflict Mineral Rule Held Unconstitutional: Applicability, Due Diligence, and Reporting Requirements Remain Intact Reply

2519766036_9e37579642_oOn April 14, 2014, the U.S. Court of Appeals for the D.C. Circuit held that the disclosure requirement for conflict minerals in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Act”) was unconstitutional.  In National Association of Manufacturers v. Securities and Exchange Commission, the court found that requiring companies to declare whether their products are “DRC conflict free” forced commercial speech in violation of the First Amendment.  However, the other conflict mineral requirements in the Act regarding applicability, due diligence, and reporting remain intact.[1] More…

Day 10: $500 Credit Applicable to Any TRACE Due Diligence Service

Offer: $500 Credit for Any TRACE Due Diligence Service

This offer is limited to the first 10 respondents.

Day 10-TRACE Holiday Promo-Due Diligence CreditTRACE offers both members and non-members a variety of customizable risk-based due diligence services. For the final day of our 10 Days of Giving, TRACE would like to offer a $500 discount on ANY TRACE due diligence service to the first 10 respondents. Assess third party risk using our TRACEsort tool or take advantage of our TRACEcertification portable due diligence reports, which contain a wealth of anti-bribery compliance information establishing that an intermediary has been thoroughly vetted, trained and certified by TRACE.

About TRACE Due Diligence Services

TRACE’s due diligence services are managed by skilled multilingual due diligence analysts, under the supervision of FCPA lawyers, and range from an initial compliance screen to an intensive, on-site review of third party intermediaries and business partners. Many TRACE services offer ongoing monitoring of third party relationships. TRACE has performed over 300,000 due diligence reviews in almost every country, and unlike most vendors, never outsources due diligence work to independent contractors.  Leveraging more than a decade of anti-bribery expertise, in-house research capabilities in twenty languages and a network of TRACE Partner Law Firms around the globe, TRACE offers competitive pricing and superior quality.

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Learn more about the services TRACE offers and download our Due Diligence Brochure at http://traceinternational.org/Diligence/due-diligence-services.html.

This offer is non-transferable, restricted to companies only and may not be redeemed by law firms or vendors. 

To accept this offer, please write to info@traceinternational.org. This offer is limited to the first 10 respondents. Due diligence credits must be redeemed prior to December 1, 2014.

Our 10 Days of Giving ends today! Happy Holidays from TRACE! We look forward to working with you in 2014 and wish you a prosperous (and compliant) new year.

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The “next generation” of due diligence Reply

TRAC LogoDue diligence can be slow and repetitive and, as a result, expensive and time-consuming.  What we have been hearing from companies for several years is that they want to move to “next generation” due diligence.   Companies and their third party business partners both want a robust service, available quickly at a reasonable price.   TRACE has responded with two new products over the last year:  TRAC is designed for baseline due diligence for lower risk third parties, like suppliers and intermediaries with low volume sales, or those selling into markets with low levels of bribery; TRACEcertification, which we’ll talk about next week, is designed for higher risk third parties.

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Join the growing community of companies across all industries using TRAC for baseline due diligence.   Third party intermediaries pay just US$80 for a fully-vetted TRAC number and then make their profile available to companies for review.

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To schedule a personal, web-based demo, please email us at info@tracnumber.com.