TRAVEL EXPENSES CAN BE THE BASIS FOR SIGNIFICANT FINES UNDER THE FCPA

As the upward trend in US Foreign Corrupt Practices Act (FCPA) enforcement continues, fines and penalties for FCPA violations also continue to rise. The recent Diebold, Inc. settlement illustrates this trend against the backdrop of a compliance issue that is drawing greater attention from the US regulators: the extension of travel and related benefits to foreign government officials.

 Diebold case

Diebold is one of several recent cases focused on inappropriate travel and entertainment for foreign officials. In October 2013, Diebold, an Ohio-based manufacturer of ATMs and bank security systems, was charged with violating the FCPA by bribing officials of state-owned banks in China and Indonesia with pleasure trips in order to solicit business. Between 2005 and 2010, Diebold organised and sponsored trips to tourist destinations in the US, Europe and elsewhere, including Hawaii, Napa Valley, Disneyland, Paris, Amsterdam, Venice, Australia, New Zealand and Bali. Diebold falsified its books and records by mischaracterising the improper travel and related expenses as ‘training’ and other legitimate business expenses. Diebold employees corresponded about reducing the appearance of impropriety of the trips by modifying their itineraries and misstating their purpose. Diebold spent approximately $1.75m on improper trips and related benefits. The value of the benefit Diebold derived from its improper activities, according to the DOJ, was more than $7m. The combined fines and penalties assessed by the DOJ and SEC were nearly $48m. Diebold’s three year deferred prosecution agreement also included compliance monitoring for 18 months.

 Other recent travel-related cases

Abuse of foreign official travel has been a recurring issue in recent years. Even as the government pays greater attention to government customer-related travel, companies continue to struggle with the issue.

Jan-Mar 2014 Issue

Baker & McKenzie LLP