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FCPA Blog Daily News

« Sentencing Roulette Under The FCPA | Main | 'White Collar, Blue Collar' FCPA Defendants »
Tuesday
Mar062012

Testing Wynn's Charitable Giving

The SEC sent a letter to Wynn Resorts last month asking about a $135 million gift to the University of Macau Development Foundation.

The SEC's inquiry followed allegations in a lawsuit filed in January by Wynn's biggest shareholder, Kazuo Okada. He called the $135 million donation inappropriate because the final installment is due in ten years, when Wynn's Macau gaming license is set to expire.

Can charitable contributions violate the FCPA? Yes, if they benefit government officials and are intended to obtain or retain business or gain an unfair advantage.

An example is Schering-Plough -- the maker of Afrin, Claritin, Coricidin, Cipro, and other drugs. It was once charged under the FCPA for its overseas giving.

According to the SEC's 2004 complaint, Schering's Polish subsidiary donated to a charitable organization called the Chudow Castle Foundation. The Foundation was headed by an individual who was the director of the Silesian Health Fund from 1999 to 2002, when the donations were made. The Silesian Health Fund was a Polish governmental body that funded the purchase of pharmaceuticals by government hospitals.

The SEC said Schering-Plough Poland paid 315,800 zlotys ($76,000 at the time of the payments) to the Chudow Castle Foundation in order to increase drug sales. The subsidiary's books and records didn't accurately record the payments, and Schering-Plough's internal controls were inadequate to prevent or detect them.

In its settlement with the SEC, Schering-Plough paid a $500,000 civil penalty and retained an independent consultant to review its FCPA compliance program.

At a 2007 conference, Mark Mendelsohn, then head of the DOJ's FCPA unit, said charitable donations have to be considered on a case-by-case basis. Is there a nexus between the charity and any government entity from which the company is seeking a decision? If the governmental decision-maker holds a position at the charity, that's a red flag.

Is the donation consistent with the company's overall pattern of charitable contributions? For Schering-Plough, the SEC said the payments constituted around a third of S-P Poland's total donations budget. Moreover, only the Chudow Castle Foundation received multiple donations, four in 2000 and seven in 2001, making them highly unusual.

Other smell tests: Who's idea was the donation? If it benefited a government official, did that person hint or beg for a payment to the charity?

Will there be a tax deduction for the donation? In most countries, one important result of any gift to charity is tax relief. Therefore, not seeking the tax benefit can become another warning sign.

These are some of the questions the SEC will be asking about Wynn's donation to the University of Macau Development Foundation.

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