IKEA’s charitable giving in Russia and the FCPA (Part Six)
Monday, November 24, 2014 at 9:54AM
Ilya Zlatkin in Charitable Contributions, FCPA Guidance, Facilitating Payments, Foreign Official, Ikea, Lennart Dahlgren, Russia, Siemens, Statute of Limitations, local law

This is the final post in my series analyzing IKEA’s charitable contributions in Russia in the 1990s and early 2000s. I haven’t presumed IKEA was subject to the FCPA when the events happened or that any FCPA violations might have occurred. Instead, I’ve looked at IKEA’s Russia experience to learn more about charitable giving under the FCPA and how to manage giving programs.

Part One of the series was an overview of IKEA’s expansion plans in Russia, a description of the source of information we used for our analysis, and the legal framework for charitable contributions under the FCPA. Parts Two, Three, Four, and Five showed examples of IKEA’s use of donations as a means of achieving its business purposes.

So what are we to make of IKEA’s actions in Russia?

No doubt the company acted more ethically than most other businesses operating in that climate. Aside from the memoir of Lennart Dahlgren, the former CEO of IKEA Russia, media outlets in multiple countries chronicled IKEA’s struggles in Russia, frequently sympathizing with the company. This includes the FCPA Blog.

Despite all its good intentions, the Swedish company may have acted in ways inconsistent with the antibribery provisions of the FCPA. This is unsurprising because the events Dahlgren describes occurred before the modern era of FCPA enforcement, measured from 2008 with the Siemens enforcement action. Since then, compliance programs have become much more common and comprehensive.

What can happen now?

The FCPA has a five-year statute of limitations, although the DOJ can extend that by three years or sometimes longer when there’s overseas evidence. The events described by Dahlgren happened between ten and fifteen years ago.

Would the FCPA’s local law affirmative defense be available to IKEA? That defense says a bribe paid to a foreign official is permitted if it was "lawful under the written laws and regulations of the foreign official’s" country. 15 U.S.C. §§ 78dd-1(c)(1), 78dd-2(c)(1) and 78dd-3(c)(1). While Russian law allows businesses to make charitable contributions, none of those laws explicitly say that these donations can be used to settle disputes with the government.

Could IKEA claim that the donations were facilitating payments? The FCPA guidance says the issuance of permits can be “routine government action” that triggers the application of the facilitating payments exception. But the exception does not apply to instances in which an official can exercise discretion. The officials described by Dahlgren as combative toward IKEA’s plans apparently exercised the type of discretion that would negate the facilitating payments exception.

IKEA might still have an argument that its donations didn’t go to foreign officials or benefit them but instead went directly to charitable groups or government agencies. Evidence on that question of fact could determine whether there were payments to “foreign officials,” which is a necessary element of an FCPA offense.

In any case, the analysis today about charitable contributions would start with the FCPA guidance (which didn’t exist during Dahlgren’s time leading IKEA Russia). The guidance boils down the assessment into five questions, as follows:

1) What is the purpose of the payment?

2) Is the payment consistent with the company’s internal guidelines on charitable giving?

3) Is the payment at the request of a foreign official?

4) Is a foreign official associated with the charity and, if so, can the foreign official make decisions regarding the business in that country?

5) Is the payment conditioned upon receiving business or other benefits?

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In light of the business climate in Russia when IKEA tried to expand its operations there, I commend the company for the ethical standards it set for itself and the efforts it made to remain compliant. On the other hand, the obstacles IKEA faced may have pushed it over the line with some of its charitable contributions, at least where we would draw that line today.

IKEA’s experience is a cautionary tale to other multinational corporations facing tough compliance challenges and seeking to emulate the Swedes.

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Ilya Zlatkin is a Chicago attorney focusing on business planning, intellectual property, and international entrepreneurship. Having passed the CFE exam, he is on track to become a Certified Fraud Examiner in early 2015. He can be contacted here.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
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