Bill Steinman: Let's talk about per diems, without the shouting
Tuesday, April 12, 2016 at 10:28AM
Bill Steinman in FCPA Guidance, FCPA Resource Guide, Foreign Official, Per Diem, Promotional Expenses, Trace International, oOpinion Procedure Release

Per diems. We in the FCPA bar love to hate them, and with good reason. Who likes the idea of giving cash to foreign officials? If there’s anything that should rankle the anti-corruption specialist, this is it. 

Yet, in an earlier post for the FCPA Blog I examined a narrow set of circumstances in which paying cash per diems to foreign officials is appropriate.

To refresh the reader’s recollection, I believe that per diem payments are sound when: (i) expressly required by a contract with a foreign government, (ii) the amount of the per diem is clear and unambiguous in the contract, (iii) the amount of the per diem is reasonable, and (iv) the government customer, not the supplier, was responsible for the requirement ending up in the contract.

I frequently hear assertions that the DOJ and the SEC have condemned per diems. But have the agencies actually said this? At first blush, they seem to do just that in the Resource Guide (pdf). On page 24 of the Guide, the DOJ and SEC set out a list of things to avoid when covering reasonable and bona fide expenditures for visiting foreign officials. In that list, the SEC and DOJ admonish companies to “pay all costs directly,” and not to “advance funds or pay for reimbursements in cash.” 

Let’s look at that list in a bit more detail, starting with how the agencies describe their own admonition.

The Resource Guide describes the list as a set of “safeguards” that “may be helpful to businesses in evaluating whether a particular expenditure is appropriate or may risk violating the FCPA.” This does not sound like a definitive expression of what companies can and cannot legally do. Rather, if we take it at face value, this list is a set of factors that companies ought to consider in evaluating the FCPA risks attendant to particular travel-related expenditures. Nothing more.

Moreover, other items in the very same list specifically contemplate cash payments. For example, the DOJ and SEC advise companies to ensure that “any stipends are reasonable approximations of the costs likely to be incurred.” According to the good people at Merriam-Webster, the word “stipend” means a “fixed sum of money paid … to defray expenses.” Sounds like a cash payment to me.

The agencies also say that companies should “provide no additional compensation, stipends, or spending money beyond what is necessary to pay for actual costs incurred.” In other words, you can provide spending money, just not too much.

If we continue to dissect the Resource Guide, we also find that the agencies favorably cite two Opinion Procedure Releases in which the DOJ considered cash payments given to foreign officials, and ultimately decided that the payments did not violate the FCPA. In fact, the agencies describe these OPRs in the Resource Guide as examples of “legitimate promotional and contract-related expenses.” 

Let’s look at these legitimate expenses.

In OPR 04-04 (pdf), a U.S. company planned to pay for a trip to the United States by a group of foreign officials who were drafting a new insurance law in their home country. The purpose of the trip was to help them study the issue. The requestor disclosed to the DOJ that it intended to apply for a license to sell insurance in the country in question, and as part of the application process it needed to demonstrate that “it has been supportive of the country’s socio-economic needs, proactive in the development of the insurance industry, and active in promoting foreign investment.” The requestor hoped to satisfy this requirement by paying for the officials’ trip.

The requestor proposed covering airfare, hotels, local transportation, occasional meals and tourist activities, as well as “a modest per diem of $35/day.” The DOJ indicated that it did not intend to take enforcement action with respect to the proposed trip.

In OPR 08-03 (pdf), the folks at TRACE wanted to hold a press conference in China regarding the information it had gathered in that country through BRIBEline, its online tool for reporting bribery. To help journalists at state-owned media outlets attend the event, TRACE proposed to cover their lodging costs, and also to provide a cash stipend to “cover lunch, local transportation costs, and incidental expenses.”

TRACE hoped that the press conference would help “increase its membership, enhance its reputation, [and] promote its initiatives, such as BRIBELINE.”  In other words, TRACE considered the press conference to be, at least in part, promotional in nature. 

As above, the DOJ indicated that it did not “intend to take any enforcement action with respect to the planned provision of the stipends” and the other costs that TRACE proposed to cover.

Notice that the costs incurred on behalf of foreign officials in these OPRs were for marketing and promotional purposes. The cash payments were not required as part of contract performance. In other words, the provision of those payments -- while appropriate -- was more aggressive from an FCPA perspective than the position I’ve staked out on per diems. 

What that means from a practical perspective is this: If the DOJ and SEC think it’s reasonable in certain situations to make voluntary cash payments to foreign officials during marketing trips, then it stands to reason that it must also be acceptable to do so pursuant to clear and unambiguous contractual requirements.

In sum, having parsed through the Resource Guide and the relevant OPRs, we find that in the right circumstances, the DOJ and SEC have given per diems the proverbial thumbs-up. We can therefore dispense with the notion that the enforcement agencies frown on the practice. 

However, this is not to suggest that companies should handle per diems lightly. Like I said in my first post in this series, paying a per diem -- even one that is clearly set forth in a contract -- is a risky affair. Cash payments are intrinsically vulnerable to abuse, perhaps even more so than other travel and hospitality expenditures. Companies must therefore impose strict controls and risk mitigation steps on all per diem payments.

I’m getting ahead of myself. Before I delve into risk mitigation, in my next post I’ll distinguish between legitimate per diem payments and the corrupt payments featured in several prominent FCPA enforcement actions -- just in case we still have some naysayers out there. 

Thanks for reading, and stay tuned.

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Bill Steinman is the senior partner at Steinman & Rodgers LLP, a boutique law firm in Washington, D.C. specializing in international anti-corruption compliance and investigations. He can be contacted here.

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