Hong Kong's Gift-Giving Rules

ethiXbase is the world's largest database of anti-corruption legislation, gift-giving regulations, and enforcement actions. Instant access is available on a 14-day free trial basis. No credit card information is required to set up the free trial.

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Here's part of the entry from ethiXbase about gift-giving regulations for public officials in Hong Kong:

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Gift-giving legislation can be found in the Prevention of Bribery Ordinance (Chapter 201, Laws of Hong Kong), Acceptance of Advantages (Chief Executive's Permission) Notice 2010, and the Civil Servants Guide to Good Practices.

Civil servants cannot accept gifts or advantages from contacts with whom they have official dealings.

Gifts from family members are exempted.

"Close personal friends" can give gifts not exceeding HK$3,000 [US$386] on occasions when gifts are traditionally given or exchanged, and gifts not exceeding HK$500 on any other occasion. Loans of money from friends are allowed if they do not exceed HK$3,000 [US$386] and are repaid within 30 days.

Other people can give gifts not exceeding HK$1,500 [US$193] on occasions when gifts are traditionally given or exchanged, and gifts not exceeding HK$250 [US$32] on any other occasion. Loans of money are allowed if they do not exceed HK$1,500 [US$193] and are repaid within 30 days.

Civil servants are instructed to refuse "lavish or unreasonably generous or frequent entertainment."

SL Industries' Gifts and Entertainment Disclosure

From the 'investigations' index of ethiXbase, here is SL Industries Inc.'s FCPA disclosure in its latest Form 10-Q filed May 10, 2012.

The New Jersey-based company designs, manufactures, and markets electronics and power protection equipment used in the aerospace, computer, telecom, medical, and transportation industries.

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Company Name	SL Industries Inc.
Filing Date	May/10/2012
Investigating Entity	Internal Investigation
Notice Type	Preliminary Investigations

Excerpt     

The Company has been and is conducting an investigation to determine whether certain employees of SL Xianghe Power Electronics Corporation, SL Shanghai Power Electronics Corporation and SL Shanghai International Trading Corporation, three of the Company's indirect wholly-owned subsidiaries incorporated and operating exclusively in China, may have improperly provided gifts and entertainment to government officials (the "China Investigation"). Based upon the initial investigation, which is ongoing, the preliminary estimate of the amounts of such gifts and entertainment does not appear to be material to the Company's financial statements. There can be no assurance, however, that after further inquiry the actual amounts will not be in excess of what is currently estimated. Such estimate does not take into account the costs to the Company of the investigation or any other additional costs. The Company's investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on March 29, 2012, the Company's outside counsel contacted the DOJ and the Securities and Exchange Commission (the "SEC") voluntarily to disclose that the Company was conducting an internal investigation, and agreed to cooperate fully and update the DOJ and SEC periodically on further developments. Since then, the Company's counsel has done so, and the Company has continued to cooperate fully with the DOJ and the SEC. The Company has retained outside counsel and forensic accountants to assist in its investigation of this matter. Because the investigation is on-going, the Company cannot predict at this time whether any regulatory action may be taken or any other adverse consequences may result from this matter.

Title                          SL Industries Inc. - 5/10/2012

Document URL     investigations_disclosure/memofile3 [pdf embedded]

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ethiXbase is the world's largest database of global anti-corruption legislation, regulations, enforcement actions and compliance investigations. Instant access to ethiXbase is available on a 14-day free trial basis. No credit card information is required to set up the free trial.

We Chat About China

This week we talked with Brian Kindle at the Association of Certified Financial Crime Specialists.

Our topic was corruption and compliance in China, and the FCPA.

The podcast page is here.

Diageo's 'Rice Cake' Payments

There's always a danger that an unhealthy corporate practice, even an illegal one, will gain internal acceptance and legitimacy simply because it happens all the time.

Take Diageo's gift giving in Asia. Although illegal, the behavior was so common that it eventually became a familiar corporate routine. The result? Not sanitization by repetition, but an inevitable compounding of the wrong.

Lots of FCPA enforcement actions have involved a main course of bribery in Asia with a side dish of gift-giving -- among them IBM, Universal Corporation and Alliance One, Veraz Networks, UTStarcom, Avery Dennison Corporation, GE InVision, and Monsanto.

But in Diageo's settlement with the SEC last year for more than $16 million, gift giving took center stage.

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Here's part of the SEC's description of the company's behavior:

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From at least 2002 through at least 2006, Diageo, through DK [Diageo Korea], routinely made hundreds of small payments to South Korean military officers for the purpose of obtaining or maintaining business and securing a competitive business advantage. The payments assumed two forms: (i) holiday and vacation gifts known as “rice cake” payments; and (ii) business development gifts, called “Mokjuksaupbi” payments.

Rice cake payments were customary and traditional presents that Diageo, through DK, provided to scores of military officers – many of whom were responsible for procuring liquor – several times each year during holidays and vacations. From 2002 through 2006, DK made approximately 400 rice cake payments, totaling at least $64,184, in the form of cash or gift certificates ranging in value between $100 and $300 per recipient. In October 2004, a senior officer within Diageo’s global compliance department explicitly approved the practice of making rice cake payments after a DK employee explained that the company would face a competitive disadvantage if it refrained.

Over the same four-year period, Diageo, through DK, also spent approximately $165,287 on hundreds of non-traditional, non-seasonal gifts and entertainment for the military. Of these so-called “Mokjuksaupbi” payments (a term that was broadly intended by DK to refer to “payments for relationships with customers”), approximately $106,051 were for the purpose of influencing specific purchasing decisions. For example, in 2003, DK personnel requested approval of approximately $2,600 to entertain army personnel “for their cooperation” in connection with the re-selection of Windsor Scotch.

Diageo failed to ensure that DK properly accounted for the rice cake and Mokjuksaupbi payments. During 2002 and 2003, DK used fake vendor invoices to generate cash for the rice cake payments and, in 2002, failed to record any of the rice cake payments on its general ledger. DK incorrectly recorded subsequent rice cake payments, and all of the Mokjuksaupbi payments, under general ledger accounts for expenses such as sales, promotion, or customer entertainment. Diageo thereby concealed the fact that it was providing gifts to military personnel from South Korean government auditors.

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Grainger Investigates China Gift Cards

Gift-giving practices by employees in China have triggered an FCPA investigation, according to an SEC filing this week by WW Grainger Inc.

The Illinois-based industrial supply company said sales employees in China 'may have provided prepaid gift cards to certain customers.' Among Grainger's customers are government departments and agencies.

The company said it self reported the potential violations to the DOJ and SEC in late January. Its internal investigation isn't finished.

Grainger's 2011 revenues were $8 billion. It sells about a million products directly to business customers.

In China, Grainger operates from a distribution center in Shanghai and two small regional warehouses. It also has six sales offices in eastern China 'that allow sales representatives to work remotely and meet with customers,' it said.

WW Grainger Inc trades on the NYSE under the symbol GWW.

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Grainger's FCPA disclosure in its Form 10-K (annual report) filed on February 28, 2012 for the period ending December 31, 2011 said:

The Company is conducting an inquiry into alleged falsification of expense accounts submitted by employees in certain sales offices of Grainger China LLC, a subsidiary of the Company. In the course of the investigation the Company learned that sales employees may have provided prepaid gift cards to certain customers. The extent and value of the gift cards are subject to further inquiry. The Company's investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on January 24, 2012, the Company contacted the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation, and agreed to fully cooperate and update the DOJ and SEC periodically on further developments.

The Company has retained outside counsel to assist in its investigation of this matter. Because the investigation is on-going, the Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.