Corporate hospitality, Your Questions: Answered - Written by on Wednesday, May 25, 2011 1:10 - 0 Comments

Ask Barry & Richard: de minimis caps on corporate hospitality – is £50 ever high enough?

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Question

I recently attended your very informative if slightly disconcerting seminar on the Bribery Act and just have a quick question around de minimis caps on the value of Corporate hospitality either given or received.

I work in the sports industry. I am aware that, in light of the Bribery Act, some within the sports industry have put a monetary value cap on any gifts/hospitality at which point the recipient should declare receipt to HR/the Compliance Manager. The caps seem to range from £50 – £100. This could create a huge administrative burden especially in industries like the sports industry where corporate hospitality involving tickets etc is commonplace.

Is it not more sensible to look at the rationale behind the giving or receipt of gifts and hospitality – i.e. whether or not it is intended to confer a business advantage on the recipient? Or does the SFO expect to see a de minimis value to avoid any charge that bribes are being made in a drip feed fashion in small amounts?

Answer

Thank you.  We had thought that the subject of corporate hospitality was dead and buried after the guidance but it is still one of our most frequently asked questions.

You are right to point out the rationale behind the receipt of gifts or hospitality and that it is important to be aware of the legal tests.

But: do you want those who receive the corporate hospitality to make the judgment call using the legal test to determine whether they have been offered a bribe, or not?

Asking recipients to work it out for themselves (at best) risks the application different understandings and misunderstandings of the law.  At worst, no-one will bother to consider anything or more likely they will convince themselves that whatever the level of the corporate hospitality it does not constitute a bribe.

This can be summed up in one word in practice.

Risky.

If the regulator comes knocking different approaches to using the rules in practice will be hard to defend unless there are clearly expressed consistent reasons for the change (which there won’t be).

For these reasons many have opted to interpret the legal test for their business and adopted financial thresholds for recording and obtaining approval for corporate hospitality.  You mention thresholds of between £50-£100.  Neither the law nor the guidance is prescriptive on likely levels.  What is more important is a considered and thought out approach which results in the final numbers.

This all kicks off with working out where legal/compliance think the lines should be drawn in the context of your business and then imposing limits which address that risk.

We have seen thresholds of £50-£100 for various sectors but it is possible and  may even be likely that there is justification for deviating from these in the context of the sports sector.

For example, a limit of £50 for all hospitality for a formula 1 team or for an Olympic Sponsor is, lets face it, likely to be inappropriate in circumstances where the cost of a ticket to the Grand Prix or the cost of sponsoring the Olympics when divided per head likely to exceed the £50-£100 amount.

So, the key is to identify the likely areas and then set out clear rules.  Meals, gifts, conferences, travel, entertainment are usual suspects.

We agree (we normally do – but not always…) with what Howard Sklar (who sat on our panel at the presentation you attended has to say on the subject).  Here is what Howard has to say:

“For meals, pick a number. By “number” I mean a pre-set limit to how much can be spent on meals that include government officials. Personally, I think it better for each market to set their own number. What’s important here isn’t the number, it’s the process. If you have a market-level risk committee, use it. They should meet, decide what’s reasonable in the market (if there’s an internal limit to how much employees get reimbursed for meals in the market, take that into account), set a number as the rule, and enforce it. The decision should be reviewed annually. If you don’t have a pre-existing committee, get your country leader, your head country lawyer, your head of sales for the market, and your market compliance officer together and call it a risk committee. [our emphasis]

Or, you can have a global number. £125 a person anywhere in the world. If you can show how you came up with the number—meaning that there was a thoughtful process, and the number isn’t totally outrageous—you will likely never get into trouble if the meal in question followed the rule. The key is reinforcing the rule at every opportunity. The difficulty here, of course, is monitoring. Ideally, your expense reimbursement system would have the capability to monitor these things. If it doesn’t, upgrade.

I’m not a fan of pre-approval for meals. There are just too many, and some are impromptu. Plus, if the UK takes the private-sector bribe sections seriously, you’re going to have a real problem getting your approval process to scale up to handle the increased volume of approval requests. This is one of my real worries about the impact of the private-sector laws: compliance controls, in most cases, are not scalable. That fact is something no one is talking about yet. But they will, because it’s the drop-off that we’re all running toward. One pitfall with no pre-approval is you can have someone get taken out regularly, like how some doctors get their lunch every day from their drug reps. I would mandate that managers must be notified of meals with government officials. Then ensure that managers get the message that repeated meals with the same government official should be monitored. Not prohibited, monitored. What you really don’t want to happen is that you prescribe rules which, because they’re too intrusive, get ignored. You’re far more likely to get into trouble that way than because you spent too much.

For travel, there are some simple rules: don’t fly relatives. No first class. No side trips. Travel cannot include more than the event (in other words, if it’s a two-day conference, the trip can’t be two weeks.) If you’re in a high-risk industry, I might include notification/approval from the agency the official works for. Lodging follows similar rules: no suites, relatives can stay in the room with the official, but no other rooms (for children, e.g.). I would also require pre-approval for all government travel. Unlike meals, travel is never impromptu. You always have lead time, usually significant.

One complication is in the event space; this is the area the case study directly addresses, remember. Corporations, especially large corporations, plan events. Conferences, etc. I believe that all conference expenses, including travel, should be handled as a group, and aggregated, and pre-approval should be required. Remember, these kinds of events have huge lead times. All event expenses should be put on a spreadsheet, including who is getting transported, how, what hotel are people staying at, entertainment during the conference, gift baskets, drawings or door prizes, etc. I don’t want to get too deep into the weeds here, but suffice it to say that there are policy decisions that need to get made, and the risk committee should be the one to make them.

Gifts are the most difficult, mainly because they’re so common. I would not require pre-approval for smaller gifts that are given for normal reasons (birthdays, Christmas, Divali, Chinese New Year, etc.). Anything under £25, go to town. Similar to meals, I would require manager notification so you can avoid the small-but-often issue. Over £25 needs active first-level manager approval, over £100 needs a VP, over £1,000 needs an SVP plus the compliance officer.  Again, the dollar amounts aren’t as important as the process you went through to arrive at them.  Make sure your risk committee has a discussion around what’s common in the market, what they feel the right number is, and why, and make sure someone is taking notes.  Put those notes away. [our emphasis]

Entertainment is a subcategory of gift. Tickets to sporting events (including invitations to the box at Wimbledon or to the World Cup or Formula One) are gifts, and need to go through that process. [our emphasis] For entertainment, I would include some additional prescriptive rules, rather than change the gift process. No adult entertainment (you’d be surprised how often that question gets asked), no casinos, no tickets to Disney World. Right there, you’ve covered 70% of your entertainment risk.  You have the same scalability issue here as you do with meals: there are too many of these amenities given in a year for your regular compliance team to handle.”

So in short the key is to go through a process to work out the correct rules that will apply to your business.

A word of caution though.  It’s worth keeping in mind what the guidance has to say, not because it’s hugely helpful but because it gives a clear indication of the way the regulator will perceive corporate hospitality.  It says:

“The standards or norms applying in a particular sector may also be relevant here. However, simply providing hospitality or promotional, or other similar business expenditure which is commensurate with such norms is not, of itself, evidence that no bribe was paid if there is other evidence to the contrary; particularly if the norms in question are extravagant.  Levels of expenditure will not, therefore, be the only consideration in determining whether a section 6 offence has been committed. But in the absence of any further evidence demonstrating the required connection, it is unlikely, for example, that incidental provision of a routine business courtesy will raise the inference that it was intended to have a direct impact on decision making, particularly where such hospitality is commensurate with the reasonable and proportionate norms for the particular industry; e.g. the provision of airport to hotel transfer services to facilitate an on-site visit, or dining and tickets to an event.”

In our view the higher the cost the greater the presumption that what is being offered is extravagant and at risk of being construed a bribe.  To counter this presumption it will be critical to assess the market as described by Howard above and reach a reasonable view which can then be included in the policy.  It is here that we see one potential difficulty in the scenario you’ve given.

You mention that others in the industry have concluded that £50-£100 is the correct limit.  If your business is not to follow them down that road it will need to distinguish those businesses from its own business and justify the distinction failing which your business risks standing out from the crowd for the wrong reasons.

Finally its worth keeping in mind that the limits are not themselves meant to be determinative simply the level above which another (objective) person (possibly in compliance) should be asked to look at it and decide if it’s appropriate to accept.

 

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