Is a Lack of a Detailed Marketing Plan Undermining Your FCPA Program?

Scott Moritz, Managing Director Protiviti Forensic

Consumer products manufacturers, pharmaceutical companies and other companies that manufacture and sell products to consumers spend billions of dollars promoting their products and creating various incentives to create demand for those products. Whether cooperative advertising, event marketing, point-of-purchase displays, providing free samples, coupons or gift cards, there are numerous channels to provide things of value to prospective customers, be they individual consumers or distributors.

Some products have a fair amount of cachet, inherent value, or both. Other times, product manufacturers provide money to distributors to promote products in their local markets by means of local events or regional advertising campaigns showcasing the products.

Due to the decentralized nature of this type of trade spend and marketing activity, confirming that the money was expended lawfully and for the intended purposes poses a number of challenges.

What if, for example, you manufacture a popular brand of cognac, and your distributor in Shanghai requests 10 cases of the product and $50,000 for a cocktail party and tasting? What if, at the same time, your distributor also has been negotiating with the airport authority to get your product into the duty-free shop at the international airport? How can you be sure that the very expensive cognac wasn’t simply gifted to the government official in charge of duty-free shops at the airport and the invoices for the cocktail party submitted for reimbursement weren’t fabricated?

Sometimes, marketing spend is allocated to promote particular products, and sales personnel are provided with gift cards, in addition to their normal incentive compensation, if they meet certain sales milestones. These gift cards are typically provided in bulk for distributors to award as they see fit. Gift cards are also a popular means of providing petty bribes to government officials and employees of state-owned companies in certain parts of the world. You can see how this has the potential to go very wrong.

Large events are rife with potential liability pitfalls under the FCPA. World Cup and FIFA matches, Formula One races, golf tournaments, tennis or cricket matches, the Olympics and other popular sporting events all rely heavily on corporate sponsorship. With those sponsorships come hospitality tents, junkets, VIP access and seating, tickets, transportation, and sometimes lodging and travel expenses. Events like the World Cup and the Olympics in particular are very expensive, and providing tickets and other perks to invited guests can be construed as offering or giving something of value in an effort to gain an unfair business advantage. But isn’t that the whole point? To curry favor with prospective customers and reward your best customers?

The answer is, sometimes. With a scenario like that, it is critical to submit a list of proposed attendees to someone in legal or compliance, not to executives in the sales organization. The list should come with some background on who the proposed guests are, whether they meet the definition of a “foreign official” as the company has defined that term, and whether the company has any business before that official at the time. Also keep in mind that such lavish gifts can potentially violate the commercial bribery provision of the UK Bribery Act or the Travel Act.

Historically, marketing incentive programs and their execution in the various local markets in which a company – consumer products, life sciences or other – operates are predicated on trust, with very little detail in terms of what the local subsidiaries or distributors are expected to do to ensure that these activities are above board and don’t create FCPA liability.

If your organization engages in marketing and promotional activities in various foreign markets, it’s important to be able to demonstrate that:

  • You have thoughtfully considered all of the potential bribery risks associated with the various marketing activities in which value is being transferred directly or on your behalf, and
  • You have risk-appropriate controls in place to ensure that the events and other marketing activities you are funding actually took place, and that the products that were sampled were provided in strict adherence to your written agreements with your third parties and were in alignment with the detailed marketing plans to which your organization has agreed.

In our experience, many companies have marketing plans that are vaguely worded as to what local marketing activities are planned, how these plans will be documented, and who will be responsible for ensuring that the funds and/or products are disseminated in alignment with the company’s code of ethical conduct and anti-corruption program. Without a detailed marketing plan and clearly stated obligations on the part of the organizations charged with executing on your local marketing activities, your organizations risks operating in the blind with very little to audit or monitor to ensure marketing activities aren’t putting the organization at risk.