By Rebekah Mintzer, From Corporate Counsel

When Australian mining company BHP Billiton signed up as a sponsor of the 2008 Summer Olympics in Beijing, it sounded like a great opportunity for brand and business. As part of the deal the company got to provide the raw materials used to make medals for the winners at the games, but what BHP didn’t foresee is that their involvement would get them stuck in an Olympic-sized Foreign Corrupt Practices Act investigation.

That probe, which has been ongoing since 2009, finally concluded this month with a settlement in which BHP will pay $25 million to the U.S. Securities and Exchange Commission to end the ordeal. The case illustrates the many difficulties of running a hospitality program for clients and partners, especially when the U.S. government seems eager to root out any potential FCPA violations.

The investigation by the SEC centered on the 176 people BHP hosted at the Olympics, who were classified as government officials or employees of state-owned enterprises. According to the SEC, as part of a global hospitality program the mining company granted these officials, largely from countries in Africa and Asia, entertainment packages that included stays in luxury hotels, meals, event tickets and sightseeing excursions that cost from about $12,000 to $16,000 each.

The SEC cited BHP for violations of the books and records and internal controls provisions of the FCPA, claiming that the company had failed to properly execute its own compliance program, even though the groundwork for anti-corruption and anti-bribery compliance was in place. Often, when a company runs into trouble over the FCPA, it involves a particular transaction. But in this case the fault appears to be more in the program’s overall execution and risk management.

“I think it is unusual,” Gregory Paw, a partner at Pepper Hamilton and a member of the firm’s white-collar litigation and investigations practice group, told CorpCounsel.com. “I think in some ways this is an expansion of what is expected under the books and records provisions. In a lot of ways it seems that what the SEC was concerned about was more the risk of corruption rather than the actual corruption itself.”

Many of the faulty internal controls that the SEC found in BHP’s Olympic hospitality program related to lack of proper oversight by the company. BHP had a hospitality application form that those who wanted to invite guests to the games, including government officials, had to fill out. However, the company did not require review of the applications by anyone at the company outside of the business unit that was submitting the request. To make matters worse, BHP falsely left employees with the impression that an ethics committee would review the applications, but in fact the group only looked at a handful for forms.

This lack of oversight at BHP points to problem that can easily happen in FCPA compliance and in other compliance areas. Having a policy and controls in place is one thing, but actually using these tools correctly is another thing entirely. “We always tell people your program can’t just be a paper tiger,” said Paw. “It has to be real.”

Another aspect of FCPA compliance in which the SEC believed BHP fell short was in the area of training. Although the commission noted that BHP has an annual guide to business conduct review and general employee training and certification on the code of conduct, it faulted the company with failing to train employees and executives on how to fill out hospitality applications or determine the eligibility or ineligibility of government officials under the FCPA.

To avoid falling into the same traps that BHP did, James Tillen, a member of Miller Chevalier and vice chairman of the firm’s international department, told CorpCounsel.com that keeping proper records is invaluable. “There are so many opportunities for a books and records issue if those forms aren’t used properly,” he said. If BHP had properly used its own forms and generated the proper paper trail to show that it had reviewed its hospitality transactions in Beijing, the company might not be facing as much trouble today.

In any case, making decisions about hospitality for foreign government officials can be a minefield for companies that genuinely want to build relationships without unintentionally creating an impression of bribery. When deciding whether to extend hospitality invitations to a foreign government official, Tillen recommends that companies look at the local law of the country where the official comes from as part of their due diligence. If the hospitality arrangement runs counter to local law and custom where the individual works, then the company should not be inviting that person.

Companies that want to mitigate their FCPA risk also could go to the supervisor of the government official they want to entertain and ask that supervisor and their legal counsel to sign off on the hospitality activity. “It allows the government entity to object or bless it as they see fit, and that will give you greater comfort that what you’re doing is appropriate,” Tillen said, adding that companies also can ask foreign governments to pick officials whom they believe it would be appropriate for the company to meet with as way of reducing risk that the interaction will be seen as noncompliant.

Of course, as Tillen noted, while these potential fixes can give a company more peace of mind about an interaction, they also take a certain amount of time and money to implement. Companies that don’t want to expend these resources or want to steer clear of FCPA risk entirely may want to consider simply excluding government officials from their invite lists.

Photo by JohnzyJay, via Wikimedia Commons

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