This week marks the start of the Chinese New Year,traditionally an occasion when gifts are exchanged not only byfamily members, but also by business associates. U.S. companiesthat operate in China have to tread carefully when it comes topresenting gifts to government officials, though, because of theU.S. Foreign Corrupt Practices Act.

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The FCPA, enacted in 1977, prohibits bribing foreign officials,and that prohibition casts a shadow over corporate gifts. ScottMoritz, a managing director at Protiviti who leads itsinvestigation and fraud risk management practice globally, saidjust giving a gift doesn't violate the statute. “There has to beintent to influence some sort of business decision that then couldresult in an unfair business advantage,” Moritz said.

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The simplest way to comply with the FCPA would seem to beeliminating all gift-giving. But companies have to take intoaccount the culture of the countries in which they do business, andin many countries, that culture includes gifts.

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“It's fair to say most, if not all, Asian cultures have agift-giving culture,” Moritz said. He cited the example of China,where he said giving gifts is “a way of establishing trust andrelationships.”

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And when it comes to China, Moritz pointed to the importance ofunderstanding the FCPA's definition of the term “foreignofficials.” While that seems to describe elected or appointedgovernment officials, it also refers to employees of state-ownedcompanies.

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“In China, the Chinese state owns many commercial enterprises,and therefore all the employees of those enterprises wholly orpartly owned by the Chinese state are foreign officials under thelaw,” Moritz said. “So what's key is understanding who you'reinteracting with and deciding whether people you want to give giftsmeet the definition of foreign official or not. That's really wheremost people screw up.”

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Companies should also keep in mind that some countries' laws areeven broader. “Some statutes, including the U.K. Bribery Act andthe Brazil Clean Company Act, also address commercialbribery—bribes paid to non-government officials to affectbusiness,” Moritz said.

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The FCPA isn't targeting the exchange of items worth modestamounts of money, lawyers say.

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“If you're talking about a fruit basket or a bottle of wine atthe end of the season or the Chinese New Year, I don't think anyoneis going to be prosecuted for that,” said Jonathan Feld, head of the white-collarcriminal defense and government investigations group at the lawfirm Dykema. “But if there are gifts that are more extravagant,especially if there's a pattern that adds up to a lot of money,that becomes a more gray and difficult area.”

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Exactly where to draw the line between minor and extravagant isa sticking point. Neither the law itself nor the FCPA resourceguide released in 2012 by the Securities and Exchange Commissionand the Department of Justice provides dollar limits. And lawyersnote that costs differ widely in different parts of the world.

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Compliance Programs

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Companies' compliance policies around gifts to foreigngovernment officials should start by setting a dollar limit, saidThomas Fox, a Houston lawyer and consultant who works withcompanies on anti-corruption and anti-bribery compliance. Foxsuggested that any limit below $500 would work and said an employeewho wants to give a government official a gift that costs more thanthe limit should have to get someone in compliance to sign off.

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“Most companies have a limit that is very, very low, like $25 or$50, so that above that, you can give a gift but you have to havepreapproval,” he added. “So what they've taken away is thediscretion of an employee to give a gift without complianceapproval.”

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Gifts shouldn't be cash or anything easily turned into cash,like a gift card or iPad, Fox said. “If it can be converted intocash on the secondary market, that's viewed as the same as cash.”Gifts shouldn't be given to officials in countries where that'sillegal, and they should be presented to the official in atransparent manner—for example, in front of his or her co-workers,Fox said.

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Documenting each gift, including the giver, the recipient, andthe cost, is also important. Such documentation gives thecompliance team the information they need to uncover troublingpatterns, Fox said, such as 10 salesmen each giving a gift to asingle government official. “You have to track who's giving thegifts and who's receiving the gifts, because you can havemanipulation if you don't do that,” he said.

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Scott Moritz of ProtivitiDykema's Feld said companiesshould not only monitor gifts given by their employees, but anygifts given on their behalf by third-party agents or vendors.

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“That's where a lot of the problems arise,” he said. “Themiddle-market companies that don't quite have the resources, thatmay be using third parties to help them drum up business orpurchase certain products that they need, you have to be sure youhave contractual and compliance protections there as well.”

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Moritz, pictured at left, said compliance programs should totake into account each country's customs, as well as what's goingon in the business. “You set out certain rules where under certaincircumstances, it is permissible to participate in gift-givingwithin limits,” he said. “But there are certain scenarios whereit's not appropriate, for example, when you have business beforethat [official] and a decision is pending.”

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Companies can use upcoming holidays in countries in which theyoperate as opportunities to remind employees of their rules aroundgift-giving, Moritz said.

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“You could have a great policy written by an outside law firm,”he said. “But policies don't mean much if people don't know oftheir existence.”

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Susan Kelly

Susan Kelly is a business journalist who has written for Treasury & Risk, FierceCFO, Global Finance, Financial Week, Bridge News and The Bond Buyer.