Charities and other exempt organizations that engage in cross-border charitable giving often conduct extensive due diligence before giving funds to international grantees. If these charities are unaware of how the Foreign Corrupt Practices Act can affect their grantmaking and other activities abroad, they should become aware very quickly. In fact, the FCPA is a real risk for U.S. exempt organizations that are operating globally and face pressures to make corrupt payments in order to obtain government support abroad.
A recent Department of Justice Opinion highlights the risks of violating the FCPA in connection with charitable contributions. The DOJ was asked to provide an opinion to a not-for-profit microfinancing organization, which was directed to make certain charitable contributions to local microfinancing institutions by a foreign government in order to obtain government approval to convert the organization’s status into a for profit entity in that country. The organization was concerned about violating the FCPA, which broadly speaking, prohibits giving anything of value to a foreign government official with a corrupt intent to influence the award or retention of business.
Because the not-for-profit organization conducted considerable due diligence to ensure that the recipients of the directed charitable contributions were worthy recipients of the contributions and the mandatory payments were not a mere ruse to pay off foreign government officials, the DOJ advised that it would take "no action." The DOJ stated that it was satisfied that the not-for-profit had conducted appropriate due diligence and that the controls that it planned to institute were sufficient to prevent FCPA violations. In particular, in connection with the mandatory payments, the not-for-profit (i) staggered payment of the grant funds; (ii) set up ongoing monitoring and auditing; (iii) earmarked funds for capacity building; (iv) prohibited compensation of board members; and (iv) ensured compliance with anti-corruption provisions. The not-for-profit also subjected the payment to other significant controls and entered into a written grant agreement with each of the recipient institutions.
If you are operating internationally and the FCPA is not on your radar screen, it should be. It is vigorously enforced by the DOJ and SEC and presents real exposure for entities (profit or not-for-profit) that are subject to U.S. jurisdiction, operate globally, and face pressures from foreign governments in connection with activities abroad.