Three Basic Instruments to ensure Compliance of Contributions with Anti-Corruption Requirements

Contributions and donations to charitable and non-charitable non-profit organizations (i.e., payments to support certain activities of organizations, donation of working space, corporate sponsorships, product donations, monetary donations, etc.) are an accepted and customary practice, both in Ukraine and internationally.

Anti-corruptions laws do not prohibit companies from making different types of both charitable and non-charitable contributions, unless the companies use such donations to bribe public officials. For instance, FCPA Guide tells us that “legitimate charitable giving does not violate the FCPA. Compliance with the FCPA merely requires that charitable giving not be used as a vehicle to conceal payments made to corruptly influence foreign officials”.

Any monetary as well as in-kind contributions made without a legitimate ground may be considered as unlawful benefit by Ukrainian anti-corruption laws. Thus, it’s no wonder that any contribution which somehow involves public official may raise suspicions on whether it is aimed at improperly influencing such public official, and, if it’s the case, subject to criminal prosecution on bribery charges.

According to the court practice, corruption charges may be brought even if bribed official didn’t take any action The mere fact of receiving the benefit is sufficient for bringing the charges. Therefore, in order to mitigate exposure to corruption risks and charges, the companies should be very cautious when providing donations and contributions.

Utilization of the following three instruments will help to ensure that contributions are made in compliance with anti-corruption rules and regulations.

Compliance program

The core pre-requisite for anti-corruption compliance in any area of company’s business is a robust compliance program establishing rules and guidelines for company’s conduct. Moreover, a comprehensive compliance program might reduce company’s liability for corruption offences.  

Should a company wish to donate, a section dedicated to contributions should become a part of company’s compliance program. Such section should necessarily include safeguards for making compliant contributions, i.e., a list on instances requiring serious scrutiny, authorization requirements and reporting procedures. In addition to prevention of corruption-related offences, a compliance program should establish internal rules and procedures for recording and better accounting of company’s activities related to contributions.

Due diligence

Let me please cite FCPA Guide one more time. The document instructs us that “proper due diligence and controls are critical for charitable giving” and that “in general, the adequacy of measures taken to prevent misuse of charitable donations will depend on a risk-based analysis and the specific facts at hand”. Therefore, due diligence procedure should play a pivotal role in assessment of a potential contribution. 

During due diligence process it is highly recommended to scrutinize documents and information about activities and management of organization requesting donation. You should carefully investigate composition of management bodies (i.e., board of directors, supervisory board, honorary presidents, etc.) of such organization with respect to their connections with public officials. If (i) a public official (or his/her relative) is associated has some links with the organization, and (ii) such official makes or is going to make any decisions affecting company’s business, a company should refrain from providing the contribution.

Please pay attention when organization uses a contribution or its part to hire third parties connected to public officials, or suggested by public officials, as these third parties might be just a middlemen for bribes and, therefore, will expose a company to liability for corruption. Verification of financial statements of a non-profit organization is crucial to ensure good standing of such organization as well as to detect any possible red flags in its accounting requiring further thorough investigation.

Written agreement

The primary purposes of the donation agreement are (i) to define an exact purpose of contribution, (ii) to restrict usage of a contribution to its purpose and (iii) to establish mechanisms ensuring proper monitoring and reporting of how organization has actually utilized such contribution. The contribution agreement should include anti-corruption representations and warranties by the recipient of the contribution.

The purpose of contribution should be as detailed as possible; preferably, it should be project-specific (i.e. provided for a particular and clear purpose); and it should fall within the objectives of recipient’s activity. An ambiguous definition of contribution, like “for statutory activities of organization” is a vivid example of how you should not formulate a purpose of donation.

From the other side, purpose of contribution should correspond to contributing company’s objectives, company’s internal guidelines and purposes of contribution. For instance, it is quite difficult to establish a legitimate ground for a contribution provided for organization of the conference regarding import of cars by the company dealing solely with export of grains.   

You should ensure that monetary donations are been transferred on the account of the respective organization in the country of its residence, and not on accounts of third parties or accounts in other countries.

Finally, effective monitoring and reporting on how contributions are used will ensure proper use of donation as well as timely indication of anti-corruption risks.

 

Volodymyr Grabchak is a legal counsel with an international FMCG company, responsible, inter alia for anti-corruption compliance issues in Ukraine and Moldova. He got his law degree in Ukraine and LL.M. degree in the Netherlands. 

Volodymyr is attorney at law admitted to Ukrainian Bar and a member of the International Bar Association (IBA).