Having a gifts and hospitality Policy in place is key, why? The aim of the Gifts and Hospitality policy is to guard your organisation against the risk of allegations of impropriety by SSRO members or staff, however contracted, by providing advice on a number of key issues relating to the rules of regularity and propriety. The rules are based on the fundamental requirements of Parliament, HM Treasury and the National Audit Office. With these rules, you can create clarity for your employees and take action against corruption in your company.
The first step in ensuring your company deals with gifts and hospitality correctly has a policy that defines rules and processes. Many large and medium-sized companies have these rules in place. These rules and processes provide for the following:
- Definitions of scope and different types of corruption
- Explanations defining what constitutes acceptable and unacceptable practices in the context of gifts and entertainment
- Reducing the active and passive risk of corruption
- Protecting the company and its employees from the risk of criminal prosecution
- Providing a clear indication to employees, business partners and other external parties of the company’s values regarding corruption prevention.
Elements to include in any policy on gifts and hospitality
An effective policy on gifts and hospitality needs three main elements: scope of application, defining gifts and invitations, and when they can and cannot be accepted.
Scope of application
The scope of the guidelines should cover permanent employees and all persons performing functions on behalf of the company. This includes sales agents, consultants, trainees, apprentices, interns, freelancers, etc. Including family members in the scope is also sensible. For example, inviting the managing director of a prospect to a conference can be issue-free – but inviting their spouse or partner free of charge is unlikely to be acceptable.
Defining a gift or invitation
The policy should define what constitutes a gift or invitation:
- Gifts generally refer to items of value given to or by employees. They can be consumer goods, branded items, discounts or cash. Common examples are a bottle of wine or a box of chocolates.
- Hospitality includes meals, beverages, and travel and accommodation expenses. Typical examples are business meals, client trips, site tours, cultural, sporting events and holidays.
Definitions of corporate gifts and entertainment are far-reaching and include:
- Restaurant meals
- Invitations to trade fairs
- Payment of business travel expenses
- Financial credit
- Free services
- Provision of premises
- Gifts that an employee of the company gives to a relative or acquaintance
- Hiring a relative for a job or internship
- Study grants for children and relatives
The policy should precisely state what types of gifts and entertainment are covered. Ideally, the different types should be illustrated with practical examples. These can also be incorporated into training courses and internal communications.
Acceptance and refusal conditions
The main objective of any gifts and hospitality policy is to define appropriate rules and criteria. In this context, the intention of the gift giver is important. Is there reason to believe that a gift or invitation was given with deceitful intentions? Where does corruption begin?
Local legal context
Gifts and invitations must be permitted under applicable local laws. These can vary considerably from country to country, leading to confusion for employees. Some companies have dealt with this by implementing strict and globally applicable limits for gifts and invitations to ensure that they do not violate national laws. However, this can lead to situations where local customs aren’t considered and can reinforce the perception of compliance as a “spoilsport”. As a result, many companies implement country-specific rules.
Purpose and motivation
The policy should clearly define the circumstances when gifts and invitations may be given or received. For example, gifts should not be used to
- Obtain an improper reward or advantage.
- Exert influence or pressure on suppliers, business partners or other third parties.
- Obtain, retain or extend a contract or a beneficial contractual clause.
- Obtain licenses or governmental agreements.
- In whole or in part, receive exemption from paying taxes or fines.
- Obtain information about a competitor’s offer or an ongoing procurement process.
- Speed up procedures such as the granting of visas, the issuing of official approvals, the granting of customs releases and similar.
The FCPA’s guidance identifies certain key characteristics for when gifts and entertainment are considered appropriate: “Some hallmarks of appropriate gift-giving are when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.”
Reason or occasion
What is the occasion, and why are gifts and invitations being offered? Occasions such as anniversaries, birthdays, project completions or social events such as Christmas or New Year can be legitimate occasions for gifts and invitations. However, if there is no obvious reason for the gift, the giver or recipient needs to explain the reason for it.
When a recipient demands certain benefits or concessions, this is a clear warning sign and is usually an indication of unfair advantage and blackmail.
Timing
Timing can also play an important role in assessing whether a gift or invitation is important from a compliance perspective. The following times or periods can be problematic when it comes to giving or receiving gifts or invitations:
- During ongoing tenders
- Before signing contracts
- Before voting
- Before granting permits or authorisations
- Before issuing licenses
- Before changing laws or regulations
Companies might prohibit gifts and invitations during these periods or set up an internal review process that critically examines planned gifts and invitations.
Regularity
Even if companies define fixed value limits for gifts and invitations, cumulative amounts can exceed the limits. Regular, smaller gifts equate to a one-off, more expensive one. Companies should also bear in mind the frequency of gifts and invitations when writing their policies to prevent this.
Annual limits can be a solution. These can be defined per team, department, branch, unit or external partner. A gift register is essential to ensure these groups keep to the limits. Software solutions make it easier to keep track of the gift value totals and automatically ensure compliance within annual limits.
As with most rules, there will be occasional exceptions. For exceptions, there needs to be a clear process for approval by management and/or the compliance officer, along with the provision of appropriate documentation.
Public officials
A gift or invitation can affect judgment. When public officials are involved, this needs to be given special consideration. Many public authorities have internal rules concerning public officials themselves and their family members, affiliated foundations, and organisations.
It is important to be aware of your company’s benefits to public officials or related persons and organisations. The company’s internal review and documentation processes should be more stringent for these instances, for example, a two-stage review and approval process involving the line manager and compliance function.
The following should generally be avoided when making gifts to public officials:
- Cash payments
- Frequent or valuable gifts or invitations to corporate entertainment with high monetary value
- Gifts or invitations in connection with public tenders
- Benefits to improve the relationship to exert influence or pressure in the future.
Gift type
Benefits in the form of cash payments, securities or commodities should not generally be permitted, including:
- Cash or means of payment similar to cash like bank transfers
- Securities such as stocks and bonds
- Gold, precious stones and other precious metals
- Vouchers and gift cards
- No-interest or low-interest loans
These types of gifts should not be permitted, particularly for public officials. They are also prohibited by law in many jurisdictions.
- Business-related
Gifts and business-related invitations are generally less problematic than benefits with no obvious business connection. Business-related examples include invitations to conferences or other events related to the person’s role or business, product-related advertising materials, or hospitality during business events or meetings. On the other hand, invitations to private trips, leisure events, gifts to partners, family members or other persons outside a professional context should generally not be permitted.
- Value
There is general agreement on one thing: the higher the value of a gift or other benefit, the greater the risk of corruption. A ballpoint pen with a company logo does not present any issues, but an expensive Swiss wristwatch should be viewed more critically. Where should the line be drawn?
There are no clear answers to this question. The appropriate value of a gift depends on local customs, national purchasing power and the status of the giver and receiver. While a gift to a managing director in Switzerland may be considered harmless, the same gift to an official in India may indicate corrupt practices. It is difficult to determine the monetary equivalent for some gifts.
This does not make it easy for companies or their employees to deal with the topic of gifts and hospitality. Some companies tackle this by defining value limits per country.
- Transparency and the “press test.”
Covert donations usually indicate misconduct. If the corresponding expenses are not listed in the donor’s books or under a false name, this must be investigated. Companies have faced lawsuits because private holiday trips for public officials have been disguised as “training” or “factory visits”.
A good test recommended by the French anti-corruption authority, AfA, the “press test”: would the company’s reputation be damaged if the gift or invitation in question was exposed in the press? If the answer is yes, the request should be declined.
- Rules and guidelines of other parties
Of course, the rules and guidelines laid out by other parties also play a role in the context of benefits. Does the organisation of the person who is to be given a gift or from whom an invitation was received have a policy on gifts and invitations? If so, does the benefit fall within what they consider appropriate?
Conclusion: having robust guidelines and rules is only half the battle
It’s done:
- The most important rules for gifts and hospitality in the company have been defined.
- The most common causes have been clarified.
- Everything has been recorded in the guidelines.
But the work does not stop there: the second step is to ensure that employees know the rules and can apply them. When the answer isn’t immediately clear, there should be a process through which employees can get help quickly and easily.
If individual gifts are to be viewed critically in retrospect, a gift register is essential: who was given by whom and on what occasion? The gift register should at least provide these answers to clarify decision-making processes and reduce liability risks. And last but not least, companies need to have control over gifts and hospitality.
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