Avoid Corruption in Holiday Gift-Giving

With Thanksgiving and the holiday season upon us, gift-giving and compliance can be an issue for global companies, especially since more than 20% polled by Deloitte said their companies don’t assess the corruption risk of employee gift-giving.

While 20.4% of respondents don’t assess employee gift-giving corruption risk, more than 43.4% expect anti-corruption enforcement to rise in 2016, moneyaccording to a recent Deloitte poll of more than 1,600 professionals.

“As generous as the holidays make many feel, giving gifts that could be seen as bribes to non-U.S. government officials can result in fines, regulatory action and brand damage for multinational organizations,” said Bill Pollard, Deloitte Advisory partner at Deloitte Financial Advisory Services LLP. “Now is the time to conduct gift-giving compliance training and increase efforts to help ensure anti-corruption compliance through the holiday season. As global enforcement continues to increase, take a note from regulators and make sure your corporate records around travel, gifts and entertainment are transparent and show no ‘corrupt intent’—particularly when out-of-country government officials are recipients.”

The poll results found that anti-corruption policies for giving gifts to non-U.S. government officials run the gamut: 18.2% maintain a no-gift policy and provide no gifts to customers, 16.4% give only small company logo items, 15.7% restrict gift value and 6.1% use separate policies for non-U.S. government officials compared to other customers and third parties.

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The poll also found that 43.6% of companies plan to make improvements, while 12.7% do not and 43.7% do not know.

To uncover irregularities that point to corrupt intent and bribes disguised as gift-giving, some compliance, legal and internal audit teams use visualization and analytics tools. However, just 8.4% of respondents said their organizations effectively use visualization and data analytics technologies to support anti-corruption efforts. A full third of them (33.1%) didn’t use the tools at all.

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Leading practices to prevent and detect corruption in gift-giving include:

  • Set ground rules clearly — Describe the nature and type of acceptable gifts, payments, travel and entertainment. Escalate all gifts for government officials to compliance for review. Create an approval process with aggregate dollar limits. Define the disciplinary process for non-compliance.
  • Act globally — Ensure that rules are consistent not only with U.S. laws but local laws and customs. Translate that guidance into all appropriate languages in which your organization operates.
  • Keep gifts corporate — Give gifts that feature company logos, reflect the organization’s products and ensure they are intended for official — not personal — use (such as a business card holder).
  • Make gifting inclusive — Give gifts publicly and transparently, and involve teams as opposed to individuals (such as specialty baked goods for a team to share)
  • Prohibit cash or its equivalents, such as gift cards.

“Anti-corruption visualization and analytics tools can help address varied global anti-corruption laws and gift-giving customs, making multi-national anti-corruption management easier than before,” Pollard noted. “Nothing replaces the fundamental value strong anti-corruption professionals, policies and procedures do.”

Marijuana’s Cost to Employers

With the adoption of more state laws to legalize marijuana, employers will face challenges to protect their employees from injury and to comply with federal requirements to maintain a drug-free workplace.

Employers also face potentially costly litigation as case law surrounding legal marijuana develops, according to the Quest Diagnostics whitepaper “What Will ‘Legal’ Marijuana Cost Employers?”


Quest reports that medical marijuana legalization brought forth a new phenomenon: the production of marijuana-infused foods and gadgets, which presents a special problem for employers. Today, nearly half of marijuana users in states where it is legal consume marijuana by eating it rather than smoking it. In addition, vape pens, which are like e-cigarettes but contain capsules of concentrated marijuana oils, leave no marijuana smell and are impossible to tell apart from e-cigarettes. These two modes of consumption will make it more difficult, if not impossible, for employers to tell when employees are using marijuana on the job.

As marijuana use increases, so will workplace injuries, accidents, mistakes, and employee illnesses, escalating the costs of companies’ liability, workers’ compensation and health insurance.

Questions companies should ask include:

  • Will employers have to accommodate marijuana use in their workplaces? A closely watched case. Before the Colorado Supreme Court will establish, at least in Colorado, whether employees can use marijuana off the clock even if they may be impaired the next day.
  • Must employers pay for employees’ medical marijuana if they are injured on the job? By allowing a court of appeals decision to stand, the New Mexico Supreme Court finds that the answer is yes.
  • Must employers pay unemployment compensation to employees fired for failing a marijuana drug test?
  • What does increased adolescent marijuana use portend for the future workforce? Research shows that compared to nonusers, teens who smoke marijuana on weekends over a two-year period are six times more likely to drop out of high school, three times less likely to enter college, and four times less likely to earn a college degree?
  • How can employers meet federal requirements to maintain a drug-free workplace if states require proof of impairment rather than the presence of marijuana in the body when no level of impairment has been scientifically established and no noninvasive test to denote impairment has been developed?
  • If courts hold that drug testing is no longer a valid indicator of impairment, how can employers whose businesses involve driving or other safety-sensitive positions protect their workers and the public from injuries and deaths cause by stoned drivers?
  • What if courts hold that failing a pre-employment drug test is no longer a valid reason to deny employment to applicants?

There are, however, steps employers can take to protect themselves:

1) Stay up-to-date with the changing legal landscape and adjust workplace policies accordingly.

2) Remember that marijuana is still illegal under federal law.

3) Join other employers to monitor state legislation and take action with legislators to ensure workplace protections are included in any marijuana laws.

4) Educate your workforce about the dangers marijuana poses to children, families and the workplace.

5) Challenge the notion that marijuana is medicine, or risk paying for it in your health insurance program. No marijuana medicines being sold in states that legalized them have been approved by FDA as pure, safe, or effective. Doctors cannot prescribe them and pharmacies cannot sell them.

Emerging Market Risk: Leaders, Laggards and Rules for Avoiding Loss

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When the developed world’s economies ground to a halt during the Great Recession of 2009, large, Western-based multinational companies turned their growth-hungry eyes toward developing markets. The slow recovery that followed the recession in the U.S. and Europe did little to change this trend. In fact, according to the United Nations Conference on Trade and Development (UNCTAD), foreign direct investment in emerging markets reached a new high in 2013 of $759 billion (the most recent year for which data is available). This represented more than half the world’s estimated $1.46 trillion total outward investment flows for that year. Given this intense interest in doing business in emerging markets, FTI Consulting, a global professional services firm, conducted a survey in November and December 2014 on the character of the risks businesses face in these markets and how they attempt to mitigate them.

FTI surveyed 150 companies with revenues of more than $1 billion and business interests in developing economies, as well as interviews with 32 executives focused on compliance and risk management from those companies. Our results indicated an enormous difference between leaders (defined as companies whose self-reported losses as a percentage of revenues was in the lowest quartile, averaging 0.2%) and laggards (those in the highest quartile, with a loss rate averaging 2.2% of revenues), not only in the ways they managed overseas risk, but how they thought about it.

Quantifying Risk: The Numbers

According to our survey, 83% of multinational companies have suffered significant losses in emerging markets since 2010, with an average cost per company over that time of $1.38 billion, and the average loss per year $260 million, or 0.7% of revenues.

In virtually all loss-making incidents (99%), our respondents reported that the issue was either a matter of a regulatory violation, bribery or fraud, or reputational damage. In incidents with the highest losses, two or three of these types of risk converged: 60% of reported incidents involved more than one type, 35% involved two, and 25% were perfect storms that involved all three.

Regulatory issues are the most frequent cause of loss (either due to the difficulty of keeping up with ever-changing regulations or lax or inattentive corporate compliance policies), but legal and criminal issues (engaging in fraud or paying bribes) lead to the most expensive incidents. The most frequently cited consequences of getting caught were noted as reputational harm (67%), loss of revenues (56%), and prosecution (44%). In all cases, reputational issues invariably make matters worse.

These are serious issues, and some companies respond with equal seriousness. Some do not.

Leaders vs. Laggards: The Three Greatest Ways They Differ

According to our survey, there are enormous differences in the ways companies that have suffered the lowest rate of loss in emerging economies and companies that have experienced the highest approach risk mitigation in the three major categories. (See Figure 2.) From these differences, we have derived three rules that leaders follow to best mitigate overseas risk.

Rule 1: Walk Away From Countries Where Compliance is Impossible

Our leading companies believe it is more important to avoid doing business in jurisdictions where compliance may not be possible than do laggards by a ratio of more than 5:1. In other words, our leaders are willing to walk away, even when environments are hyped and offer the potential for quick profits. Globalized companies often overestimate their ability to estimate and analyze overseas risk accurately.

For instance, it is extraordinarily difficult to stay compliant with Brazil’s tax laws. According to Renato Niemeyer, Chief of Tax Legislation in Roraima State, each of Brazil’s 27 states has its own tax regulations “and the rules change all the time.” Neimeyer said this has led some companies to postpone paying taxes as the penalties for late payment are relatively low. However, when a company does pay the penalties, “corrupt officials will solicit the organization for bribes in order to lessen the penalties,” Neimeyer said. This, of course, is the proverbial slippery slope that can lead to both bribery and fraud prosecution and concomitant reputational damage – the perfect storm.

Latin America is also growing increasingly green in its politics, and environmental regulations are becoming problematic, especially in the energy, mining and construction sectors. Chevron vs. Ecuador, the nasty, ongoing, eight-year trial over liability concerning alleged environment damage, is an example of how damaging running afoul of environmental regulations can be.

When successful companies do attempt to do business in countries where it is difficult to comply with regulations, they invest time and energy into helping host countries develop more rational regulatory frameworks. Our leaders consider this kind engagement more important than do laggards by a ratio of almost 3:1.

Rule 2:  Keep to the Straight and Narrow

In most developed markets, it is understood that paying bribes to win or facilitate business is bad business and, if there were any doubt, the U.S. Foreign Corrupt Practices Act (FCPA) and U.K. Bribery Act remove them. But in many developing economies bribery is just how business gets done. In China, facilitation payments are customary to keep projects on target. The long-established Chinese custom of giving gifts to customers violates both the FCPA and U.K. Bribery Act. For our leading companies, the first rule for avoiding getting caught in the coils of bribery and corruption is to “conduct continuous dialogue with local staff on compliance issues.” Leaders rate that more important than do laggards by a ratio of nearly 7:1.

It is very difficult for local managers to resist making a facilitation payment when that’s the only way to get a pallet off a loading dock, or a critical part to a factory. That’s why companies that avoid getting in trouble make significant investments in internal communication and compliance training. They also go the extra mile when conducting due diligence on potential local partners and suppliers that may not have the same commitment to hewing to the straight and narrow as do their own organizations. Companies sometimes forget that the contractors their local managers hire, and the subcontractors the contractors hire, also need to be vetted and watched. Ted Unton, a former director of global financial compliance at Bemis Company, a U.S. global manufacturer, said his company has hired private investigators to look into partner companies and even partner executives.

Rule 3: Walking the Compliance Talk

Our respondents said that reputational damage – of the sort famously experienced by Walmart (accused of bribery in Mexico) and McDonald’s (accused of using tainted meat in China) – most often leads to loss of revenues, followed by exclusion from markets and even expropriation of assets. In our research, we found the greatest difference between how leaders and laggards approach mitigating reputational risk was how the regarded maintaining a good reputation over the long term. Leaders rate it more important than do laggards by an impressive ratio of 10:1.

This variance is mind-boggling when one considers that those companies that do not rate the importance of maintaining a good reputation highly have, by definition, suffered far greater losses than those that do.

Maintaining that good reputation is difficult as local populations are prone to regard multinational corporations as bad actors, and rich exploiters of resources and people – a belief often reinforced all-too willingly by the local press. It requires action and investment. One former president of an energy company operating in Bangladesh (who requested anonymity) told us his company, which had purchased land for a 40-mile pipeline, set up offices to help displaced farmers find jobs. By demonstrating its concern for the community and by conveying that the company was involved for the long-term, planned protests were averted. (Indeed, many of the farmers were hired by the company and their living standards improved.) According to the former president, the company became seen as a benefactor, not a despoiler, and he believes that reputation will improve the company’s future business prospects.

Notably, laggards believe that running “preemptive publicity campaigns to counteract negative reactions” is a fine strategy. Leaders do not. That spread is one of the largest differences we’ve found.

Do It Right or Don’t Do It at All

As we’ve seen, multinational companies have suffered significant and severe losses in emerging markets. And the difference in the loss-rate as a percentage of revenue – 2.2% for the laggards; 0.2% for the leaders – is certainly wide. Developing risk management competence in the three major categories of risk defined by our survey not only helps to stem these losses, but builds a strong foundation for future profits.

It is bad to be a laggard. What’s more, it is unnecessary.

The Riskiest States for Employee Lawsuits

In 2014, U.S. companies had at least an 11.7% chance of having an employment charge filed against them, according to the new 2015 Hiscox Guide to Employee Lawsuits. The firm’s review of data from the Equal Employment Opportunity Commission and its state counterparts found that the risk also varied notably by state, as local laws creating additional obligations—and risks—for employers led to charge rates up to 66% above average.


State laws that are driving some of this increased employee charge activity include heightened anti-discrimination/fair employment practices, the use of E-Verify in the private sector, pregnancy accommodation, prohibitions on credit checks, and restrictions on inquiring about or requiring background checks.

Key state laws driving increased employee charge activity

These cases can be especially damaging for small- and mid-sized enterprises, with 19% of employment charges among SMEs resulting and defense and settlement costs averaging $125,000 and taking about 275 days to resolve. The average self-insured retention for these charges was $35,000, Hiscox found, and without employment practices liability insurance, these companies would have been out of pocket an extra $90,000. What’s more, 81% resulted in no insurance payout, giving even nuisance charges the potential to be a serious financial hit. While the majority do not end up in court, when they do, the median judgment is about $200,000, not including defense costs, and 25% of cases result in a judgment of $500,000 or more.

During the hiring process, written procedures that outline and comply with federal and state laws can help minimize risk, as can maintaining a customized employee handbook that all staff acknowledge in writing they have reviewed. In addition to risk transfer, such as an employment liability insurance policy, Hiscox offered several tips to best mitigate the risk of employment charges, including:

Independent contractors

Be careful when designating independent contractors. There are variations among states and areas of law as to the test for an independent contractor. It is possible for a worker to be considered an independent contractor for some purposes and an employee for others.

Leaves of absence and accommodation for disabilities

A medical condition can trigger federal and state leave and disability laws, which vary, as well as workers compensation laws. Make it a policy to recognize events or discussions that create an obligation to discuss accommodations or a possible leave of absence.

Employee performance

Ensure that all supervisors and managers are aware of the procedure for addressing unacceptable employee performance. Communicate to the employee about what they are doing (or not doing) that is unacceptable, and make sure they understand what constitutes acceptable performance. Document all communications. Conduct factual, honest performance evaluations. Develop and maintain a procedure for corrective action plans.


To minimize litigation around termination, avoid surprises. Make sure that all guidelines have been followed for addressing unsatisfactory performance, particularly the corrective action plan. Prior to termination, assess the risk for litigation: is the employee a member of a protected class, involved in protected labor activities, or a potential whistleblower? Is the employee under an express or implied-in-face employment contract? Gather and review the documentation that supports the termination and interview relevant players.