Archive for the ‘Customer Rewards Programs’ Category

Something To Think About

Friday, May 27th, 2011

The holiday weekend is upon us and perhaps you have already left the office.

Here is something to think about over the long weekend.

India’s Chief Economic Adviser, the economist Kaushik Basu, recently posted a paper titled “Why, for a Class of Bribes, the Act of Giving a Bribe Should be Treated as Legal” (here).

The abstract is as follows.

“The paper puts forward a small but novel idea of how we can cut down the incidence of bribery. There are different kinds of bribes and what this paper is concerned with are bribes that people often have to give to get what they are legally entitled to. I shall call these harassment bribes. Suppose an income tax refund is held back from a taxpayer till he pays some cash to the officer. Suppose government allots subsidized land to a person but when the person goes to get her paperwork done and receive documents for this land, she is asked to pay a hefty bribe. These are all illustrations of harassment bribes. Harassment bribery is widespread in India and it plays a large role in breeding inefficiency and has a corrosive effect on civil society. The central message of this paper is that we should declare the act of giving a bribe in all such cases as legitimate activity. In other words the giver of a harassment bribe should have full immunity from any punitive action by the state.

It is argued that this will cause a sharp decline in the incidence of bribery. The reasoning is that once the law is altered in this manner, after the act of bribery is committed, the interests of the bribe giver and the bribe taker will be at divergence. The bribe giver will be willing to cooperate in getting the bribe taker caught. Knowing that this will happen, the bribe taker will be deterred from taking a bribe.

It should be emphasized that what is being argued in this paper is not a retrospective pardon for bribe-giving. Retrospective pardons are like amnesties. They encourage rather than discourage corrupt behavior by rewarding the corrupt. And, in the process, they corrode society‘s morals.”

See here for the recent CNN segment “What in the World” for more on Basu’s proposal as well as other innovative ideas to reduce bribery and corruption.

The solution Basu addresses would seem most applicable to domestic bribery where a prosecuting agency has jurisdiction over both the bribe payor and bribe recipient. That is not the case in a typical FCPA scenario, but Basu’s paper and proposal is indeed interesting, thought provoking material.

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Finally, a previous post (here) discussed customer rewards programs and the SEC’s interest in RAE Systems.

Turns out there is an interest in this general issue on the other side of the Atlantic as well.

The office of Richard Alderman (Director of the U.K. Serious Fraud Office) alerted me to a recent speech he gave (here) at the 2011 International Medical Device Industry Compliance Conference. In the speech, Alderman talked about the soon-to-go live Bribery Act, self reporting, and the SFO’s relationship with the DOJ.

Alderman also talked about “incentive payments” and stated as follows.

“What I am also seeing is corporates having a hard look at some of the arrangements that are in fact justifiable for commercial reasons but which have not been scrutinized before with a view to seeing whether or not there are risks of bribery. Let me give you an example. Incentive payments. These are a common feature of many industries and I suspect of your own as well. I know that a number of companies and a number of industry organisations have been looking at this issue in order to see whether there are risks when the Bribery Act comes into force. We have had a number of meetings in the SFO with corporates and industry bodies about this issue. We have been able to talk through the issues and offer reassurance.

Clearly, these incentive payments are normally designed for commercial reasons and are commercially justifiable. There are risks though. What we have been talking about with corporates is the need for transparency and, in particular, the need to know where the money goes and the fact that it is justifiable. We also talk about the need for a senior person at the corporate’s head office to have visibility of what is happening and to be satisfied that what is happening is justifiable.

This may well be a feature of your own industry (and indeed I imagine that it probably is) and it may be that this is something that you want to discuss.”

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A good weekend to all.

Customer Reward Programs

Friday, May 20th, 2011

At this moment, it is likely that some company operating in China has a customer rewards program whereby customers are awarded points based on the level of purchases.

At this moment, it is likely that some person employed by an entity with some level of state-ownership or control just received an iPad or camera because the individual redeemed points under the program based on the purchase the individual previously authorized.

The SEC is concerned about the customer rewards program and whether it complies with the FCPA and the company is spending hundreds of dollars an hour investigating the program so that it can present its conclusions to the SEC and the DOJ.

Your first response upon reading the above paragraph might be – are you serious or is this paragraph from the Onion (see here), a satire news organization that parodies just about everything.

Nothing make believe about the first paragraph, it is derived from RAE Systems May 12th proxy statement filed with the SEC.

In the filing (here), RAE Systems stated as follows.

“In the course of telephonic discussions between April 15 and 19, 2011, outside counsel for [RAE] was asked by the SEC whether RAE China had adopted a sales program whereby customers are awarded points based on the level of their purchases of RAE products and are then eligible to redeem those points at year-end for gifts such as iPads or cameras, and whether such a program complies with the Foreign Corrupt Practices Act (“FCPA”). We do not believe that any RAE China personnel have been engaging in such a practice. We are conducting a review in response to the SEC’s inquiry, and intend to provide our conclusions to the SEC and Department of Justice.”

In December 2010, RAE Systems resolved a DOJ/SEC enforcement action concerning the acts of its subsidiaries’ joint venture partners in China. See here for the prior post. RAE Systems agreed to pay approximately $2.95million in fines and disgorgement and agreed to a three-year DOJ non-prosecution agreement (here).

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The clock is now ticking to see who will publish (presumably) the first client alert or host the first webinar on “The FCPA Compliance Risks of Customer Rewards Programs.”

In the meantime, there is likely a “foreign official” somewhere with his eye on the six piece stoneware gourmet mixing bowl set (here) available for 2000 points under Coke’s rewards program.

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Interested in reading more about the Harris Corporation enforcement action? As highlighted earlier this week (see here) the recent Lindsey Manufacturing case was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial. Harris Corporation (and certain of its executives) did just that and prevailed in an FCPA trial. As described in the post, U.S. District Judge Charles A. Legge (N.D. Cal.) directed a verdict of acquittal after the DOJ’s case.

Michael H. Huneke (Hughes Hubbard & Reed – see here) was kind to send the Defendants’ motion for acquittal, the DOJ’s response, and the transcript of oral arguments and Judge Legge’s ruling.

If old FCPA enforcement actions are your thing – here you go! If others have interesting FCPA enforcement documents from … say 1978 – 1995 – send them my way.

A good weekend to all.