A compliance officer for Large Pharmaceutical Company, incorporated in the US, is contacted by a sales representative for the company. The sales representative requests approval for a $50,000 donation by Large Pharmaceutical Company to what the sales representative says is a leading charity dedicated to cardiology research. The charity is based in an eastern European country. The sales representative also tells the compliance officer that the chairman of the board of directors of the charity is the chief cardiologist for one of the largest hospitals in the eastern European country. The hospital is owned by the eastern European country. Large Pharmaceutical Company sells, among other products, medications to treat coronary artery disease.
- Entities posing as legitimate charities can be vehicles to enrich government officials.
- The SEC has settled enforcement actions with companies who made donations to bona fide charities on the theory that the donation was still intended to corrupt a government official to use his/her position to benefit the donor company.
- Due diligence should examine further: the purpose and reputation of the charity; the qualification of its directors and senior management; how this donation amount and type compares with other donations made by the company; how the donation will be used by the charity; additional information regarding the role of the chief cardiologist in the charity; whether the chief cardiologist or any other government official requested the donation; and what business the company has with the chief cardiologist and/or his hospital.
- There should be a company-wide policy on charitable gifts, and this donation should comply with that policy.
- The donation should be made transparently and the company should request appropriate documentation, such as a receipt.