May we please have your attention for a few safety announcements.
In a highly competitive and heavily regulated global industry like aviation, providing customer perks is often a common business practice. When used properly, such practices can help retain existing customers and attract business. However, when dealing with government officials or their representatives, providing such perks may significantly increase the risk of Foreign Corrupt Practices Act (FCPA) violations. The FCPA prohibits the giving of anything of value to foreign government officials in order to retain or obtain business. Providing a benefit to an official resulting in an unfair competitive advantage, such as not having to comply with certain safety regulations, may also violate the act. The aviation industry is no stranger to FCPA enforcers at the US Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC), and recent actions and news events demonstrate that such scrutiny is continuing in earnest today. As a result, companies in the industry should reassess how their business intersects with government employees and implement stringent controls around those areas that are regularly tested, revising as necessary.
In August 2019, one of Latin America’s national airline companies announced that it informed the DOJ, SEC and a local regulator of potential violations of anticorruption laws, including the FCPA. As a nationally owned airline, the company’s employees are considered foreign officials for purposes of the FCPA. The airline company reported that its employees, including some senior management and members of the board of directors, provided officials in certain undisclosed countries with “free and discounted airline tickets and upgrades.” In addition to going through the investigative process and the uncertainties that arise from it, the airline company implemented policies designed to prevent such practices from occurring in the future.
This airline company is simply the latest member of the aviation industry to be scrutinized for whether its practices of offering gifts or perks complied with the FCPA. For example, less than a year ago, the SEC announced a US$13.9 million settlement with a company providing high technology products in the aerospace industry. The settlement resolved allegations that the company improperly provided trips and gifts to various foreign officials throughout Asia and the Middle East to obtain business.
Reminders to the industry
Providing free or discounted tickets or upgrades is an easy perk for airlines to provide their customers. When dealing with foreign officials, which can include all employees of state-owned enterprises, including national airlines, it is important to ensure that such common and everyday perks are tied to a legitimate business purpose. A well-designed anticorruption compliance program can provide tangible benefits for a company, including the avoidance of enforcement actions, a reduction in the fines or penalties sought by regulators, and the establishment of credibility within an industry.
Understanding the present enforcement landscape and what can be done to avoid as well as remedy common pitfalls is key for companies operating in high-risk regions where the practice of providing business perks, like cheap or discounted airline tickets, is historically embedded in the industry. The financial industry recently went through a similar enforcement period and, as a result, several institutions paid large fines to resolve FCPA investigations for a then-common industry practice of providing internships to family members of government officials.
You are now free to move about the cabin.