Managing corruption risks when making charitable donations: Key questions for compliance and legal teams to ask

Many companies have made significant donations of funds, goods and services as part of international relief efforts.

These efforts are, of course, to be applauded, but it is important to be mindful of the bribery and corruption risks presented by charitable donations, particularly in emerging markets, and to take proactive steps to manage legal and reputational risks.

As well as putting donation requests through an appropriate due diligence and approval process (and carefully recording all analysis and due diligence), it is prudent for companies to ask fundamental questions about the substance of the donation request. Doing so will help to assess the risk better, and to flush out any further red flags in relation to the donation request; for example, insistence on either money or particular goods being donated, on donations being structured in a certain way or a lack of willingness to allow the company oversight or control of the process.

We have set out below some key questions to ask about the substance of the donation requests, as well as a high level summary of points to consider around process.

Key questions

1. What is known about who has made the request and why?
2. If the donation will be made to an entity (including a trust), have the owners of the entity, the beneficiaries of the trust; and/or the management of the entity or Trustee of the trust been reviewed for ABC risk?
3. Do those making the request or others with whom they are connected have the power to influence the provision of an advantage to the company?
4. Can the requested donation be made in another (lower risk) way (e.g. provision of services rather than money or goods that can easily be converted to cash)?
5. Is the request permitted under the company’s policies, its community donations plan, its strategic commitments (such as concession agreements) and under relevant laws or procurement rules?
6. What ability will the company have to monitor or audit use of the donated monies or goods?
7. What is the broader context and what would be the impact if the company did not agree to the request?

Process

1. Approvals should be clearly recorded: Approvals of donations should be carefully recorded and donations should be subject to formal invoicing processes and financial oversight before being accurately recorded in the company’s financial accounts.
2. Due diligence: Some of the points to consider include: (i) where the request for the donation has come from and the purpose for which the donation will be used; (ii) the particular charity’s status, reputation and past projects; (iii) any connections with Governments or public officials (including whether such an entity or individual requested the donation in question); (iv) the relationship between the donation and the donating company’s current or potential business operations; and (v) whether the donation has any associated tax relief benefits.
3. Verification: (i) Companies should ask the named bank for any financial donations to independently and directly confirm (in writing) the details of the bank account into which the funds will ultimately be paid, such as the name in which the account is held, the date on which the account was opened and the identity of any account signatories; (ii) companies should, if practicable, have processes for assuring the funds are spent for approved purposes, and any in-kind donations reach their intended destination, for example, a system to assure that intended/approved purchases are actually made, and/or a system to verify physical delivery of donated goods, medicine, etc. to the intended location.
4. Contractual protections: Donations should be recorded in a written agreement which gives the recipient assurance that it will comply with all applicable laws, allows the donating company to monitor and/or audit the use of the funds/donated goods, and allows the company to suspend future payments/terminate the agreement for any reason.
5. Structuring and implementation: The donation should be structured in a way that limits diversion risk. For example, monetary donations could be restructured as donations of goods, services or agreements in relation to the use of company facilities and personnel. If this is not possible, larger monetary donations could be made via a series of smaller payments, with each contingent on evidence that the previous payment was used for its intended purpose.