Foreign Corrupt Practices Act Cases Impact Sport Marketing Strategies

By Dodds, Mark A. | Sport Marketing Quarterly, December 2015 | Go to article overview

Foreign Corrupt Practices Act Cases Impact Sport Marketing Strategies


Dodds, Mark A., Sport Marketing Quarterly


Sporting events are utilized by sport marketers to promote their brands to the event patrons and local consumers while providing a platform for the brand to reach a potentially global marketplace. But these types of events may also breed negative incident risks, such as bribery and corruption (United Nations Global Compact, 2014). Recent cases involving the Foreign Corrupt Practices Act (FCPA) shed new light on how this anti-bribery law impacts international sport sponsorships. Recently, the U.S. Department of Justice brought FCPA enforcement actions against three organizations that may impact sport marketing strategies. The first case may allow a mega-event to face bribery charges during its bidding process while the other two cases deal with corporate hospitality associated with sporting mega-events.

Foreign Corrupt Practices Act

The U.S. Congress created the Foreign Corrupt Practices Act (FCPA) in 1977. This Act makes it illegal for U.S. persons and businesses, U.S. and foreign public companies listed on U.S. stock exchanges, and certain foreign persons and businesses acting within U.S. territories from making corrupt payments to foreign officials in order to obtain or retain business (U.S. Department of Justice, 2012). Common sport hospitality incentives, such as cash, travel, and entertainment, may be considered corrupt payments under the Act (Cassin, 2008). Foreign officials include governmental officers, employees, or representatives (Cassin, 2008). As analyzed below, the Esquenazi court extended this definition to include private actors in certain situations.

The law has two components: an anti-bribery provision and an internal controls provision. For each violation, corporations are subject to a $2 million criminal fine and a civil penalty of up to $10,000. Any individual [officer, director, or stockholder] who willfully violates the provisions of the law is subject to a $100,000 criminal fine, and a five-year imprisonment (U.S. Department of Justice, 2012). Further, a corporation may be held criminally liable for acts conducted by an employee within the scope of his/her job performance, even when that conduct is directly contrary to company policy (Cassin, 2008).

The most common FCPA defense does allow for reasonable and bona fide expenses related directly to the promotion of a product or service, such as those commonly used in sport hospitality. These costs may include reasonable travel, lodging, food, and entertainment. As the Weatherford and BHP Billiton cases show, it is vital for sport sponsors to develop compliance procedures to make certain the expenses are reasonable and bona fide.

Recent Foreign Corrupt Practices Act Cases

Although it is not a sport-specific case, United States v. Esquenazi, may prove to be very influential in future anti-bribery sport investigations. Joel Esquenazi and Carlos Rodriguez were convicted of paying "kickbacks" to officials of a partially state-owned Haitian company, Telecommunications D'Haiti, S.A.M. (Teleco) (Esquenazi, 2014), which was a FCPA violation. Among the factors provided by this court, an organization may be considered an "instrument of the government" when a government subsidizes the entity's costs, if the entity's officers are appointed or associated with the government, or if the government has appointed the entity for a particular purpose, such as health or sport (Esquenazi, 2014). Although Teleco was a private organization headquartered in Miami-Dade County, Florida, the Haitian government gave it a telecommunications monopoly, appointed members of Teleco's board of directors, and owned 97% of the company (Esquenazi, 2014). The court decided that the officials of Teleco qualified as "foreign officials" under the FCPA, and as a result, Esquenazi was sentenced to 15 years in prison (Esquenazi, 2014). The court decided that Teleco should be considered an "instrumentality" of the Haitian government and adopted a criteria test showing Teleco was an entity controlled by the Haitian government and performed a function (telecommunications) a government normally treats as its own (Esquenazi, 2014). …

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