Compliance Risks at Christmas

22 February 2022 00:00


Here are a few homemade cookies, a bottle of wine, and a voucher for dinner - the wintertime always tempts us to give other small gifts. Christmas, in particular, is considered the time of charity, gifts, and donations.

But what about gifts between business partners? Which compliance risks do companies have to consider at Christmas? On both sides, the utmost caution is required when it comes to gifts between business partners for Christmas because many companies use the traps of white-collar crime to boost their sales. In this article, you can find out how to avoid these risks and to what extent our due diligence tool Nexis Diligence™ can help you.


Compliance Risks at Christmas

Table of Contents

  1. Explanation of terms: compliance, gifts & Co.
  2. Typical compliance risks for companies
  3. Christmas – the most important time of the year for retailers
  4. Internal compliance management as protection against business risks
  5. Conclusion: Make sure you define compliance rules for gifts!

Explanation of Terms: Compliance, Gifts & Co.

What Does Compliance Mean?
Compliance means adhering to all rules in a company - be it internal guidelines, legal provisions, or general practices of conduct for dealing with public officials. So-called compliance officers are responsible for the legal conformity of all processes and business processes within a company. You are responsible for ensuring that the company operates in accordance with the applicable laws and internal standards.

Gifts and Benefits

According to the German Civil Code, donations refer to any kind of gifts to third parties where both parties agree that they are free of charge. Although the individual gift items are not particularly uncommon, complex, or even expensive, they can make up an inconsiderable gift value in the pack. A good bottle of wine at Christmas or a short lunch with business partners can quickly add up to more than the tax-deductible 35 euros. Therefore, every dinner, every gift basket, and every ballpoint pen is considered a benefit, which could ultimately lead to accusations of bribery.

The Improper Acceptance of Gifts

Accepting gifts is offensive if the employee accepts the gift and is directly dependent on something in return, such as a reward for an order placed. Depending on the specific value of the gift or the order, this breach of compliance, i.e., the breach of duty, can justify a warning or even dismissal of the employee.

No Fixed Value Limit for Donations

There is no specific value limit for gifts above which employees violate the compliance rules by accepting them. Examples of generally accepted gifts include pens and calendars. They are considered small gifts but can ultimately lead to compliance violations in individual cases.

Typical Compliance Risks for Companies

Whether it's Christmas, Chinese New Year, or the Hindu festival of lights Diwali - managers often invite customers and suppliers to dinner or give generous gifts at this time of year. However, while the law in some countries allows the conveyance of information about one's products or services through gifts, it is illegal to give gifts to business partners in some countries.

Therefore, companies must be aware that exchanging gifts between business partners entails increased compliance risk for white-collar crime. Examples of these risks include bribery to generate higher sales during the lucrative Christmas season, corruption disguised as hospitality, and unethical sourcing of goods.

In this regard, Bill Pollard, Consulting Partner at Deloitte, said in an interview that the holiday season could be the busiest time for compliance officers: "We are in a traditional season of gift-giving around the world. Western and Eastern cultures exhibit behavior where requests for approval related to gifts are skyrocketing." So, businesses need to ensure they are up-to-date with anti-bribery legislation. Especially, third parties with ties to government officials and politically exposed persons must be particularly monitored.

In our article, Corruption, Fraud and Money Laundering, you can find out everything about the changes in the law to strengthen the integrity of the economy.

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Christmas – The Most Important Time of the Year for Retailers

Companies have to ask themselves: When is it a harmless gesture, and when is the employee acting in breach of duty accepting gifts? The temptation to commit a financial crime in order to boost sales further is particularly high during the Christmas season. For example, some business leaders are prone to pay bribes in order to secure a deal or purchase ahead of their competitors. But why is that?

The Christmas season is the most important time of the year for retailers. The income in December contributes enormously to the total annual turnover. The latest toys that should not be missing under the Christmas tree or reduced smartphones at the beginning of the year - some products are particularly in demand.

Retailers should warn their employees against the temptation to reserve such products for some customers in exchange for a bribe or buy products themselves and then resell them at a higher price.

Internal Compliance Management as Protection Against Business Risks

Companies must implement appropriate compliance processes to detect white-collar crime in their business environment. Sophisticated internal compliance management with fixed compliance rules ensures that companies act with integrity and respectability on the market and that both company management and employees behave according to the rules in order to prevent compliance violations.


Ethical Review of Procurement Structures

Even in a rush to source and produce enough supplies for holiday shoppers, companies shouldn't neglect their suppliers' due diligence checks. Companies should know where their products come from and take a risk-based approach to their due diligence so that particularly vulnerable business partners in countries or industries with an increased risk of bribery are examined more closely. In addition, companies should examine the working conditions in their supply chains.

Digression: The Accident of the Rana Plaza Factory

Many clothing stores across Europe suffered reputational damage when a factory in Bangladesh collapsed in 2013 due to a lack of safety regulations, killing 1,135 people.

For instance, Primark, KiK, C&A, and Cropp were among the companies that were urged by (social) media 2 to financially support the alternative facility for the workers from the collapsed factory. According to its own statement, Primark paid 14 million US dollars. 3 The pressure to pay this sum came not only from customers but also from investors. The Interfaith Center for Corporate Responsibility, a coalition of 275 institutional investors for social change, has also urged clothing brands to do more for victims of the disaster. 4The investors collectively owned more than $4 trillion in assets under management. A correspondingly high financial pressure weighed on the companies to meet the demands of the investors.

It would not be fair to say that the textile companies could have foreseen the disaster at the Rana Plaza factory. But the case demonstrates the importance of increased supplier due diligence in high-risk markets like Bangladesh. Because if there are inhumane working conditions in your supply chain, you, too, are ultimately acting unethically.

Conclusion: Make Sure You Define Compliance Rules for Gifts!

There is no obligation as such to integrate compliance management in the company. Nevertheless, uniform rules protect those responsible from liability and the company from a loss of image. Clear and understandable rules in the company are important. This is the only way to create clear conditions for gifts and donations. Define value limits and document any granting or acceptance of benefits. All employees must know when they are allowed to accept gifts and from what value, a gift should be rejected.

Finally, use common sense when it comes to grants. Not every gift is attempted bribery. Depending on the business owner, it is common to accept a business meal or let more than one pen leap at Christmas. It is about the relationship between attention and acceptance and ultimately about whether a specific service in return is expected or simply the appreciation of the business relationship is expressed.

Next Steps:

  1. Learn how Nexis Diligence™ helps you identify compliance risks early.
  2. Read more about compliance in our blog!
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