We all know that promotional allowance programs (MDF/Co-Op) are subject to regulations. The most common inquiries we get from our clients center around two well-known regulations: the FTC’s Robinson-Patman Act and the SEC’s SOX Compliance (Contra vs OpEx classification of funds). While both of those are very real concerns, the act that has produced the most visible MDF-related cases in recent years is the Foreign Corrupt Protection Act (FCPA). The SEC used FCPA to indict a major computer hardware company and a high-profile software company, plus countless others across various B2B categories, for what may be generally described as misuse of MDF allowances.
What is the FCPA?
For the sake of brevity, I’ll give you a plain English definition. FCPA is designed to prevent bribery of public (government) or private (commercial) officials to gain a competitive advantage. While that concept is straightforward enough, the (ahem) coercion doesn’t have to come directly from the vendor (that’s you), the source can be a channel partner, or more indirectly, a third party related to that channel partner. If the funds, and the resulting benefit, can be traced back to you, you’ve just violated FCPA. How can this be? The offenders in these aforementioned cases were the loosely controlled MDF funds that were used to fund the efforts. The indictment can come regardless of whether or not the vendor had advanced knowledge of the effort.
Now, it’s no surprise to anyone that some countries have traditionally used “palm greasing” to achieve personal and business objectives in the past. Many of those countries are now making more of an effort to put a stop to it, and the SEC is all in, hence the FCPA. The fact of the matter is the act basically points out that businesses are expected to evaluate their potential third parties (channel partners and their suppliers) for risks such as bribery, money laundering, collusion, data insecurity, and other factors.
What can you do as a marketer to mitigate risk?
This is only a blog, so we have to be brief, but feel free to reach out and request more insight on any of the points below. None will guarantee you will be risk free, but if practiced these guidelines will definitely lower your risk.
- Publish clear program guidelines defining the rules around how participants can use funds and include a disclaimer that articulates your position on the use of funds for bribery and other corruptible practices.
- Have your legal team review the guidelines, as they are the ones that have to pick up the pieces.
- Provide training to all partners and internal stakeholders on the policies and issues related to corruption and provide a clear path for escalation of any questions or events that may be a corruption offense.
- Have a third party perform compliance audits of all claims for compliance against those guidelines (like Perks WW—a soft plug). Companies are required to maintain records of all transactions and payments—a formal MDF system and auditing practice provided by a neutral party is accustomed to this. If your program is still run on emails and spreadsheets, you may want to rethink that.
- Never pay or reimburse third-party firms (other than your channel partners directly).
- Always ask for legitimate receipts for work performed—this is also necessary to classify some activities as “OpEx,” another SEC requirement.
- Don’t reimburse at 100% of the activity cost.
- Do not reimburse for travel expenses or limit travel to specific events. You may not want to offer travel reimbursement to government employees. In fact, you should avoid giving anything that can be perceived as a gift, no matter how small.
- Do not prepay for activities, only reimburse once the activity is completed.
- Spiff and other incentive programs managed by the partner and funded through MDF need to show a program plan, a business outcome, and proof that the program falls within the local laws. Objectively, you’re better off providing your own program where you can more easily control the impartial nature of the program vs funding a program that the channel partner conceived of themselves.
- Charitable and political donations have no business being in an MDF program, but if donations are allowed, they should be scrutinized by a compliance officer.
- Pre-screen partners who are eligible, particularly in high risk countries.
If you don’t currently follow these guidelines, you may want to consider adapting some. If you do all of them, congratulations.
About the Author
Craig DeWolf, Perks WW VP, Marketing Enablement, has over 30 years of channel program and trade marketing experience spanning a variety of industries and distribution models including technology and consumer product companies. As Vice President, Marketing Enablement he provides a unique multi-industry perspective gleaned from a background working across agency, supplier, and vendor/manufacturer roles. Craig has engaged with key business partners and worked with a variety of clients on both channel and trade strategies and programs, including: AT&T, Apple, Avaya, Bridgestone Goodrich, Canon USA, Hewlett-Packard, Kraft, Oracle, Panasonic, Timex and Xerox. Immediately before joining Perks Worldwide, Craig held senior roles at Hawk Incentives, Hawkeye Channel, and CCI—a work history that shows his deep understanding of the channel space.More Content by Craig DeWolf