Could the Hospitality Industry be the Latest to Fall Under the FCPA Microscope?

In March, the Las Vegas Sands Corp. announced that it received a subpoena from the SEC and that the Department of Justice (“DOJ”) opened an investigation regarding potential Foreign Corrupt Practices Act (“FCPA”) violations surrounding its operations in Macau, China.

The impetus for the investigation appears to have come from a wrongful termination suit brought by the former CEO of Sands China. That suit alleges, in part, that the former CEO was terminated for resisting the continued use of a particular Macau attorney, who is also a member of the local government, despite concerns that the retention posed serious FCPA risks, instructions to use improper “leverage” against government officials to obtain strata-title to a property in Macau, and refusing to pressure Sands’ Chinese banks to use their influence with government officials to assist the company.

And, this is at least the second time the FCPA has touched the hospitality industry. In 2007, York International, a global provider of heating, ventilation and air conditioning, paid $22 million in penalties for a variety of unlawful payments, including payments made to secure construction contracts for luxury hotels in the United Arab Emirates.

The hospitality industry is particularly susceptible to FCPA risk. Hospitality companies often operate in high-risk corruption prone areas, such as Asia, India, Latin America and the Caribbean.

Furthermore, by the very nature of their business, hospitality companies must interact with the governments in these areas to obtain a panoply of licenses, permits, approvals and services.

Given these frequent dealings with foreign government officials in some of the most difficult places to operate in the world, not to mention the recent enforcement activity against an industry member, it is conceivable that the hospitality industry could find itself following the pharmaceutical, defense, logistics and financial services industries as the latest group to face an industry-wide probe from DOJ and the SEC.

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