Merle M. DeLancey Jr. and Christian N. Curran
As the holiday season approaches, companies may consider giving gifts to their government customers. But companies should be aware of the legal limits imposed on gift giving, which could result in serious penalties if ignored. Generally, federal government employees may not solicit or accept gifts or any other thing of value from prohibited sources. See generally, 5 C.F.R. Part 2635, Standards of Ethical Conduct for Employees of the Executive Branch. A prohibited source is defined as a person or company seeking official action by, doing business with, or seeking to do business with the employee’s agency, or a person or company regulated by the employee’s agency or that has interests that may be substantially affected by the employee’s official duties.
There are exclusions under the definition of “gift” that allow for some leeway in giving. Snacks or light refreshments (e.g., coffee and doughnuts at a seminar, but not as part of a meal) are excluded from the definition of gift. Items of little intrinsic value such as greeting cards are also excluded. Further, anything that a government employee pays “market value” for is not considered a gift. Market value can have varying meanings, but generally is considered face value, what the contractor paid for it, or the open market equivalent, depending on the item.
In addition to the exclusions to the definition of “gift,” there are several widely recognized exceptions to the gift rules:
- Gifts of $20 or less: Federal regulations permit government employees to accept noncash gifts worth $20 or less in value on any one occasion, as long as the total value of gifts given to a government employee from a single source does not exceed $50 per calendar year. Companies and organizations are considered a single source–gifts from company employees are aggregated. Thus, if you, or anyone else from your company, have twice paid $20 lunch tabs for a government customer within the calendar year, your limit on additional gifts is $10. Further, no gift of any amount may be solicited, recurring, or given with the intent to influence the government employee.
- Gifts based on bona fide personal relationships: Gifts based on family relationships and personal friendships are exempt from federal gift giving prohibitions. Thus, if your brother happens to work for a federal agency that your company does business with you need not abide by the $20 gift ceiling. However, the fact that you and your coworkers have developed a friendly relationship with a government customer does not convert a gift from your company into one based on friendship. Generally, if your relationship with a government employee predated your business-related contact, gifts will be subject to less scrutiny than if the friendship arose by virtue of your business dealings. If the latter is the case, the relationship will probably not be considered personal under the rules. Additionally, if you claim or seek reimbursement for the gift as a business expense, the gift cannot be said to be based on a personal relationship.
- “Widely attended gatherings”: Government employees may accept invitations to “widely attended gatherings,” provided that other clients or customers are also invited and their cost of attendance covered. This exception is typically reserved for educational seminars and similar events, not social gatherings, but some social gatherings may also qualify. See Office of Government Ethics, Advisory DO-07-047: Widely Attended Gatherings, December 5, 2007. There are five criteria that must be met in order for an event to be considered an exception under the widely attended gathering rule. First, the gathering must include a large number of people (guidance suggests at least 20 or more). Second, there must be a diversity of views or interests present (e.g., clients, employees, suppliers, customers, etc.). Third, the agency must determine whether its employees’ attendance at the event is in the agency’s interest. Fourth, if the employee’s cost of attendance is covered by someone other than the sponsor of the event, other restrictions will apply. Finally, if the government employee’s duties could substantially affect the interests of the payment source, then a written determination from the government agency’s designee is required.
Notwithstanding these exceptions, some government employees take the position that it is never appropriate to accept gifts from contractors. In such cases, or where a regulation has been violated (for example, the value of the gift exceeds $20), a gift may be returned or the recipient may pay the donor market value for the item. If the gift is perishable (i.e., food, flowers) the item may, at the discretion of the recipient’s supervisor or an agency ethics official, be donated to charity, shared within the recipient’s office, or destroyed.
If you have any concerns regarding giving gifts or entertaining customers during this holiday season, you should seek guidance from your in-house or outside counsel.