Despite Snyder Ruling, Gratuities Still an Issue for Government Contractors

The US Supreme Court’s June 26 ruling in Snyder v. United States clarified that the primary federal law regulating state and local corruption, 18 USC § 666, does not bar state and local officials from accepting “gratuities”—gifts provided without a quid pro quo. However, while Snyder resolved a long-percolating question as to state and local officials, it did not change the underlying status quo vis-à-vis federal officials. The law remains clear, and especially relevant to government contractors: gratuities to federal officials and contractor employees remain illegal.

Snyder addressed a specific question: whether Section 666 prohibits the payment and receipt of gratuities, which are commonly understood to be “rewards” for public officials who take action to benefit the giver. Section 666’s prohibition on bribes to state and local public officials remains intact.

In other scenarios faced by government contractors, however, the payment of both bribes and gratuities remains prohibited. 18 USC § 201(c), the general federal anti-corruption statute, forbids providing a thing of value to a federal public official “for or because of any official act.” This language, which differs from 18 USC § 201(b)’s prohibition on bribery “to influence” an official act, reaches gifts designed to reward or “thank” federal officials, whether they are members of Congress, contracting officers, or low-level government employees.

Payments or gifts to public officials are not the only potential stumbling block for government contractors. The federal procurement laws criminalize providing, offering, or attempting to provide “kickbacks” to prime contractors, subcontractors, or their employees in connection with a federal contract.[1] It is also illegal to “include the amount of a kickback” in a contract or subcontract price.

“Kickbacks” are broadly defined in the procurement context, to include “any money, fee, commission, credit, gift, gratuity, thing of value, or compensation of any kind that is provided to a prime contractor, prime contractor employee, subcontractor, or subcontractor employee to improperly obtain or reward favorable treatment in connection with a prime contract or a subcontract relating to a prime contract.”[2] This definition, which explicitly includes gifts, gratuities, and compensation, puts all payments to contractors or subcontractors squarely within the ambit of federal criminal law—meaning that even casual exchanges between businesses can be subject to scrutiny.

Further, these laws do not contain de minimis exceptions. In Snyder, the Supreme Court expressed concern about small gratuities being criminalized by Section 666; these gratuities apparently remain criminalized under federal law for federal officials and contractors. While these laws are limited by intent requirements, which ensure that payments made without improper or corrupt intentions are not criminalized, this can be cold comfort for anyone under investigation. The prospect of stiff penalties, which can include significant fines, up to 10 years’ imprisonment, and collateral consequences such as suspension and debarment, should prompt concern for government contractors.[3] Add to that the financial and reputational costs of an investigation, and companies would be advised to avoid potentially risky payments.

KEY TAKEAWAYS FOR GOVERNMENT CONTRACTORS

Defense and government contractors should be mindful of these laws when fashioning their compliance programs. First, contractors should closely monitor all payments and gifts, no matter how seemingly small or insignificant (for example, a business dinner or tickets to a baseball game), to government officials and other contractors. A robust compliance program, when combined with clear polices and a strong internal investigation plan, can address potential issues before they create risk.

Second, if a potential issue does arise, contractors should continue to consider whether a disclosure is appropriate. Credible evidence of violations of federal criminal law, including payment of gratuities, must be reported to the government under the terms of most government contracts. Even in those cases where evidence may not be “credible,” it is often advantageous for a contractor to make a voluntary disclosure to mitigate an investigation or risk under the federal government’s suspension and debarment regime.

Finally, larger contractors should maintain relationships with their primary suspension and debarment officials (SDOs) to ensure that any issues are not magnified in a way that endangers continued contract viability. Government investigations can often appear suddenly and pose a significant risk to ongoing and future contracts. The existence of an ongoing, friendly relationship with an SDO allows contractors to provide context as issues arise in investigations.

The US Department of Justice and inspectors general possess broad investigatory power over waste, fraud, abuse, and corruption in government contracts. While Snyder likely portends a reduced focus on state and local gratuities by federal prosecutors, contractors should be aware that for federal government contracts, bribes and gratuities remain fair game for enforcement.