Sex on the company dime

Employees who expense prostitutes are more common than you’d think

You can expense that?!

Yadid Levy / Anzenberger

You can expense that?!
Yadid Levy / Anzenberger / Redux

As awkward explanations go, the one given for Dominique Strauss-Kahn’s alleged involvement with a French prostitution ring may have set the bar lower than ever before. During a recent radio interview, Strauss-Kahn’s lawyer acknowledged that his client did indeed participate in an orgy at the upscale Carlton hotel in Lille, France, but stressed that he could not have known the women were prostitutes. “People are not always clothed at these parties,” said Henri Leclerc. “I defy you to tell the difference between a nude prostitute and a classy lady in the nude.”

The sensational case, dubbed the “Carlton affair” by French newspapers, is merely the latest sex scandal to envelop the former head of the International Monetary Fund, who lost his job after being accused of sexually assaulting a New York hotel maid last year (the charges were later dropped). It’s also the most recent example of a company—in this case a French construction firm—being accused of improperly using corporate funds to throw so-called “sex parties” for employees and clients. In fact, some experts say using sex to grease the wheels of commerce is far more common than most people think—even in a relatively conservative country like Canada. “We like to paint ourselves as better than other countries,” says Al Rosen of Toronto-based forensic accounting firm Rosen & Associates. “But we’re absolutely not.”

Though generally well-hidden, Rosen assures that there’s plenty of questionable corporate spending going on behind closed doors. “It’s usually the international companies where there’s a lot of competition and money at stake,” he says. “They grease the skids with whatever (customers) want.” Even more shocking is the fact that many employees aren’t automatically fired when such transgressions come to light, owing in part to a general lack of clear corporate policies on such raunchy behaviour.

Bram Lecker, a Toronto lawyer who specializes in wrongful dismissal suits, recalls a case five years ago where one of his clients, a Canadian executive for an American tech firm, was fired for hiring female companions for his employees while on a business trip to Japan. “He thought it would be a great idea to acclimatize (employees) to Japanese culture,” Lecker says. He added, however, that the executive ended up with a settlement since there was no evidence any laws or company policies had actually been broken.

Others have used sex as a reward for good performance. In 1996, Toronto-based Foresters, a non-profit fraternal society that sells insurance to members, was forced to discipline executives who hired and expensed the services of prostitutes during sales junkets to Thailand and Rio de Janeiro. The trips were offered as rewards to the top 12 sales staff, known around the office as the “Dirty Dozen.”

Perhaps the most salacious example of expense account abuse was a party organized by German insurance company Munich Re. In 2007, it treated 100 top employees to a bathhouse romp in Budapest. Twenty prostitutes were hired—each wearing coloured wristbands to indicate their roles: red for hostesses, yellow for women who would fulfill “other wishes” and white for women who were reserved for executives and top sales agents. The company’s corporate magazine described the party as “killer fun,” but it caused a major public scandal. The firm’s new owners said last year that the party was a “clear violation” of company policy, and that its organizers were no longer with the firm.

The same year, a Volkswagen executive was accused of buying prostitutes for union leaders, while Deutsche Bank told employees in 2008 that they were no longer allowed to expense brothel visits, although it wasn’t clear if it was because of the financial crisis or fears that the bank’s reputation could be tarnished if it became mired in scandal. Prostitution, incidentally, is legal in Germany.

Forensic accountants like Rosen say there are myriad ways for sneaky executives to hide inappropriate staff functions under the “entertainment” heading of a company’s expense reports. Not surprisingly, then, the way most corporate sex scandals come to light is through the complaints of other employees. In 1998, a $34-million sexual harassment case against Mitsubishi Motors Manufacturing of America included allegations of managers being taken to sex shows in Japan, and huge “sex parties” for employees at locations near an Illinois assembly plant. And in 2006, six women sued Dresdner Kleinwort Wasserstein Services in New York, accusing managers of entertaining clients at strip clubs and bringing prostitutes to the office.

How is any of this allowed to happen in the first place? The answer, it seems, is a combination of bad judgment, a male-dominated business culture and corporate policies that don’t explicitly prohibit the behaviour. “It really depends on whether the company has a stringent policy on it,” argues Lecker, “and most don’t.”