SEC Settles Charges of FCPA Violations against Tech Company and Chinese Subsidiaries

A technology company and its Chinese subsidiaries settled parallel civil and criminal actions with the SEC and the U.S. Department of Justice. The actions involved violations of the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act ("FCPA").

According to the SEC's Order:

  • the company's subsidiaries provided a total of nearly $1.5 million in improper travel, gifts and entertainment to Chinese government officials who were employed by state-owned entities from which the company was seeking business;

  • the company gained approximately $11.8 million in profits from sales contracts with state-owned entity officials who received the improper payments;

  • Chinese officials were provided with sightseeing and tourist activities, as well as "improper gifts and entertainment" that included personal electronics and tickets to professional basketball games;

  • the officials were compensated directly by the company and through third-party agents; and

  • "the improper payments were disguised as legitimate commissions or business expenses in company books and records."

The SEC also announced its first deferred prosecution agreement with an individual in an FCPA case, which involved the former employee of one of the company's Chinese subsidiaries. The agreement was reached "as a result of significant cooperation [that the individual] provided during the SEC's investigation." In total, the company agreed to pay $28 million to resolve the charges: $11.858 million in disgorgement and $1.764 million in prejudgment interest to the SEC, and a $14.54 million criminal penalty in connection with a non-prosecution agreement with the U.S. Department of Justice.

Commentary

Less than two weeks ago, the SEC entered into a settlement agreement with a pharmaceutical company that resolved FCPA charges arising from similar violations in China. In both cases, companies provided improper sightseeing, gifts and hospitality to Chinese government officials. These matters illustrate the continuing challenges faced by U.S. companies that attempt to comply with the FCPA while doing business in China, and highlight regulators’ continued focus on corruption in China. Companies operating in China are well-advised to study the conduct cited by the SEC and re-evaluate their current gifts, travel and entertainment policies against the problematic conduct in these two cases. Moreover, companies should ensure that their compliance departments are adequately training employees on the anti-corruption policies and taking steps to assess whether corporate policies are being followed.

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