Global Manufacturer Fined for Improper Payments to Local Officials

A manufacturer settled charges for Foreign Corrupt Practices Act violations after a Chinese subsidiary improperly recorded expenses for providing Chinese government officials with overseas travel and entertainment as legitimate business expenses.

The SEC found that the manufacturer's Chinese subsidiary used overseas conferences and education events as a pretext for providing benefits to healthcare officials. The SEC stated that the subsidiary ran a scheme whereby funds were transferred to a complicit travel agency and then improperly used to help pay for the tourism activities. The SEC said that the manufacturer also failed to establish an adequate system of internal accounting controls for monitoring cross-border transfer funds to vendors which helped to facilitate the scheme.

As a result, the SEC found that the manufacturer violated Exchange Act Sections 13(b)(2)(A) and (B) ("Periodical and other reports").

To settle the charges, the manufacturer agreed to (i) cease and desist from further violations, (ii) disgorge $3,538,897 plus prejudgment interest of $1,042,721 and (iii) pay a civil money penalty of $2,000,000.