SEC Settles FCPA Charges That a Company Hired Chinese Officials' Relatives to Secure Business

The SEC announced that a wireless technologies company agreed to pay a $7.5 million civil penalty to settle charges that it violated the Foreign Corrupt Practices Act ("FCPA") by providing paid internships and full-time employment to the relatives of employees at a Chinese regulatory agency and at two or more state-owned enterprises ("SOEs"). The company neither admitted nor denied the charges, which include violations of the FCPA's anti-bribery, books and records and internal controls provisions.

This settlement marks the first instance in which a non-bank was charged with hiring practice-related FCPA violations. It demonstrates that regulators are pursuing cases like this one outside the financial sector.

According to the SEC Order, between 2002 and 2012, the company violated the anti-bribery provisions of the FCPA by providing jobs and other improper benefits to the relatives of Chinese government officials in order to promote the adoption and deployment of the company's technologies in China. In order to preserve and grow the business, the company allegedly offered full-time employment and paid internships to family members and other individuals referred by Chinese government officials. In some cases, these prospective employees were described as "must place" or "special hires."

According to the SEC, the company violated the FCPA's internal controls provisions by offering and providing benefits, employment-related and otherwise, to foreign officials without an adequate process of oversight to determine whether the benefits were intended to induce the officials to provide advantages to the company. Specific failures alleged by the SEC include the lack of a "company-wide chief compliance officer," the absence of an FCPA compliance officer in China, the nonexistence of regular substantive training for employees at company subsidiaries regarding the FCPA's requirements, and the exclusion of HR, hospitality planning and other business functions from the company's FCPA compliance program. With respect to the company's alleged books and records violations, the SEC also claims that the company improperly recorded, or omitted from its gift logs, expenses for gifts, meals, entertainment and other benefits provided to government officials. These deficiencies were raised repeatedly in the company's internal audits over the course of a number of years.

Although the SEC claims that the company's improper business practices helped it to obtain "billions in revenue from the sale of chips and licenses to cell phone manufacturers," the settlement includes no disgorgement. It does, however, include reporting provisions that require the company to provide the SEC with periodic reports at no less than nine-month intervals over the course of two years.