On June 7, the Securities and Exchange Commission (SEC) announced two non-prosecution agreements (NPAs) following a pair of investigations into alleged violations of the Foreign Corrupt Practices Act (FCPA). Both companies were ensnared by the FCPA through the conduct of their foreign subsidiaries. The way the companies responded to the apparent violations provides a potential roadmap for a company that uncovers wrongdoing within the firm.

The Alleged Misconduct

Akamai Technologies, a global internet services company based in Massachusetts, owned a subsidiary that operated in China. A sales manager at the subsidiary bribed employees at state-owned Chinese companies to purchase up to 100-times more network capacity than the companies actually needed. Additionally, employees at the subsidiary routinely provided improper gifts to Chinese government officials in order to obtain or retain their business.

The second company, Nortek, Inc., also owned a subsidiary in China. The subsidiary manufactured products for Nortek’s business, which consisted of selling products for residential and commercial construction. Officers and employees at Nortek’s subsidiary made or approved improper payments and gifts to Chinese officials to obtain business and preferential treatment, including more favorable regulatory oversight and reduced taxes and fees. Subsidiary employees made at least one improper payment every month in a five-year period.

The Investigation and Reporting to the SEC

Neither Akamai nor Nortek had adequate accounting controls to detect the bribery schemes as they unfolded. Akamai uncovered the scheme only when a lower level sales representative filed a complaint against the manager. Although Nortek discovered the bribery at its subsidiary during the course of an audit, the scheme had by that time been going on for five years.

Once the schemes were uncovered, both companies launched internal investigations. A key component of that process was notifying the SEC of potential violations. The companies notified the SEC early on and kept the SEC informed as the investigation developed. Additionally, the companies disclosed summaries of witness interviews and made witnesses available to the SEC staff, including witnesses located in China.

Both companies also undertook extensive remedial measures. Akamai named a Chief Compliance Officer and established a global team of compliance professionals. It also strengthened its anti-corruption and training policies. Nortek did the same. It established a new Compliance Committee to oversee the implementation of its remedial efforts. The companies terminated those who participated in the schemes and severed their relationships with problematic local partners.

The Non-Prosecution Agreements

As a result of these measures, the SEC determined it was appropriate to enter into NPAs with Akamai and Nortek. The SEC required Akamai to disgorge over $650,000, plus interest. Nortek disgorged nearly $300,000. However, both companies escaped charges under the FCPA because of how they handled the discovery of the potential violations and the ensuing investigation.

The SEC attributed the decision not to pursue an FCPA case against the companies to prompt self-reporting and extensive cooperation with the investigation that followed. It was critically important to the SEC that the companies laid “all their cards on the table.” The SEC was also satisfied with the remedial measures the companies put in place. One SEC official noted: “They handled it the right way and got expeditious resolutions as a result.”

The Akamai and Nortek cases lay out a roadmap to an NPA for companies that uncover clear evidence of a potential FCPA violation. The companies (1) promptly disclosed the issues they uncovered to the SEC; (2) kept the SEC informed as the internal investigations proceeded; (3) fully cooperated with the SEC, including making witnesses available to be interviewed; and (4) took a hard look at their existing compliance programs and changed them to address the problem. Experienced counsel can help companies navigate their way through the internal investigation process and craft a compliance regime responsive to the SEC’s concerns.