Why it matters: On May 20, 2015, the SEC announced that BHP Billiton had agreed to pay $25 million to settle charges that it violated the FCPA’s accounting provisions in connection with a global hospitality program it established with the head of its Global Ethics Panel for its sponsorship of the 2008 Summer Olympics in Beijing. Even though BHP Billiton had implemented vetting procedures and forms meant to address the FCPA and anticorruption risks inherent in the hospitality program, the SEC found them to be insufficient, primarily due to lack of training regarding the forms and the failure to require independent compliance approval. The SEC also found that BHP Billiton failed to keep accurate books and records because the forms required to be completed by employees before inviting government officials to the Olympics were filled out incorrectly.
Detailed discussion: On May 20, 2015, the SEC announced that it had charged Melbourne-based global resource companies BHP Billiton Ltd. and BHP Billiton Plc (collectively, BHPB) with violations of the accounting provisions of the Foreign Corrupt Practices Act (FCPA) for failing both to “devise and maintain sufficient internal controls” over its sponsorship hospitality program for the 2008 Summer Olympic Games in Beijing and to keep “accurate books and records” because employees had incorrectly filled out the hospitality application forms needed to be approved prior to inviting government officials to the Olympics. BHPB, without admitting any wrongdoing, agreed to pay a $25 million civil penalty to settle the charges and to report to the SEC for one year regarding its FCPA compliance programs. The SEC acknowledged BHPB’s cooperation and remedial efforts in reaching the settlement.
At the May 20 press conference, SEC Associate Director of Enforcement Antonia Chion said that “[a] ‘check the box’ compliance approach of forms over substance is not enough to comply with the FCPA. Although BHP Billiton put some internal controls in place around its Olympic hospitality program, the company failed to provide adequate training to its employees and did not implement procedures to ensure meaningful preparation, review, and approval of the invitations.”
The SEC’s May 20 Order details the facts: BHPB became an official sponsor of the 2008 Olympic Games in 2005 by paying a sponsorship fee to the Beijing Organizing Committee and agreeing to supply the raw materials used to make the Olympic medals. In exchange, BHPB received sponsorship perks such as the right to use the Olympic trademark and priority access to events and accommodations. BHPB established an Olympic Sponsorship Steering Committee (OSSC), the chair of which was also the head of BHPB’s Global Ethics Panel and reported directly to BHPB’s CEO. The OSSC planned and implemented a sponsorship program, one goal of which was to build strategic relationships with China and other countries where BHPB wanted to expand its operations. To that end, the OSSC created a global hospitality program through which it invited 650 people to attend the Olympics at the company’s expense. Of the 650 invited, 176 were government officials or employees of state-owned enterprises primarily from countries in Asia and Africa (where, the Order points out, there is a “known risk of corruption”). Many of the invited officials accepted the invitation but did not end up attending, so that BHPB ultimately treated 60 of them plus 24 spouses/other guests to three- and four-day hospitality packages each valued between $12,000-$16,000 that consisted of event tickets, luxury hotel accommodations and sightseeing excursions, and in some cases, round-trip business class airfare.
At the outset, the OSSC had identified the corruption risks inherent in inviting government officials to the Olympics under the FCPA and other anticorruption laws, as well as BHPB’s own Guide to Business Conduct. BHPB therefore relied on its “existing operating model” as well as an “Olympic-specific internal approval process” to specifically address these risks. The OSSC created a hospitality application form (Application) that business managers in BHPB’s various customer sector groups (CSGs) were required to fill out with respect to each individual, including any government official, they wanted to invite to the Olympics. The Application contained a series of questions that included the following:
- What business obligation exists or is expected to develop between the proposed invitee and BHP Billiton?
- Is BHP Billiton negotiating or considering any contract, license agreement or seeking access rights with a third party where the proposed invitee is in a position to influence the outcome of that negotiation?
- Do you believe that the offer of the proposed hospitality would be likely to create an impression that there is an improper connection between the provision of the hospitality and the business that is being negotiated, considered or conducted, or in any way might be perceived as breaching the Company’s Guide to Business Conduct?
If yes, please provide details.
- Are there other matters relating to the relationship between BHP Billiton and the proposed invitee that you believe should be considered in relation to the provision of hospitality having regard to BHP Billiton’s Guide to Business Conduct?
The Application was required to be signed by an employee of the CSG with knowledge about the invitee’s relationship to BHPB, and approved in writing by the relevant CSG president or BHPB country president. The blank Application forms came with cover letters that included a brief description of the antibribery provisions in the company’s Guide to Business Conduct and urged employees, prior to filling out the form, to reread the sections in the Guide concerning travel, entertainment and gifts.
The SEC found that the Application process did not “adequately address the anti-bribery risks associated with offering expensive travel and entertainment packages to government officials,” citing the following: (1) the Applications did not undergo any independent review by the OSSC or BHPB’s Global Ethics Panel; (2) some of the Applications were filled out inaccurately or were incomplete, and many had the same nonspecific “boilerplate” answers; (3) employees were not specifically trained to fill out the Application or to assess bribery risks, especially with respect to the treatment of spouses; (4) there was no way to update the Application or revisit the appropriateness of an invitation once made to reflect recent business developments; and (5) there was no process in place to cross-check the invitees among the various CSGs submitting the Applications.
As a result of BHPB keeping “inaccurate books and records” (i.e., the incorrectly filled-out Applications) and having “insufficient internal controls” over the hospitality program in violation of Sections 13(b)(2)(A) and 13(b)(2)(B) of the ‘34 Act, the SEC found that BHPB invited “a number” of government officials to the Olympics who were “directly involved with, or in a position to influence, pending negotiations, efforts by BHPB to obtain access rights, or other pending matters.” The SEC only cited to four specific cases in the Order, however, in the Republics of Burundi (official attended with his spouse), Philippines (official accepted but invitation withdrawn), Congo (official accepted but cancelled) and Guinea (individual accepted but cancelled). The SEC made no allegation that bribes had actually been paid to any officials—it was just the fact that they had been wrongfully invited due to the insufficiency of the internal controls surrounding BHPB’s hospitality program that triggered the charges.
At the May 20 press conference, SEC Enforcement Director Andrew Ceresney summed it up by saying that “BHP Billiton footed the bill for foreign government officials to attend the Olympics while they were in a position to help the company with its business or regulatory endeavors. BHP Billiton recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws, yet the company failed to implement sufficient internal controls to address that heightened risk.”
See here to read the SEC’s press release dated 5/20/15, titled “SEC Charges BHP Billiton With Violating FCPA at Olympic Games.”
See here to read the SEC’s Order dated 5/20/15, In the Matter of BHP Billiton Ltd. and BHP Billiton Plc.