On December 26, 2018, an American communication technology company (the company) entered into an administrative order to settle claims by the SEC that the company violated the books and records and internal accounting controls provisions of the FCPA. The alleged conduct involved improper payments made through distributors and resellers its subsidiary in China (the subsidiary) to Chinese government officials from 2006 through 2014 in an effort to obtain business from public sector customers.
According to the administrative order, at the instruction of the Vice President of the subsidiary, sales personnel used a sales management system outside of the U.S.-based company-approved database to parallel-track sales to public sector customers in China. The scheme involved providing discounts to distributors and resellers that were used to cover the costs of payments to Chinese government officials. These discounts were not passed on to the end customer, and the purpose of those discounts was not tracked in the company-approved database. The subsidiary's sales personnel were also instructed by the VP to use non-company email addresses when discussing and arranging these deals.
Pursuant to the administrative order, the company will pay to the SEC approximately $10.7 million in disgorgement, $1.8 million in prejudgment interest, and a $3.8 million civil monetary penalty.
On the same day, DOJ released a December 20, 2018 declination letter settling its investigation of the same conduct. Pursuant to the declination letter, the company agreed to disgorge approximately $10.15 million to the U.S. Treasury Department and $10.15 to the U.S. Postal Inspection Service Consumer Fraud Fund.
In settling these matters, both the SEC and DOJ cited the company’s identification of the misconduct, thorough internal investigation conducted by outside counsel, prompt voluntary disclosure, full cooperation, and remediation efforts. The company’s lauded cooperative efforts included making certain employees available for interviews, as well as producing all requested documents and translating large volumes of those documents from Mandarin to English. The remedial efforts cited included termination of eight employees and discipline of eighteen others, termination or reorganization of certain channel partner relationships, enhancement of third party oversight, and improvements to anticorruption and related trainings provided to China-based employees (certain materials of which had previously not been translated into Mandarin, the first language of many of the subsidiary employees).