On February 11, 2009, the SEC entered into a civil settlement agreement with ITT Corporation ("ITT"), an issuer with securities listed on the New York Stock Exchange, for violations of the FCPA's books and records and internal controls provisions relating to a wholly-owned foreign subsidiary, 15 USC. §§ 78m(b)(2)(A) and (B).
The SEC's civil complaint alleged that, between 2001 and 2005, Nanjing Goulds Pumps Ltd. ("NGP") made approximately $200,000 worth of payments to employees of Chinese government-owned entities. NGP manufactures and provides water pump systems for power plants, building developers and contractors. The corrupt payments were made to state-owned entities that designed hydroelectric power plants and dams, including the Three Gorges Dam. Those payments led to $4 million in revenue and $1 million in profits for NGP.
The SEC claimed that ITT had failed to make or keep books and records "which, in reasonable detail, accurately and fairly reflected the illicit payments by NGP...and the related disposition of [NGP's] assets." The SEC also alleged that ITT "failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances" that corrupt payments were not taking place.
This disposition is yet another reminder of the risks inherent in failing to ensure that foreign subsidiaries are complying with the FCPA's accounting provisions. It also illustrates the difficulty companies often face when doing business in state-dominated countries like China in determining which individuals are government officials or work for government-owned entities. In this case, NGP paid employees of power plants, building developers, and general contractors — all unlikely candidates for being governmental entities. As a result, Mark Mendelsohn often encourages multinational companies that do business in China to treat everyone as if they were a government official, without exception.
Follow these links for additional information:
The SEC's Litigation Release can be found here
The SEC's Civil Complaint can be downloaded here (PDF)