Earlier this week the Securities and Exchange Commission (SEC) charged Tokyo-based multinational conglomerate Hitachi, Ltd., (Hitachi) with violating the Foreign Corrupt Practices Act (FCPA). The SEC investigation found that Hitachi’s South African subsidiary, Hitachi Power Africa (Pty) Ltd. or HPA, falsely recorded improper payments to South Africa’s ruling political party, the ANC, in connection with contracts to build two multi-billion dollar power plants.
The SEC investigation determined that Hitachi sold a 25-percent stake in HPA to Chancellor House Holdings (Pty) Ltd., (Chancellor) a well-known front company for the African National Congress. The intent behind this arrangement was to share profits with Chancellor and the ANC on any power plant contracts that Hitachi/HPA secured in South Africa. Chancellor, in exchange, used its political influence to steer contracts from South African utility company Eskom Holdings SOC Ltd., which is owned and operated by the South African government, to HPA. HPA eventually won two such contracts and paid Chancellor nearly $5 million in what it recorded as “dividends.” An additional $1 million was paid to Chancellor in so called “success fees” that were recorded in Hitachi’s SEC filings as consulting fees.
The investigation revealed that none of Hitachi/HPA’s South African employees had any FCPA-specific compliance training. “Hitachi’s lax internal control environment enabled its subsidiary to pay millions of dollars to a politically-connected front company for the ANC to win contracts with the South African government,” said Andrew J. Ceresney, Director of the SEC’s Enforcement Division. “Hitachi then unlawfully mischaracterized those payments in its books and records as consulting fees and other legitimate payments.”
Subject to court approval, Hitachi has agreed to pay $19 million in settlement of the SEC charges and consented to the entry of a permanent injunction prohibiting future violations of the SEC sections cited in the complaint.
The Hitachi settlement is but a drop in a vast ocean of settlement payments made by companies that have run afoul of the FCPA. Federal agencies, including the SEC and Department of Justice, are combining aggressive enforcement with increased resources to root out international bribery and corruption. It is always a good time for companies to review corporate policies and procedures, conduct audits of high-risk areas, review global business practices, and secure proper FCPA-specific compliance training for all employees. Companies must promote an effective compliance program and must be able to demonstrate a consistent process where potential issues are identified and resolved or risk unwanted attention from federal investigators.