FCPA Charges Relating To Gift-Giving In China

by Thomas Fox
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Ed. Note-today’s post is a chart prepared by Amy Sommers and Matt Morley, partners at K&L Gates. I found it to be a great resource to show FCPA enforcement actions involving gift-giving in China.

Date

Company/Individuals

China-related allegations*

Key elements of settlement

July 2004 

InVision Technologies, Inc (‘In Vision’)Senior Vice President (SVP) for Sales and Marketing and member of InVision Board of Directors

A $95,000 financial compensation to distributor in China for delay in shipment but company was allegedly aware of a high probability that some of the funds were to pay for foreign travel.Other misconduct was alleged to have occurred with regard to Thailand and the Philippines.

Company 2-year non-prosecution agreement (NPA) (DOJ)

$800,000 criminal fine  (DOJ)

$500,000 civil penalty (SEC)

$589,000 disgorgement plus prejudgment interest of $28,703.57 (SEC)

Independent consultant to evaluate the efficacy of GE’S integration of InVision into its compliance program
SVP for Sales and Marketing

$65,000 civil penalty, permanent civil injunction against future violations (SEC)

October 2006 (company)Late 2007
(individuals)

Schnitzer SteelSouth Korean subsidiary of Schnitzer Steel

Executive Vice President (EVP)

Chief Executive Officer (CEO)

$200,000 in cash bribes and other gifts (gift certificates and in at least one instance a $2400 watch) to win business in China.More than $1.8 million in bribes and for gifts and parties in both China and South Korea.

CompanySouth Korean subsidiary

Guilty plea and $7.5 million criminal fine

Schnitzer Steel

3-year deferred prosecution agreement (DPA) (DOJ)

$7.5 million criminal fine (DOJ)

$7.7 million civil penalty (SEC)

Independent compliance consultant/monitor
CEO

 

$75,000 civil penalty (SEC)

$186,401 in disgorgement and interest

EVP.

$25,000 civil penalty
$16,131.90 in disgorgement and interest

 

September 2007

Paradigm B.V.

Unspecified “commission” payments; $100-$200 per person for “inspection” and “acceptance” fees; pay for travel and entertainment to Chinese officials.Other allegations re Indonesia, Kazakhstan, Mexico and Nigeria

18-month NPA (DOJ)$1 million penalty to DOJ

Implement rigorous internal controls

Retain outside compliance counsel

Continue cooperation with the DOJ

December 2007

Lucent Technologies

Over $10 million spent on trips for around 1,000 Chinese officials

2-year NPA (DOJ)$1 million criminal fine (SEC)

$1.5 million civil penalty (SEC)

December 2008

Siemens AktiengesellschaftMultiple individuals

More than $9 million worth of “study” trips by Chinese doctors to win business.Other allegations re Argentina, Bangladesh, Iraq, Israel, Nigeria, Vietnam, Russia, and Mexico.

$450 million criminal fine (DOJ)$350 million disgorgement (SEC)

$770 million (Munich Prosecutor’s Office)

Various results regarding individuals, with jurisdictional issues in many cases

July 2009

Avery Dennison

Kickbacks, sightseeing trips ($4,227 for 5 people in 2002) in addition to gifts with an alleged value of $30,000 including 4 pairs of shoes at $125/each – note the low value of this item, but the overall value of all gifts likely an unfavorable factor for the company.Other allegations re Indonesia and Pakistan

$200,000 civil penalty (SEC)$318,470 in disgorgement and interest

 

July 2009 (company)February 2009 to April 2012 (executives)

Control ComponentsNumerous senior executives of the company and its subsidiaries

Making corrupt payments totaling approximately $6.85 million in thirty- six countries between 1998 and 2007. Benefits given include extensive paid- for vacations by Chinese state-owned enterprise employees to Disneyland, Las Vegas and Hawaii, first class airfare, 5-star hotel accommodations and chartered boats. Also paid for college tuition of children of at least two Chinese state-owned employees.Other allegations re 8 other countries

Guilty plea and $18.2 million criminal fine3-year independent compliance monitor with periodic reports to DOJ

3-year organizational probation

Continued cooperation with DOJ in further investigation

*Numerous senior executives also pleaded guilty and sentenced to 4 months imprisonment to 36 months home confinement

December 2009

UTStarcom Inc.

Travel & gifts. $7 million for hundreds of overseas trips.  Travel had little or no business component. Details regarding types of gifts in China were not specified; however, the facts disclosed in respect of Thailand included mention of a $600 bottle of wine$4 million in executive training “trips”+ cash allowances during the same. Also references to “lavish gifts” in this section, but without further detail.

Other allegations regarding expenditures and gifts in Thailand and Mongolia.

NPA (DOJ) because of internal investigation and self-reporting$1.5 million penalty (DOJ)

$1.5 million penalty (SEC). Additional compliance obligations

 

April – December 2010

Daimler AG

More than $4 million of “commissions,” travel and gifts.Other allegations regarding 19 other countries

DPA (DOJ)Compliance monitor (3-years)

$93.6 million criminal fines and penalties (DOJ)

$91.4 million civil penalties (SEC)

 

June 2010

Veraz Networks

Gifts and improper payments totaling $40,000. At least one supervisor referenced the company’s “gift scheme,” which accounted for $4500 of the $40,000 total.There were additional allegations of bribing a Vietnamese official to win business during the same period.

$300,000 civil penalty (SEC) 

August 2010

Alliance One International, Inc. (the predecessor to the companies that took the actions at issue).Four individuals were charged as well based on their roles in the respective companies.

Gifts, travel & entertainment expenses. Specific gifts included watches, cameras and laptop computers among other items.There was also bribery in Asia and other regions of the world.

$9.45 million criminal fine (DOJ)$10 million disgorgement (SEC)

The individuals paid fines/settlements ranging from $5,000-$40,000

November 2010

Tyco International

Chinese subsidiaries paying cash to state owned corporation and paying approximately US$137,000 to third parties who used the funds to purchase gifts for and give cash to government officials. Employees also submitted expense claims for entertaining health care professionals and false travel itineraries and documentation for trips by government physicians.

NPA (DOJ)$26 million fines and penalties (DOJ/SEC)

$10,564,992 disgorgement and US$2,566,517 prejudgment interest (SEC)

 

December 2010

RAE Systems

$400,000 in improper payments, including gifts of: a laptop for an executive’s child, jade, fur coats, suits, expensive liquor, and kitchen appliances.

NPA (DOJ)$1.7 million criminal penalty (DOJ)

$1,257,012 disgorgement and interest (SEC) SEC alleged violations of the anti-bribery and internal controls provisions

March 2011

IBM

Allegations of bribes paid to Chinese and South Korean officials. The allegations relating to the Chinese officials included that they were given gifts such as cameras and laptop computers, in addition to travel.

$5.3 million in disgorgement$2.7 million in prejudgment interest

$2 million civil penalty

May 2011

Rockwell Automation, Inc.

Approximately $450,000 worth of leisure travel and non-work sightseeing trips (in addition to bribes of about $615,000).

$400,000 civil penalty (SEC) (reflecting cooperation and self-reporting)$2.36 million disgorgement and prejudgment interest (SEC)

 

October 2011

Watts Water Technologies, IncVP of Sales

Payments of up to 3% of the contract value to design companies, which resulted in approximately $2.7 million in profits for the Chinese subsidiary. It is unknown how the payments were presented to individuals at the Chinese-based design institutes, but the cease and desist order suggests that some were presented as “gifts” and entertainment. The payments were accounted for as a portion of the sales agents’ commissions, and the company recorded them inaccurately as such in its books and records.

Company$200,000 civil money penalty*
$3.58 million disgorgement and interest (SEC)

VP of Sales

$25,000 civil penalty (SEC)

* The Commission explicitly stated the civil penalty was capped at this level as a result of the company’s cooperation.  This cooperation included: a world-wide anti-corruption audit, engaging an outside provider to conduct on-going global training, and hiring a Director of Legal Compliance.  For comparison, business from this subsidiary accounts for only 1% of Watts’ gross revenues

March 2012

Biomet, Inc. and four subsidiaries 

Bribes paid to public physicians of hospitals located in Argentina, Brazil and China

$17.28 million criminal penalty (DOJ)$5.4 million disgorgement (SEC)

Compliance monitor (18 months)

August 2012

Pfizer

From 2003 until 2007, Pfizer China paid for international travel and hospitality for doctors of Chinese healthcare institutions in order to boost prescription of Pfizer products. Incentive programs would pay for doctors’ trips to international conferences if they achieved certain prescription targets. Cash and other gifts were also given.Multiple allegations relating to eight other countries.

 

DPA (2 years, DOJ)$15 million criminal penalty (DOJ)

$26,339,944 disgorgement and prejudgment interest (SEC)

 

December 2012

Eli Lilly and Company (“Eli Lilly”)Four of its subsidiaries

Buy gifts, pay for entertainment, meals and cosmetics for government-employed physicians to induce doctors to prescribe Eli Lily’s product in China.Other allegations relating to Brazil, Poland and Russia

Disgorgement, prejudgment interest and penalties totaling $ 29,298,734 (SEC)Required retention of independent consultant

DOJ investigation remains open

Additional cases of note:

November 2010

Allison Transmission

This matter stems from gift-giving in China. The plaintiff was the Managing Director for operations in China, Korea and Japan. He refused to engage in or sanction violations of the FCPA and was fired. The plaintiff has alleged that the FCPA violations he witnessed or heard about included gifts of jewelry and individuals who deliberately lost at “high stakes” poker games.

This is a private whistleblower suit because Allison is not a publicly traded company. The suit names the company and two other executives.The case was settled and dismissed in January 2011.

February/ October 2010Declination in
Q1 2011

CB Richard Ellis

Unknown, but conduct appears to have related to small gifts. Exact nature of those is unknown.

Internal investigation and self-reporting to DOJ and SEC. Ended with declinations by both agencies – very positive outcome for CBRE

April to August 2012

Garth R. PetersonMorgan Stanley

Peterson, former head of Morgan Stanley’s Shanghai office, arranged to sell, at a discount, stakes in real estate investment to the chairman of a Chinese state-owned enterprise

Garth R. Peterson Pleaded guilty and sentenced to 9 months imprisonment

$254,589 disgorgement and relinquishment of improperly gained investment interests (estimated value of $3.4 million)

Morgan Stanley

The DOJ declined to prosecute (reflecting Morgan Stanley’s adequate internal controls and extensive compliance efforts)

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

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