Beam Settles FCPA Violations with SEC for $8 Million for Pervasive Third-Party Bribery Schemes

Michael Volkov

After a lengthy investigation conducted by the SEC, Beam Suntory agreed to pay $8 million to settle FCPA violations in India.  (Copy of SEC order Here).  Beam’s settlement took over 5 years from initial disclosure to resolution – a long-time to say the least.  Interestingly, there has been no resolution or mention of a parallel DOJ investigation.

Beam’s conduct follows similar conduct by other liquor companies operating in India.  In 2011, Diageo settled with the SEC for approximately $16 million for FCPA violations in India.  Two other liquor companies have pending FCPA investigations.

The liquor industry is heavily regulated in India and there are numerous opportunities for bribery and kickbacks.  Beam was traded on the NYSE until 2014 when it was acquired by a Japanese company and delisted from the NYSE.

Beam’s conduct is instructive because Beam employed a variety of third-party bribery schemes to advance its commercial sales and secure regulatory approvals and registrations.  As in many other FCPA cases involving third parties, Beam funded the payments through inflated invoices it received from its third parties.  All in all, Beam is a textbook example of third-party risks and the use of third parties to fund and carry out bribery schemes.

During the period of 2006 to 2012, Beam’s subsidiary in India paid bribes to government officials using third-party promoters, distributors and other third parties in connection with sales and promotion activities.  The third parties’ paid bribes to government employees at depots and retail stores to increase sales orders, improve shelf positions of its products, and secure license and label registrations.

Beam regularly made payments to lower level and senior government officials to ensure timely approval of annual label registration requirements.

In 2011, Beam sought to introduce a new product in India.  Before doing so, Beam had to secure a label registration from Indian regulators.  The Indian official responsible for such approval demanded a payment of approximately $18,000 for approval of the registration.  Three senior managers at Beam reviewed and approved of the payment and a method for reimbursing the Indian subsidiary for the payment.  Shortly thereafter, the label registration was approved.

DOJ did not announce a resolution of its investigation.  Given Beam’s senior management role in the bribery scheme, DOJ may be conducting a criminal investigation focused on some of Beam’s senior managers.  However, given the length of time involved in this investigation, and the five-year statute of limitations (which could be extended by agreement), such a criminal investigation may be coming to a close.

Finally, as set out in the SEC Order, after initial indications of the bribery activity in India, Beam failed to timely respond to remediation recommendations.  For almost two years, Beam shuffled around findings and recommendations for an in-depth review of its activities in India after problems were identified by an accounting firm investigation, an Indian law firm investigation and a US law firm’s further support for analysis and investigation.  The problems in India were further corroborated when a former employee alleged specific bribery activities, which were confirmed, and Beam avoided further investigation of similar activities in other areas in India.

Beam’s rationalizations and shuffles of responsibility totaled a simple but devastating attitude – Beam was not committed to discovering potential problems and sought to brush as much as they could under the rug.

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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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Michael Volkov

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