Las Vegas Sands Suffers Double Whammy and Resolves FCPA Action with DOJ for $7 Million

by Michael Volkov

Following a separate SEC action (here), the Justice Department resolved FCPA charges against Las Vegas Sands for $7 million. DOJ and Las Vegas Sands entered into a non-prosecution agreement (NPA) citing much of the same evidence outlined by the SEC in its enforcement action against Las Vegas Sands for $9 million.

The Justice Department’s NPA includes a statement of facts centering on large payments made to a high-risk consultant in China relating to Sands’ efforts to expand its business operations in China, and in Macao in particular.

The Justice Department, like the SEC, strongly suggests that bribery occurred in Sands’ large payments to the high-risk consultant for questionable or unverified services. Similarly, DOJ and the SEC embraced consistent enforcement theories relating to Sands’ weakness in internal controls and verification of payments.

Companies conducting internal investigations in China face unique challenges in verifying business relationships and expenditures. DOJ and the SEC actions appear to recognize this difficulty by focusing on internal controls and not demanding further investigation of the use of such funds. Instead, DOJ and the SEC paint a picture that bribery is the only logical explanation for the large expenditures made by the consultant.

Adding to its factual presentation, the Justice Department outlined internal efforts by China executives and officials to derail internal efforts and outside counsel attempts to rein in the employment of the high-risk consultant. These efforts to obstruct investigation of the payments made by the consultant underscore the inference of bribery.

The high-risk consultant at the center of the enforcement action was a designated liaison with Chinese government representatives. Sands did not conduct due diligence of the consultant, failed to review large payments made to the consultant for questionable purposes, and failed to verify that the consultant expended the funds for the stated purpose.

Sands paid the consultant a total of $62 million to promote Sands in China and Macao. Throughout its relationship, however, Sands Chinese executives and officials knew that the consultant was being paid for services that were false or inaccurate. In fact, Sands knew that the consultant could not account for $700,000. A finance employee and an outside auditor raised serious questions concerning the consultant. After raising these concerns, the finance employee was fired. Notwithstanding these concerns, Sands continued to use and pay the consultant.

The consultant was used to disguise Sands’ ownership interests in a Chinese basketball team and a building in Beijing. Sands was prohibited by Chinese law from owning a basketball team. Further, Sands engaged in a number of suspicious transactions, while ignoring significant red flags relating to consultants’ engagement, including: (a) payment of $1.4 million to an entity affiliated with the consultant for “arts and crafts procurement;” (b) payment of $1.4 million for “advertisements” that were connected to an unexecuted contract between Sands and the consultant; and (c) $1.4 million for promotional and marketing services.

Sands’ remediation included creation of a compliance committee as part of the board of directors, and increased the compliance and accounting budgets. Additionally, Sands hired a new general counsel, internal auditor and chief compliance officer. The Sands’ executives and officers responsible for the conduct in China resigned from the company.

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

Written by:

Michael Volkov

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