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$280 Million in Penalties for FCPA Violations

Tuesday, May 01, 2018
Sandler, Travis & Rosenberg Trade Report

A subsidiary of a U.S.-based multinational corporation has agreed to pay a total of more than $280 million in penalties to resolve charges that it violated the Foreign Corrupt Practices Act. This amount includes a $137.4 million criminal penalty to be paid to the Department of Justice under a deferred prosecution agreement and $143 million in disgorgement and pre-judgment interest to be paid to the Securities and Exchange Commission. The company also agreed to continue to cooperate with the DOJ’s investigation, enhance its compliance program, implement rigorous internal controls, and retain an independent corporate compliance monitor for at least two years.

According to information from the DOJ and SEC, the subsidiary offered a lucrative consulting position to a government official at a state-owned airline in an effort to obtain and retain business from the airline. The subsidiary ultimately paid that official about $875,000 for a position that required little to no work, used an unrelated third-party vendor to conceal the payments, and earned more than $92 million in profits from portions of the contract over which the official had some involvement or influence. The subsidiary mischaracterized these payments as “consultant payments” on its general ledger, which caused the parent company to incorrectly designate those payments on its books, records, and accounts.

The subsidiary also admitted that employees in its Asia region concealed its use of certain sales agents who did not pass the company’s internal diligence requirements. The subsidiary formally terminated its relationship with these agents but employees secretly continued to use them by having them rehired as sub-agents of another company that had passed the due diligence checks. 

The DOJ states that its resolution is based on a number of factors, including that the company did not timely voluntarily self-disclose the conduct but did cooperate with the department’s investigation after receiving a request for documents from the SEC. The subsidiary received a 20 percent discount off the low end of the U.S. Sentencing Guidelines fine range because of its cooperation and remediation, which, although untimely in certain respects, included the separation of several senior executives who were either involved in or aware of the misconduct. The DOJ notes that because many of the subsidiary’s compliance enhancements were more recent and therefore have not been tested, the deferred prosecution agreement requires an independent compliance monitor for two years followed by an additional year of self-reporting.

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