A U.S. company has agreed to pay the Securities and Exchange Commission $11.7 million to settle charges that it violated the internal accounting controls and recordkeeping provisions of the Foreign Corrupt Practices Act through its subsidiaries in China and Russia.
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According to an SEC order, certain sales employees of the Russian representative office of the company’s subsidiary misrepresented to senior management the need for increased discounts on sales to customers to meet competition. These discounts were diverted into a fund used in part to pay for trips for customers, including government officials. The SEC states that some of these trips were excessive and inconsistent with company policy and had little to no educational or business purpose. A member of senior management discovered this scheme but the company’s overall remedial efforts were ineffective and the practices continued for several more years.
Additionally, certain sales employees of the company’s Chinese subsidiaries falsified trip and meeting agendas for customer events that understated the true amount of entertainment involved. The company’s legal department approved numerous such trips without adequate review and after the events had taken place.
The penalty assessed includes a $6.5 million civil penalty, $4 million in disgorgement, and $1.25 in prejudgment interest. The SEC states that this penalty reflects the company’s timely disclosure of facts developed during an internal investigation as well as its remedial measures, which included revising its compliance policies, realigning its compliance function and creating a new chief compliance officer position, requiring due diligence and prior approval processes of vendors, and conducting additional employee training on anti-corruption issues.
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