A U.S. software company and two of its Chinese subsidiaries have agreed to pay more than $28 million to settle parallel civil and criminal actions involving violations of the Foreign Corrupt Practices Act. This amount includes a $14.5 million criminal penalty as part of a non-prosecution agreement with the Department of Justice as well as $11.9 million in disgorgement and $1.8 million in prejudgment interest to be paid to the Securities and Exchange Commission.
According to information from the DOJ and SEC, the two subsidiaries arranged and paid for employees of various Chinese state-owned enterprises to travel to the U.S., ostensibly for training but primarily for recreational travel. Over at least a five-year period the subsidiaries paid nearly $1.5 million to fund these trips, both directly and through third-party agents, while entering into more than $13 million in contracts with the Chinese state-owned entities. The subsidiaries also provided improper gifts and entertainment to Chinese government officials, including small electronics as well as gift cards, wine and clothing. An SEC official said the parent company “failed to stop [the] illicit payments despite indications of potential corruption by agents working with its Chinese subsidiaries.”
The DOJ notes that the subsidiaries did not receive voluntary disclosure credit or full cooperation credit because relevant facts they had learned in connection with a prior internal investigation were not disclosed until the DOJ uncovered additional information independently and brought them to the subsidiaries’ attention. By the conclusion of the investigation, however, the subsidiaries had provided all relevant facts known to them, including information about individuals involved in the FCPA misconduct. They also engaged in extensive remedial measures, including the establishment of a dedicated compliance team and enhanced policies for business partners and the implementation of new customer travel policies and additional controls around expense reimbursement.
The SEC also announced its first deferred prosecution agreement with an individual in an FCPA case as part of this proceeding. DPAs facilitate and reward cooperation in SEC investigations by foregoing an enforcement action against an individual who agrees to cooperate fully and truthfully throughout the period of deferred prosecution. In this case FCPA charges will be deferred for three years against a former employee at one of the subsidiaries as a result of his significant cooperation during the SEC’s investigation.