Background

A U.S. company has agreed to pay more than $9 million to the Securities and Exchange Commission to resolve charges that it violated the Foreign Corrupt Practices Act in connection with improper payments made by two Chinese subsidiaries. This amount includes $6.08 million in disgorgement, $1.14 million in prejudgment interest, and a $2 million civil penalty. However, the Department of Justice has declined criminal prosecution of this matter.

According to the SEC, the two Chinese subsidiaries used third-party agents to make unlawful payments to obtain data vital to the parent company’s business. One subsidiary, part of a joint venture with a Chinese company, acquired non-public financial statement information on Chinese entities, in violation of Chinese law, by making unlawful payments to Chinese government officials. The second subsidiary made improper payments to third parties to acquire non-public personal data in violation of Chinese law and also made improper payments to obtain specific business. The SEC states that despite concerns raised during pre-acquisition due diligence efforts, the parent company failed to take appropriate action to stop the improper payments or the false entries in the subsidiary’s books and records, which continued for several years after the acquisition.

Despite these actions, the DOJ has declined to prosecute the parent company based on a number of factors, including that the company identified the misconduct, made prompt voluntary self-disclosures, undertook a thorough investigation and fully cooperated with the DOJ, took steps to enhance its compliance program and its internal accounting controls, engaged in full remediation (including terminating the employment of 11 individuals and disciplining others), and agreed to disgorge the amount determined by the SEC.

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