The Securities and Exchange Commission has announced that a former executive of a Chinese subsidiary of a U.S. company has agreed to pay a $46,000 civil penalty to settle charges that he violated the Foreign Corrupt Practices Act by facilitating a scheme whereby illegal payments were made to Chinese government officials to obtain or retain business. However, the SEC said it determined not to bring charges against the U.S. company after taking into consideration its self-policing efforts that led to the discovery of the misconduct, prompt self-reporting, thorough remediation, and “exemplary cooperation” with the SEC’s investigation.

An agency press release states that after his company was acquired by the U.S. company the former executive authorized and facilitated a practice of giving gifts to officials at state-owned hospitals in China to influence their decisions to purchase the subsidiary’s products and services. Bogus expense receipts were used to generate the cash used to buy the gifts and the false expenses were improperly recorded in the subsidiary’s books and records as legitimate expenses or fees, all with the knowledge of the former executive and the supervisors he managed.

The SEC states that although the parent company was only able to perform limited due diligence on the subsidiary prior to the acquisition, it took immediate and significant steps after the acquisition to train staff in China and integrate the subsidiary into its system of internal accounting controls. As a result of the company’s post-acquisition measures, including the implementation of an anonymous complaint hotline, the misconduct at the subsidiary was discovered within five months of the acquisition.

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