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On July 28, Mead Johnson Nutrition Co. ("Mead"), an infant formula maker, agreed to pay $12.03 million to settle civil FCPA charges with the SEC. The SEC alleged that a majority-owned subsidiary in China used discounts given to third-party distributors to make over $2 million in bribes from 2008 to 2013 to healthcare professionals at state-owned hospitals, to get them to push the use of Mead's products to new mothers, reaping profits of over $7 million. The SEC also alleged that the subsidiary's books and records were false as a result of the improper payments, and were then consolidated into the parent company's books and records; Mead's internal controls were also alleged to be deficient. Mead did not admit or deny liability. Of note, the settlement came through the SEC's administrative process, continuing the trend at the SEC of sending cases to its internal decision-makers instead of to a federal court. The alleged facts also highlight the danger of directing the activities of third-party distributors (here, related to the use of discounts provided to them).
On December 15, 2014, the SEC charged Bruker Corporation (Bruker) with violating the FCPA by making improper payments and paying for non-business-related travel expenses for Chinese government officials. Bruker, a Massachusetts-based global manufacturer of scientific instruments, paid approximately $2.4 million to settle the SEC's charges. The SEC used an administrative cease-and-desist order to settle the case. According to the SEC's order, Bruker's China subsidiaries made unlawful payments of approximately $230,000 to Chinese government officials who were employed by state owned entities that were Bruker customers. These payments included payments (i) for non-business travel (reimbursements to Chinese government officials for leisure travel to the United States and numerous European countries) and (ii) pursuant to collaboration and research agreements for which there was no legitimate business purpose. The SEC order found that Bruker violated the internal controls and books and records provisions of the FCPA. Bruker self-reported its misconduct and provided "significant" cooperation to the SEC.
On December 17, 2014, Avon and its China subsidiary resolved the DOJs FCPA investigation into the New York-based cosmetics companys operations in China and agreed to pay $68 million. Avon Products (China) Co. Ltd. (Avon China), a wholly owned subsidiary of Avon, pleaded guilty to a criminal information charging it with conspiring to violate the FCPAs books and records provisions. Avon entered into a deferred prosecution agreement (DPA) and admitted its criminal conduct, including its role in the conspiracy and failure to implement internal controls. Under the terms of the DPA, the DOJ will defer criminal prosecution of Avon for a period of three years and the company will appoint a compliance monitor. According to the companies admissions, from at least 2004 through 2008, Avon and Avon China conspired to falsify Avons books and records by falsely describing the nature and purpose of certain Avon China transactions, including disguising $8 million in gifts, cash and non-business travel, meals and entertainment that Avon China executives and employees gave to government officials in China in order to obtain and retain business benefits for Avon China. Also on Dec. 17 in related civil proceedings, the SEC charged Avon with violations of the Corporate books and records and internal control provisions of the FCPA and announced that Avon agreed to pay more than $67 million in disgorgement and prejudgment interest to settle the charges. The settlement has not yet been approved by the Court.
On September 29, the United States District Court for the Southern District of New York dismissed a putative securities class action lawsuit against Avon Products Inc. (“Avon”) and two senior executives in which shareholders had accused the cosmetics company and its senior management of issuing materially false and misleading statements concerning Avon’s compliance with the FCPA in China. The class action had been pending since mid-2011. The dismissal was without prejudice.
Following a June 2008 internal investigation, Avon disclosed that it was conducting an internal investigation focused on compliance issues related to the FCPA in connection with the company’s conduct in China and other countries. The plaintiffs alleged that this misconduct, detailed in press reports suggesting bribery of Chinese officials, ultimately affected the company’s share price. Company shareholders filed a putative class action in July 2011 under Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, 25 U.S.C. §§ 78j(b) and 78t(a). The plaintiffs alleged that Avon made more than 60 materially false and misleading statements, including statements regarding the company’s ethics code and corporate responsibility reports which prohibited the offering or payment of bribes to foreign government officials. Plaintiffs claimed those statements were misleading because at the time, senior management was aware of “material weaknesses in Avon’s system of internal controls” and those failings were not disclosed to investors. The court ruled that general statements proclaiming compliance with ethical and legal standards are not material and actionable because “[a] reasonable investor would not rely on the statements…as a guarantee that Avon would, in fact, maintain a heightened standard of legal and ethical compliance.” Plaintiffs also alleged that several statements concerning Avon’s business success in China and other developing markets was misleading because the statements did not attribute Avon’s success to the bribery of foreign officials or disclose the attendant risks and potential liabilities when such information would become public. The court rejected those allegations for failure to plead the heightened scienter required under the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b).
Avon had previously settled with the DOJ and SEC in May 2014 regarding investigations into the same allegations of bribery. That settlement, for alleged violations of the books and records and internal control provisions of the FCPA, totaled $135 million and included a 3-year deferred prosecution agreement and Avon’s retaining of a compliance monitor for 18 months.
On September 19, according to media reports, a Chinese court ordered the Chinese subsidiary of GlaxoSmithKline, the UK-based pharmaceutical company, to pay approximately $487 million related to alleged bribery of hospitals and doctors. Five of Glaxo's managers were also convicted after entering guilty pleas, and Glaxo's former country manager was ordered to be deported. Glaxo apologized for the conduct in a statement. Glaxo's Chinese subsidiary was alleged to have bribed hospitals and their doctors to boost prescriptions of Glaxo products, including through payment of large travel and entertainment expenses and other fees, leading to over $150 million in additional revenue. The Glaxo case involves many of the key areas currently affecting anti-corruption practitioners and compliance personnel. For example, allegations were first raised by a whistleblower in 2013, and investigations regarding bribery of foreign state-owned hospitals or their doctors have been rising in the past few years. Here, while the full facts are not yet clear, Glaxo has stated that only commercial (business to business) bribery was at issue, characterizing the conduct at issue as "offer[ing] money or property to non-government personnel in order to obtain improper commercial gains, and . . . bribing non-government personnel."
On October 22, the DOJ and the SEC announced parallel actions against a U.S. company that makes ATMs and bank security systems for allegedly violating the FCPA. The federal authorities allege that from 2005 to 2010 the company provided a total of approximately $1.8 million in payments, gifts, and non-business travel to employees of state-owned banks in China and Indonesia, and attempted to disguise the benefits, including by making payments through third parties designated by the banks and by inaccurately recording leisure trips for bank employees as "training." The government also alleges that from 2005 to 2009, the company entered into false contracts with a distributor in Russia for services that the distributor was not performing in order to facilitate approximately $1.2 million in bribes to employees of privately-owned banks in Russia in order to obtain and retain ATM-related contracts with those customers. The company entered into a deferred prosecution agreement with the DOJ and consented to a final judgment in the SEC matter. Pursuant to those agreements, the company must pay a $25.2 million penalty and disgorge approximately $22.97 million, inclusive of prejudgment interest. The company also must implement numerous specific changes to its internal controls and compliance systems, and retain a compliance monitor for at least 18 months. The government acknowledged the company's voluntary disclosure and extensive internal investigation and cooperation.
Keyuan Petrochemicals Inc. and Former CFO Settle FCPA Books and Records Action with SEC for $1.025 million
On February 28, 2013, Keyuan Petrochemicals Inc., a China-based issuer with US-trading stock, and its former CFO, settled an enforcement action with the SEC for a total of $1.025 million. The SEC alleged numerous violations primarily related to a failure to disclose related party transactions, but also alleged the use of an off-balance sheet cash account to pay various expense including gifts to Chinese government officials, and a failure to properly record such transactions.
On December 20, 2012, Eli Lilly & Co. settled an enforcement action filed the same day by the SEC for nearly $29.4 million. The SEC alleged that Lilly subsidiaries in Russia, Brazil, China and Poland made improper payments to government officials to obtain or retain business and that Lilly itself knew of the payments by the Russian subsidiary but did not act to stop the conduct for more than five years.
Pfizer resolve FCPA matter with US DOJ and SEC related to conduct of subsidiaries in Bulgaria, China, Croatia, the Czech Republic, Italy, Kazakhstan, Russia and Serbia; total sanction exceeds $60 million.
- SEC Complaint, Pfizer
- SEC Complaint, Wyeth
- Pfizer Deferred Prosecution Agreement
- Pfizer DPA Excerpt: Enhanced Compliance Obligations
On July 18, 2012, aircraft maintenance, repair and overhaul ("MRO") provider, Nordam Group, Inc., resolved an FCPA matter with the US DOJ related to conduct in China. The non-prosecution agreement calls for a $2 million penalty, and makes this the second aviation services FCPA matter this year, joining Lufthansa Technik AG's MRO subsidiary, BizJet International Sales and Support, Inc.
- Non-Prosecution Agreement
- NPA Attachment A - Statement of Facts
- NPA Attachment B - Compliance Undertakings
- Andrea K. Mitchell to discuss "Developments in fair lending law" at the Mortgage Bankers Association Summit on Diversity and Inclusion
- David S. Krakoff to discuss "The DOJ corporate enforcement policy and your disclosure calculus one year in: Are companies benefitting?" at the American Conference Institute International Conference on the Foreign Corrupt Practices Act
- Moorari K. Shah to discuss "Legal & regulatory issues" at the Opal Group Marketplace Lending & Alternative Financing Summit
- Moorari K. Shah to discuss "Fraud prevention, data security, and verification: How to manage fraud in an online marketplace with universally compromised data" at the Opal Group Marketplace Lending & Alternative Financing Summit
- Jonice Gray Tucker to discuss "Hot topics in consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "New CDD Rule: Pitfalls in compliance" at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference
- Daniel P. Stipano to discuss "Anti-money laundering/OFAC compliance" at the Institute of International Bankers U.S. Regulatory/Compliance Orientation Program