Enforcing FCPA violations, the SEC flexes its muscle
This year, the SEC has brought a record number of enforcement actions under the Foreign Corrupt Practices Act of 1977 against corporations or their executives for bribery of foreign officials. Below are summaries of three such recent high-profile actions.
GlaxoSmithKline plc agreed to pay the SEC a $20 million civil penalty to settle charges that it violated the FCPA requirement to maintain accurate books and records when its China-based subsidiaries participated in pay-to-prescribe schemes in an effort to increase sales. In an administrative proceeding announced on September 30th, the SEC contended that sales and marketing managers within the company’s China-based subsidiaries took part in schemes involving the transfer of money and gifts to healthcare professionals in order to improperly influence them. This brought millions of dollars in increased sales of GlaxoSmithKline’s pharmaceutical products to China’s state health institutions. The SEC alleged that the company failed to adopt an effective anti-corruption compliance program to identify and avoid these types of schemes. Since there was no such program, the improper payments were inaccurately reflected in GlaxoSmithKline’s books and records as legitimate travel and entertainment expenses, marketing expenses, speaker payments, medical associations payments, and promotion expenses. The SEC concluded that the company was in violation of the FCPA’s internal controls and books-and-records provisions. Without admitting or denying the allegations, GlaxoSmithKline settled the charges by consenting to the entry of a cease-and-desist order, agreeing to pay the $20 million civil penalty, and agreeing to report to the SEC for two years on the status of its remediation and compliance measures. The company has reportedly publicly apologized for its role in the scandal, put an end to doctor speaking fees, and completely ended quotas for its sales reps. It is also being reported that GlaxoSmithKline’s China subsidiary has tripled an in-house compliance team, which now checks every submitted receipt.
Och-Ziff Capital Management Group
On September 29th, the SEC announced that hedge fund Och-Ziff Capital Management Group agreed to settle civil charges of FCPA violations by paying the agency $199 million. In addition, Och-Ziff’s founder and CEO agreed to pay approximately $2.2 million to settle SEC charges that he caused certain violations along with the hedge fund’s CFO, who also agreed to settle the charges. After examining the way in which financial services firms were gaining investments from sovereign wealth funds overseas, the SEC determined that Och-Ziff used intermediaries, agents, and business partners to bribe high-level government officials in Africa. According to the SEC’s order, the illicit payments encouraged the Libyan Investment Authority sovereign wealth fund to invest in the hedge fund’s managed funds. Other bribes were paid to secure mining rights and improperly influence government officials in Libya, Chad, Niger, Guinea, and the Democratic Republic of the Congo. The SEC found that Och-Ziff failed to maintain proper internal controls to detect the bribes. The SEC also found that the hedge fund’s executives ignored red flags and corruption risks and allowed illegal transactions to proceed. In addition to the civil penalty, Och-Ziff will enter into a deferred prosecution agreement with the Justice Department in a parallel criminal proceeding and will pay a criminal penalty of $213 million. Och-Ziff also agreed to retain an independent compliance monitor for three years to guarantee that it stays within the law. The firm also promised to reinforce its internal controls to guard against future violations. Andrew J. Ceresney, head of the SEC’s enforcement division, noted that the hedge fund “engaged in complicated, far-reaching schemes to get special access and secure significant deals and profits through corruption.” According to DealBook, the SEC and the Justice Department are continuing the investigation of other individuals involved in the bribery. The Wall Street Journal added that Och-Ziff now also faces restrictions on how it conducts its fundraising. While the company will still be able to raise money from wealthy investors and institutions, it might first have to endure a lengthy and costly process of seeking approval from state regulators in jurisdictions where it solicits investors. This comes Och-Ziff did not seek an SEC waiver from additional penalties, which are otherwise imposed as soon as courts approve civil law enforcement sanctions or criminal charges.
On September 28th, the SEC announced beverage and brewing company Anheuser-Busch InBev will pay $6 million to settle charges that it violated the FCPA and whistleblower protection laws in utilizing third-party sales promoters to pay off Indian government officials in order to increase sales and production, and then in attempting to silence an employee who reported the wrongdoing. As the company did not have adequate internal accounting controls to seek out and prevent such improper payments, it failed to ensure that transactions involving the promoters were properly recorded in its books and records. Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, remarked that Anheuser-Busch “recorded improper payments by its sales promoters in India as legitimate expenses in its financial accounting, and then exacerbated the problem by including language in a separation agreement that chilled an employee from communicating with the SEC.” Without admitting or denying the allegations, Anheuser-Busch settled the charges by consenting to the entry of a cease-and-desist order and agreeing to report its FCPA compliance efforts to the SEC in addition to the monetary sanctions. The company also agreed to notify certain former employees that the company does not prohibit employees from contacting the SEC about possible law violations. According to the Wall Street Journal, the SEC has been making it a priority to end corporate efforts to silence prospective whistleblowers with restrictive separation agreements, and this is the fourth company recently penalized by the SEC for allegedly restricting the rights of departing employees.