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Circling Back On The Ping / Harris Corp. Matter


This September 15th post regarding the SEC’s enforcement action against Jun Ping Zhang (the former Chairman and CEO of CareFx China, a dissolved Chinese subsidiary of Harris Corp) noted that the SEC, in the Ping Order, found that as a result of Ping’s conduct “Harris violated the FCPA’s books and records provisions.”

Elsewhere, the Order stated that as a result of the alleged improper conduct CareFx was awarded over $9.6 million in contracts.

Accordingly, the prior post wondered whether a future Foreign Corrupt Practices Act enforcement action against Harris Corp. would be forthcoming. Indeed, there have been several examples of the SEC first bringing an FCPA enforcement action against an individual and then following up with an FCPA enforcement action against the company. (For instance, in August 2015 the SEC brought an FCPA enforcement action against Vicente Garcia (a former head of Latin American sales for SAP) followed by SAP enforcement action in February 2016- see here).

It turns out that the answer to the question: will there be an FCPA enforcement action against Harris Corp. is no because in this SEC release issued on September 12th (a day before the September 13th Ping Order) the SEC states:

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SEC Brings FCPA Enforcement Action Against Former Executive Of Harris Corp’s Dissolved Chinese Subsidiary


As highlighted in this prior post, in April 2011 Harris Corporation completed an acquisition of Carefx and in the process acquired its subsidiaries including Carefx China. In connection with its integration activities and the subsequent audit of the financials of the Carefx China operations, Harris Corp. became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, Harris Corp. voluntarily disclosed to the DOJ and SEC.

As highlighted in this prior post, a few months ago Harris Corp. disclosed that “during the second quarter of fiscal 2016, the DOJ advised us that they have determined not to take any action against us related to this matter.” The same disclosure stated that the company is “continuing to cooperate with the SEC regarding its investigation.”

In the meantime, earlier this week the SEC announced this administrative action finding that Jun Ping Zhang (pictured – a U.S. citizen and former Chairman and CEO of CareFx China who was terminated in mid-2012) violated the Foreign Corrupt Practices Act. Zhang is currently Senior Vice President, Product Innovation and Chief Technology Officer at MedeAnalytics. (See also here).

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Friday Roundup


DOJ seeks legislative changes, a focus on FCPA Inc., credit ratings, across the pond, scrutiny update, and for the reading stack.

It’s all here in the Friday Roundup

DOJ Seeks Legislative Changes

The DOJ’s efforts to eradicate corruption and bribery is broader than just Foreign Corrupt Practices Act enforcement and includes: “public integrity prosecutions, bribery prosecutions, prosecutions of taxpayers who seek to conceal foreign accounts, money laundering prosecutions, [and its] Kleptocracy Initiative.”

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Friday Roundup

A focus on entertainment and calling out FCPA / Bribery Act Inc. and a recent disclosure from a company that is part of FCPA history.  It’s all here in the (slimmer than normal) Friday roundup.

Recent Comments From The Director of the U.K. SFO

The previously mentioned here recent comments made by David Green (Director of the U.K. Serious Fraud Office) in a Daily Mail article (here) that “mainstream corporate entertaining” is of little concern to the SFO.  Green states in the article as follows.  “We are not  interested in that sort of case. We are interested in hearing that a large company has mysteriously come second in bidding for a big contract. The sort of  bribery we would be investigating would not be tickets to Wimbledon or bottles of champagne. We are not the ‘serious champagne office.'”

The same can not always be said of the DOJ or SEC.  Although such seemingly minor corporate entertainment expenditures have never been the sole focus of an enforcement action, several enforcement actions have included such allegations. For instance, the UTStarcom enforcement action (see here for the prior post) contained allegations about a $600 bottle of wine.  The Data Systems and Solutions enforcement action (see here for the prior post) contained allegations regarding a Cartier watch.  The IBM enforcement action (see here for the prior post) contained allegations about a camera.  The RAE Systems enforcement actions (see here for the prior post) contained allegations about kitchen appliances, business suits, and high-priced liquor.  Numerous other examples abound.  One must assume that the enforcement agencies included such allegations in the resolution documents for a reason, not just to fill up paper.

Alexandra Wrage (President of Trace International) noted the U.K. / U.S.  irony in this recent piece for Corporate Counsel.   “[W]hereas the U.S. law permits these expenditures [facilitation payments and reasonable entertainment expenses], within reason, and then enforces when companies overstep, the U.K. prohibits them, but assures the public that they won’t be prosecuted.”

Green’s comments to the Daily Mail were also notable for his calling out of FCPA (or as the case may be Bribery Act) Inc.  The Daily Mail article notes as follows.  “[Green] criticised American law firms that had taken  advantage of the uncertainty. ‘It is in their interest to focus attention on the  Bribery Act. They put up talking heads and arrange conferences. It is a huge  industry.’”  Green’s comments are similar to those noted in this prior post by Kenneth Clark (the U.K.’s anti-corruption champion) who stated, in the House of Commons, leading up to the Bribery Act as follows.   “I hope to put out very clear guidance [regarding the Bribery Act] to save [businesses] from the fears that are sometimes aroused by the compliance industry, the consultants and lawyers who will, of course, try to persuade companies that millions of pounds must be spent on new systems that, in my opinion, no honest firm will require to comply with the Act.”

Harris Corp.

As previously noted in this Wall Street Journal Corruption Currents post, Harris Corporation disclosed as follows in its recent annual report.

“[I]n April 4, 2011, we completed the acquisition of Carefx and thereby also acquired its subsidiaries, including in China (“Carefx China”). The consolidated revenue of the Carefx China operations for fiscal 2012 was approximately $1.4 million, or less than 0.1% of our consolidated revenue. In connection with our integration activities and the subsequent audit of the financials of the Carefx China operations, we became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly. In response, with the concurrence of our Audit Committee, we initiated an internal investigation, with the assistance of outside legal counsel, to determine whether violations of the FCPA potentially occurred. In the course of our investigation, we learned that certain employees of the Carefx China operations had provided pre-paid gift cards and other gifts and payments to certain customers and potential customers. Although our investigation is not complete, we have already taken remedial actions related to the Carefx China operations, including changes to internal control procedures, termination of the gift-giving practice, additional compliance training and termination of the employment of certain individuals. The preliminary results of the investigation have been disclosed to our Audit Committee, Board of Directors and auditors, and we have also contacted the U.S. Department of Justice and the SEC to voluntarily disclose that we are conducting the investigation and to advise that it is our intent to fully cooperate with any investigation that they may conduct with respect to this matter. We cannot predict at this time any regulatory action that may be taken with respect to this matter or any other potential consequences that may result. However, based on the information available to date, we do not believe that this matter will have a material adverse effect on our financial condition, results of operations or cash flows.”

As noted in this previous post, Harris Corp. is part of FCPA history.  It is believed to be the first, and to this day only, publicly traded company to have put the DOJ to its burden of proof at trial.  As noted in the post, Harris Corp. prevailed in the enforcement action (1990-1991).  I noted in the previous post as follows.  If non-prosecution and deferred prosecution agreements existed in 1990, would Harris have resolved the enforcement action via such a resolution vehicle? Likely yes. Yet Harris and the individual defendants all prevailed at trial.

If the conduct Harris recently disclosed gives rise to an enforcement action, will Harris likewise this time around put the DOJ to its burden of proof?  Even if it has valid legal and factual defenses, not a chance.  NPAs and DPAs exist today and resolving FCPA inquiries is often more about cost-beneft / risk-reward, than law and facts.


A good weekend to all.

Customer Reward Programs

At this moment, it is likely that some company operating in China has a customer rewards program whereby customers are awarded points based on the level of purchases.

At this moment, it is likely that some person employed by an entity with some level of state-ownership or control just received an iPad or camera because the individual redeemed points under the program based on the purchase the individual previously authorized.

The SEC is concerned about the customer rewards program and whether it complies with the FCPA and the company is spending hundreds of dollars an hour investigating the program so that it can present its conclusions to the SEC and the DOJ.

Your first response upon reading the above paragraph might be – are you serious or is this paragraph from the Onion (see here), a satire news organization that parodies just about everything.

Nothing make believe about the first paragraph, it is derived from RAE Systems May 12th proxy statement filed with the SEC.

In the filing (here), RAE Systems stated as follows.

“In the course of telephonic discussions between April 15 and 19, 2011, outside counsel for [RAE] was asked by the SEC whether RAE China had adopted a sales program whereby customers are awarded points based on the level of their purchases of RAE products and are then eligible to redeem those points at year-end for gifts such as iPads or cameras, and whether such a program complies with the Foreign Corrupt Practices Act (“FCPA”). We do not believe that any RAE China personnel have been engaging in such a practice. We are conducting a review in response to the SEC’s inquiry, and intend to provide our conclusions to the SEC and Department of Justice.”

In December 2010, RAE Systems resolved a DOJ/SEC enforcement action concerning the acts of its subsidiaries’ joint venture partners in China. See here for the prior post. RAE Systems agreed to pay approximately $2.95million in fines and disgorgement and agreed to a three-year DOJ non-prosecution agreement (here).


The clock is now ticking to see who will publish (presumably) the first client alert or host the first webinar on “The FCPA Compliance Risks of Customer Rewards Programs.”

In the meantime, there is likely a “foreign official” somewhere with his eye on the six piece stoneware gourmet mixing bowl set (here) available for 2000 points under Coke’s rewards program.


Interested in reading more about the Harris Corporation enforcement action? As highlighted earlier this week (see here) the recent Lindsey Manufacturing case was not the first instance of a company putting the DOJ to its burden of proof in an FCPA trial. Harris Corporation (and certain of its executives) did just that and prevailed in an FCPA trial. As described in the post, U.S. District Judge Charles A. Legge (N.D. Cal.) directed a verdict of acquittal after the DOJ’s case.

Michael H. Huneke (Hughes Hubbard & Reed – see here) was kind to send the Defendants’ motion for acquittal, the DOJ’s response, and the transcript of oral arguments and Judge Legge’s ruling.

If old FCPA enforcement actions are your thing – here you go! If others have interesting FCPA enforcement documents from … say 1978 – 1995 – send them my way.

A good weekend to all.

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