As highlighted in this previous post , in February 2016 SAP (a German company with American Depository Shares registered with the SEC) resolved an FCPA enforcement action based on conduct in Panama. Without admitting or denying the SEC’s finding’s in an administrative order  the company agreed to pay approximately $3.9 million and the SEC ordered the company to cease and desist from committing or causing any violations and any future violations of the FCPA’s books and records and internal controls case.
Fresh off this 2016 FCPA enforcement action, SAP is again under FCPA scrutiny.
As has been widely reported in the media (see here  for instance), SAP is under scrutiny for contracts with South African state rail company Transet and state utility Eskom including its relationship with “the Indian-born Gupta brothers—Ajay, Atul, and Rajesh—[who] are, together with [South Africa] president Jacob Zuma, at the center of numerous allegations of corruption in South Africa.” As noted in this report : “the Guptas are extremely close to Zuma, to the extent that they reportedly have influence over who occupies senior cabinet positions, and there have been numerous allegations of Gupta-linked enterprises demanding kickbacks for arranging deals with state-owned companies.”
Yesterday, SAP issued this release :
SAP has voluntarily disclosed the situation in its South Africa business to U.S. authorities responsible for enforcing the U.S. Foreign Corrupt Practices Act.
It has initiated disciplinary procedures against three employees and made significant changes to its global sales deal processes.
Discloses situation in its South Africa business to U.S. authorities
Initiates disciplinary procedures against three employees
Removes commission on public sector deals in higher-risk countries, including South Africa
“As a global company with a commitment to integrity and compliance, the past three months have been humbling for us,” said Adaire Fox-Martin, member of the Executive Board of SAP SE, who leads SAP’s business in Middle and Eastern Europe (MEE), Europe, the Middle East, and Africa (EMEA), and Greater China. “The allegations of wrongdoing in our South African business have had a profound impact on our employees, customers and partners, and on the South African public — and we apologize wholeheartedly for this.”
Fox-Martin said SAP had initiated its voluntary disclosure on July 13, 2017, and that SAP has committed to full and complete cooperation with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC). She confirmed that the investigation by the DOJ and SEC continues.
“We cannot emphasize enough how seriously the SAP Executive Board takes these allegations, or how committed we are to managing this process in a transparent, ethical and responsible way,” Fox-Martin said.
To date, the investigation has not revealed any evidence of a payment to a South African government official, including Transnet and Eskom employees. It has, however, uncovered indications of misconduct in issues relating to the management of Gupta-related third parties. To this end, SAP has instituted formal disciplinary proceedings, in accordance with South African labor law, against three employees who were placed on administrative leave at the beginning of the investigation. SAP has been clear from the outset that it will not tolerate misconduct or wrongdoing.
The investigation has found that the fourth employee placed on administrative leave had no material involvement with Gupta-related parties. The employee will return to work.
The SAP Executive Board has decided to eliminate sales commissions on all public sector deals in countries with a Corruption Perceptions Index (according to Transparency International) below 50, effective immediately. South Africa’s rating is 45.
The SAP Executive Board has initiated — on a global basis — extensive additional controls and due diligence into relationships with sales agents and value-added resellers, including additional audit functions.
SAP will allocate additional legal compliance staff to the SAP Africa market unit. They will be based in South Africa and report into SAP’s Global Compliance organization.
SAP will further strengthen its Compliance Committee in the SAP Africa region, consisting of local management, compliance and other corporate functions, to ensure individual deal sanity and integrity, and promote compliance generally.
In July, SAP promised to publish findings of the Baker McKenzie investigation once completed. Since the investigation is still ongoing, and in deference to ongoing investigations of the DOJ and the SEC, SAP cannot provide further details currently. It is SAP’s intention to release complete findings at the end of the investigation.
APPENDIX (Status of the Baker McKenzie Investigation)
Baker McKenzie initially focused its investigation on SAP’s contracts with Transnet and Eskom, and this part of the investigation will conclude by the end of 2017. Following a data analytics search of 8.4 million documents, the law firm has completed a first-level review of 131,609 documents, and a second level review of 52,985 documents. Baker McKenzie has conducted numerous interviews. SAP has also invoked its third-party audit rights with entities understood to be Gupta-related – and these audits are in the early stages.
Baker McKenzie has been contracted by SAP to continue to investigate the public-sector business in South Africa going back to 2010. To date the investigation has determined that, between December 2014 and November 2016, SAP concluded two contracts for the sale of software to Transnet and two contracts for the sale of software to Eskom, each with the assistance of an entity currently understood to have been Gupta-related.
In connection with these four contracts, SAP provided software and received revenue totaling approximately ZAR 660 million (approximately USD 48 million), and paid commissions to entities currently understood to be Gupta-related totaling approximately ZAR 94 million (approximately USD 6.8 million). The amounts actually paid to the third parties totaled approximately ZAR 107 million (approximately USD 7.7 million) because, by contract, each commission payment included an amount of VAT for taxes due on the receipt of the funds.
In December 2016 and June 2017, SAP concluded two additional contracts to provide software and services to Eskom with the assistance of an entity currently understood to have been Gupta-related. No revenue has been received or commissions paid in connection therewith.
After SAP’s initial voluntary disclosure, Baker McKenzie has spoken on SAP’s behalf with prosecutors at both the DOJ and SEC, and has started the process of sharing documents and information.”
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