As highlighted in this previous post, in mid-2013 Juniper Networks disclosed that it was under FCPA scrutiny. Over six years later, the SEC announced yesterday that the company agreed to pay approximately $11.7 million to resolve the scrutiny.
As highlighted below, the enforcement action was based on the conduct of Russia and China subsidiary employees. In Russia, certain sales employees of the Russian representative office of Juniper’s subsidiary secretly agreed with third party channel partners to provide discounts to customers that were parked in off-book funds some of which were used to pay for customer trips, including trips for government officials, some of which were predominately leisure in nature. In China, certain sales employees of Juniper’s Chinese subsidiaries falsified trip and meeting agendas for customer events in seeking approval from Juniper’s Legal Department.
Based on the conduct alleged in the enforcement action (which is beyond any conceivable statute of limitations) as well as actual FCPA legal authority, the enforcement action is a $11.7 million joke.
In summary fashion, this administrative cease and desist order finds:
“These proceedings arise out of Juniper’s violations of the internal accounting controls and recordkeeping provisions of the FCPA through its subsidiaries operating in Russia and China.
From 2008 through 2013, certain sales employees of the Russian representative office of Juniper’s subsidiary, JNN Development Corp. (“JNN”) secretly agreed with third party channel partners to increase the incremental discount on sales made to customers through those channel partners without passing those increased discounts on to customers. Instead, the channel partners diverted the additional discounts into a fund held by the channel partners for travel and marketing expenses. These off-book funds were referred to as “common funds” and were directed in part by JNN sales representatives. These “common funds” were used in part to pay for customer trips, including trips for government officials, some of which were predominately leisure in nature and had little to no educational or business purpose. Included in the customer travel paid for through the “common fund” were instances of customer travel for foreign officials to various locations where there were no Juniper facilities or industry conferences related to Juniper’s business. In late 2009, Juniper learned of these off-book “common fund” accounts and improper use of additional discounts, both of which were prohibited under Juniper policies. Despite this, JNN’s off-book accounts, funded through diverted additional discounts, and improper travel practices continued through 2013.
Additionally, from 2009 through 2013, certain sales employees of Juniper’s Chinese subsidiaries falsified trip and meeting agendas for customer events that understated the true amount of entertainment involved on the trips. The sales employees submitted these falsified and misleading trip agendas to Juniper’s Legal Department to obtain event approval. In contravention of Juniper’s travel policies, Juniper’s Legal Department approved numerous trips without adequate review and after the event had taken place.
Juniper failed to accurately record the incremental discounts and travel and marketing expenses in its books and records, and failed to devise and maintain a system of internal accounting controls sufficient to prevent and detect off-book accounts, unauthorized customer trips, falsified travel agendas and after-the-fact travel approvals.”
Under the heading “Improper Travel Practices in Russia,” the order finds:
“From 2008 to 2013, certain JNN sales employees [JNN Development Corp. is described as a wholly-owned subsidiary of Juniper headquartered in Delaware which operated a representative office in Moscow] in Russia misrepresented to senior management the need for increased discounts to meet competition. In fact, these JNN sales employees secretly agreed with channel partners that these increased discounts would not be passed on to end-user customers but instead retained by the channel partners. These incremental discounts created additional pools of money which were held by channel partners in off-book accounts, known as “common funds.”
The involved JNN employees structured these transactions in this manner to keep the common funds off of Juniper’s books so that the local JNN employees and channel partners could thereafter direct the funds without obtaining proper internal Juniper approvals. The practice of these JNN employees to inflate and divert discounts into off-book accounts also created a risk that these funds could be embezzled or applied to other improper uses.
The proceeds from the common funds were in part used by local JNN employees and channel partners to fund trips for end-user customer employees, including some trips that were excessive, inconsistent with Juniper policy, predominantly leisure in nature, and had little to no legitimate business purpose. These specific trips included customers, including foreign officials, traveling to international tourist destinations, such as Italy, Portugal, and various U.S. cities, where there were no Juniper facilities, industry specific conferences, or other legitimate business justifications. In some of these instances, the trips included sightseeing tours, amusement parks, national park excursions and meals and entertainment for customers and, in some instances, customer family members. Former JNN employees discussed their desire to have a business impact based on this leisure travel and entertainment. In one instance, in an internal communication seeking approval for a five day international sightseeing trip, a JNN employee explained that the “purpose of the trip” was to meet with a “top [state-owned customer] manager to speed up Q2 bookings,” and as such this employee directly linked the trip and future bookings. In another instance, a JNN employee asked to take a state-owned customer on a seven day leisure trip to the U.S., explaining his belief that if the trip was not approved, Juniper would lose customer sales.
In late 2009, a then member of senior management initially learned that JNN employees in Russia had created off-book accounts that were funded in part by improperly obtaining incremental discounts, both violations of Juniper policies. Although Juniper instructed JNN employees to discontinue these practices, Juniper’s overall remedial efforts were ineffective, and JNN employees continued these practices through 2013. At times, these JNN employees used personal communication devices instead of corporate email, in one instance cautioning each other to “not write about additional discounts in exchange for something else via e-mail.”
As a consequence, Juniper failed to properly account for these off-book funds, and failed to implement or maintain a system of effective internal accounting controls to prevent off-book accounts, improper expenses, and the misuse of product discounts.”
Under the heading “Improper Travel Practices in China,” the order finds:
“From 2009 to 2013, local employees of Juniper China paid for the domestic travel and entertainment of customers, including foreign officials, that was excessive and inconsistent with Juniper policy. Certain local Juniper China marketing employees falsified agendas for trips provided to end-user customer employees. These falsified trip agendas understated the true amount of entertainment involved on the trips.
Juniper China marketing employees submitted these falsified and misleading trip agendas to Juniper’s Legal Department to obtain event approval. In some cases, these Juniper China marketing employees also provided these falsified agendas to their customer invitees to assist the invitees in obtaining their own internal approvals to attend the events. In several instances, Juniper China’s marketing staff did not follow Juniper’s policy which required prior approval of the proposed events from Juniper’s Legal Department. In violation of Juniper’s policies and undermining its internal accounting controls over travel and entertainment, the Juniper Legal Department staff responsible for reviewing third-party hospitality within the AsiaPacific region regularly approved events that had already been conducted despite the requirement that such events receive prior review and approval.”
Based on the above findings, the SEC found that Juniper violated the FCPA’s books and records provisions and internal controls provisions. As to the books and records provisions, the order states that Juniper’s “books and records, did not, in reasonable detail, accurately and fairly reflect certain expenses.” As to the internal controls provisions, the order states that Juniper “did not devise and maintain internal accounting controls over the approval processes for incremental discounting and travel that were sufficient to provide reasonable assurances that access to assets and transactions were executed in accordance with management’s authorization.”
Without admitting or denying the SEC’s findings, Juniper agreed to pay approximately $11.7 million ($4 million in disgorgement, $1.245 million in prejudgment interest, and a $6.5 million civil penalty).
Under the heading “Juniper’s Cooperation and Remedial Efforts,” the order states:
“Juniper’s cooperation included timely disclosure of facts developed during an internal investigation initiated after learning of the investigation being conducted by Commission staff. The company voluntarily produced and translated documents and provided the staff presentations regarding its investigation.
Juniper’s remedial actions included revising its compliance policies and making enhancements to its compliance group. The Company has realigned its compliance function into an integrated unit, all reporting into a newly created and empowered Chief Compliance Officer. The Company has created an independent and expert investigations function. It also has implemented a mandatory escalation policy to ensure that the Company’s Board of Directors is informed of serious issues. The Company has instituted mandatory due diligence and prior approval processes by the Compliance Department of channel partners and other vendors. The Company has instituted a compliance preview and required pre-approval of non-standard discounts and required pre-approval for third-party gifts, travel, and entertainment, channel partner marketing expenses, and even certain operating expenses in high risk markets. Juniper has conducted additional employee training on anti-corruption issues and improved its processes for conducting internal investigations of potential violations of anti-corruption laws.”
As highlighted in this prior post, in early 2018 Juniper disclosed that “it received a letter from the U.S. Department of Justice (“DOJ”) notifying the Company that the DOJ has closed the Company’s previously disclosed investigation into possible violations by the Company of the U.S. Foreign Corrupt Practices Act (“FCPA”) without taking any action against the Company. In its letter, the DOJ acknowledged the Company’s cooperation in the investigation.”
This Juniper blog post states:
“[W]e announced that we have entered into an administrative settlement with the SEC that resolves an internal and government investigation with respect to matters involving the FCPA that Juniper Networks self-reported. Juniper previously disclosed that the DOJ had closed its investigation into the matter without taking any action and this settlement ends all FCPA-related investigations or inquiries into Juniper by the SEC.
Juniper, under the strong leadership of its Audit Committee of the Board of Directors, conducted a thorough internal investigation, fully cooperated with the DOJ and the SEC and took extensive corrective steps. In connection with the settlement, the SEC highlighted Juniper’s extensive cooperation with its investigation and its strengthened Integrity & Compliance Program. During the pendency of the investigation, Juniper took a number of steps to substantially strengthen and invest in our compliance program.
The settlement concerns the funding of customer marketing activities that occurred in Russia and China from 2008 to 2013. As part of the settlement, Juniper neither admits nor denies it engaged in any wrongdoing and agreed to make a combined payment of $11.75 million to the SEC. In October 2018, Juniper disclosed that it had accrued $12 million for resolution of the SEC investigation.
We are pleased that this issue has come to a close. Operating with the highest ethical standards is of the utmost importance for Juniper Networks and acting with integrity, in everything we do, is the Juniper Way.”
FCPA Institute - Boston (Oct. 3-4)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active learning. Learn more, spend less. CLE credit is available.