There Have Been 30 FCPA Enforcement Actions Regarding Alleged Improper Travel And Entertainment Of Chinese “Foreign Officials”
Approximately 20 years ago, while in private practice, I was involved in an internal investigation involving the Chinese subsidiary of a U.S. issuer providing travel and entrainment to individuals who the DOJ/SEC considered Chinese “foreign officials.”
It culminated in the 2007 FCPA enforcement action against Lucent Technologies in which the SEC alleged that the company violated the FCPA’s books and records and internal controls provisions based on its Chinese subsidiary arranging for non-business travel for “employees of Chinese state-owned or state-controlled telecommunications enterprises, to travel to the United States and elsewhere.”
According to the SEC, “the majority of the trips were ostensibly designed to allow the Chinese foreign officials to inspect Lucent’s factories and to train the officials in using Lucent equipment” however “during many of these trips, the officials spent little or no time in the United States visiting Lucent’s facilities” but rather visited various tourist destinations.
At the time, it was one of the first “pure” FCPA travel and entertainment type of enforcement actions.
Billboard Worthy: Clear Channel Outdoor Resolves $26.1 Million Enforcement Action
Approximately 5.5 years ago (see here for the prior post), Clear Channel Outdoor Holdings (a public subsidiary of iHeartMedia and one of the world’s largest outdoor advertising corporations) disclosed FCPA scrutiny based on the conduct of “several employees of Clear Media Limited, an indirect, non-wholly-owned subsidiary of the Company whose ordinary shares are listed …. on the Hong Kong Stock Exchange.”
Today, the SEC (an enforcement agency whose officials have previously stated that it “should focus on bringing matters to resolution swiftly”) announced a $26.1 million FCPA enforcement action against the company.
In summary fashion, this administrative order finds:
There Have Been 29 FCPA Enforcement Actions Regarding Alleged Improper Travel And Entertainment Of Chinese “Foreign Officials”
Approximately 15 years ago, while in private practice, I was involved in an internal investigation involving the Chinese subsidiary of a U.S. issuer providing travel and entrainment to individuals who the DOJ/SEC considered Chinese “foreign officials.”
It culminated in the 2007 FCPA enforcement action against Lucent Technologies in which the SEC alleged that the company violated the FCPA’s books and records and internal controls provisions based on its Chinese subsidiary arranging for non-business travel for “employees of Chinese state-owned or state-controlled telecommunications enterprises, to travel to the United States and elsewhere.” According to the SEC, “the majority of the trips were ostensibly designed to allow the Chinese foreign officials to inspect Lucent’s factories and to train the officials in using Lucent equipment” however “during many of these trips, the officials spent little or no time in the United States visiting Lucent’s facilities” but rather visited various tourist destinations.
At the time, it was one of the first “pure” FCPA travel and entertainment type of enforcement actions.
As highlighted here, last week the SEC announced an FCPA enforcement action against 3M and it was – in many respects – a virtual carbon copy of the Lucent enforcement action from 2007.
Issues To Consider From The 3M Enforcement Action
This recent post highlighted the $6.5 million enforcement action against 3M based on findings that the company was duped by certain China subsidiary employees.
This recent post discussed how the type of conduct at issue in the 3M enforcement action would seem to fit squarely within prior SEC policy for when an enforcement action would not be warranted.
This post highlights additional issues to consider from the enforcement action.
Timeline
Duped By Certain China Subsidiary Employees, 3M Resolves A $6.5 Million Enforcement Action
The SEC announced today that 3M resolved a $6.5 million Foreign Corrupt Practices Act enforcement.
The basics are as follows.
Approximately 6-10 years ago, a former Marketing Manager of a 3M China-based subsidiary “secretly” provided “tourism activities” for Chinese health care officials.
The Marketing Manager “would create a travel itinerary that included various legitimate business, training and marketing activities for submission to 3M-China’s compliance personnel for approval,” however there were “alternate itineraries” that “consisted of various tourism activities at or near the location of the educational events.”
There is no suggestion that anyone at 3M headquarters knew of or approved of the conduct. Indeed, subsidiary employees, among other things, “falsified internal compliance documents that affirmatively denied and/or omitted mention of the Tourism Activities that were planned as part of the overseas trip.”