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.