As highlighted in this recent post, approximately 20% of Foreign Corrupt Practices Act enforcement activity takes place in the month of September as the SEC’s fiscal year comes to a close.
In September’s first FCPA enforcement (there have been several non-FCPA, FCPA enforcement actions already – see here), Deere & Co. has agreed to pay approximately $9.9 million to resolve an SEC matter based on the conduct of a subsidiary in Thailand. The enforcement action largely concerns Thai officials visiting massage parlors and participating in non-business travel funded by the subsidiary.
This administrative order finds in summary fashion:
“This matter concerns violations of the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977 (the “FCPA”) by Deere, a global agricultural machinery manufacturer, through its wholly owned subsidiary, Wirtgen Thailand. From at least late 2017 through 2020, Wirtgen Thailand made improper payments to foreign officials at multiple government entities, including the Royal Thai Air Force and the Department of Highways, to win business, and during the same period also engaged in commercial bribery.
The improper payments took various forms, including cash, sham consulting fees, extravagant “factory visit” trips to foreign countries, meals, entertainment at massage parlors, and others. The misconduct involved now former high level regional managers and employees and occurred during a period in which Deere failed to complete the full integration of this acquired subsidiary into its compliance program and overall control environment. As a result of this misconduct, Deere obtained an improper benefit of approximately $4.3 million and violated the books and records and internal accounting controls provisions of the FCPA.”
According to the SEC:
“Wirtgen Group (“Wirtgen”) was a privately held company headquartered in Windhagen, Germany, and engaged in the business of manufacturing road equipment. In December 2017, Wirtgen was acquired by and became a wholly owned subsidiary of Deere, and its books and records are consolidated into the books and records of Deere. Deere conducts business in Thailand through Wirtgen’s subsidiary, Wirtgen Thailand.”
Under the heading “Wirtgen Thailand was Awarded Multiple Government Tenders as a Result of Numerous Bribery Schemes,” the order states:
“To win tenders with government agencies RTAF [Royal Thai Air Force], DOH [Department of Highways], and DRR [Department of Rural Roads], Wirtgen Thailand engaged in bribery through several different mechanisms, including entertaining government officials at massage parlors, hosting officials on elaborate sightseeing expeditions disguised as “factory visit” trips, and making cash payments to officials both directly and through the use of a third-party agent. These payments were in violation of company policies and were falsely recorded on the company’s books and records as legitimate expenses.”
Under the heading “Bribery of RTAF, DOH, and DRR Through Improper Entertainment Expenses,” the order states in pertinent part:
“From at least late 2017 through 2020, Wirtgen Thailand regularly entertained foreign officials from RTAF, DOH, and DRR at several massage parlors in Thailand, in violation of Wirtgen Group’s Code of Business Conduct prohibiting giving “absolutely anything” to improperly influence a government official. Many of these massage parlor entertainment expenses, which were submitted for approval by Wirtgen Thailand’s Managing Director and his sales team, contained round number denominations and lacked specificity. In several instances, names of additional Wirtgen Thailand employees were added to expense receipts to make the expenses appear more reasonable, when in fact those employees were not present at the massage parlors. These expenses reports were then routinely approved by Wirtgen’s Managing Director for Southeast Asia or its Managing Director in Thailand, without regard for compliance with Deere’s policies and procedures relating to entertainment of government officials and the true purpose for the payments.
Expense reports from at least November 2019 through March 2020 describe expenses incurred at several massage parlors in Thailand in order to improperly influence officials of the Royal Thai Air Force while bidding on tenders. Listed as an attendee at massage parlor visits in December 2019, and again in March 2020, was a high level RTAF officer in charge of drafting and awarding tenders. Other expense reports, submitted and approved in November 2019 and February 2020, reflect massage parlor services provided to another high-ranking officer of the RTAF. The company entertained RTAF officials at massage parlors in exchange for obtaining information about the tender process and specific bidding requirements for tenders they were actively bidding on. As a result, Wirtgen Thailand was awarded two RTAF tenders in March and April 2020 for approximately $665,000.
Similarly, Wirtgen Thailand incurred massage parlor expenses from at least 2017 through 2019, to host representatives from DOH tender committees, including a March 9, 2017, expense for “Department of Highway – Group of 15 persons from DOH Committee…” Another expense report submitted for approval in July 2018, noted only “entertainment” of DOH.
As with the RTAF tenders, this entertainment was provided by Wirtgen Thailand’s Managing Director in order to improperly influence the outcome of an upcoming DOH tender. The Managing Director noted in August 2018, “Finally, we have 1st succeed to step in this tender since 3 years tried to add qualification to the DOH tender.” The “DOH Team” was again taken to a massage parlor by the Wirtgen Thailand Managing Director in September 2018 and December 2018, and the subsequent expense reports noted only “entertainment” in round numbers.
Wirtgen Thailand won multiple tenders from DOH during this time period, including a December 2018 tender for $2,303,294, an October 2019 tender for $498,567, and a November 2019, tender for $1,451,432.
Wirtgen Thailand also provided improper benefits at massage parlors to officials of the Department of Rural Roads in December 2019 in order to influence the award of tenders. Wirtgen Thailand was subsequently awarded a tender by the DRR in April 2020, for $1,283,905. Two of the four DRR signatories on that tender were recipients of entertainment by Wirtgen Thailand at this December 2019 massage parlor visit. In an email to his supervisor, Wirtgen Thailand’s Managing Director noted “after a few months fighting to get this deal done, I did whatever channel and opportunities to turn back the tender result, we finally got the judgment to agree with DRR decision.”
The expenses incurred to provide massage parlor services to officials at RTAF, DOH, and DRR between 2017 and 2020, were done to improperly influence tender awards, but nonetheless were approved by Wirtgen Thailand’s Managing Director and Wirtgen’s Managing Director for Southeast Asia. None of these over $58,000 in expenses complied with the company’s policies and procedures relating to entertainment of government officials, none followed proper approval processes for such interactions, and all were improperly booked as legitimate business expenses.”
Under the heading “Bribery of DOH Through Sightseeing Trip Disguised as “Factory Visit,” the order states:
“In October 2019, Wirtgen Thailand paid for four foreign officials from the Department of Highways, including a member of the DOH procurement committee, and two of their spouses, to travel to its facilities in Germany. This “factory visit” was allegedly for the purpose of learning more about the company’s equipment. The invoice accompanying the expenses for this trip described the purpose of the trip as being “to visit factory.” However, the itinerary for this trip indicated that no factory visit took place. Instead, the trip solely consisted of sightseeing in Switzerland, including travel to Interlaken, Zermatt, and Lake Lucerne, as well as shopping and touring in the Alps, with stays in luxury hotels at each stop. Deere spent approximately $47,500 entertaining DOH officials on this sightseeing spree to win lucrative tenders.
During the trip, which lasted for eight days, Wirtgen Thailand submitted a bid on a DOH tender. On October 16, 2019, just after the sightseeing trip ended, Wirtgen was awarded that tender, valued at approximately $498,567. Wirtgen was then awarded a second tender worth $1,451,432 one month later, on November 20, 2019.
During this period, Deere had policies governing visits by non-U.S. government officials to its factories and facilities which required the provision of a variety of information in connection with seeking approval. This included details regarding the purpose of each visit, an agenda, names of government officials in attendance, whether any gifts or entertainment would be provided, and information about overall accommodations and cost. Wirtgen Thailand did not provide the required information and did not obtain prior authorization for the DOH trip. Instead, the expenses associated with this trip were knowingly approved and justified by Wirtgen’s Managing Director for Southeast Asia because the company needed to “gain information and build rapport” with government customers.”
Under the heading “Bribery of Government Officials in Thailand Through Cash Payments and a Third-Party Agent,” the order states:
“From 2018 to 2020, Wirtgen Thailand also made direct cash payments and payments made through a third-party agent to bribe government officials at DOH, DRR, and RTAF on numerous occasions to obtain business.
For instance, in April 2019, Wirtgen Thailand’s Managing Director texted the company’s Finance Manager “re DOH … will have candy money for you too, next week…. Re DRR I will have to discuss it again.” With respect to these cash bribes, the Managing Director instructed the Finance Manager to “Liaise with DOH…. Prepare 5 envelopes. And withdraw cash. You may take THB 100,000 first. For use on the delivery date.” The Finance Manager subsequently asked, “For the five envelopes should I go ahead and put [THB] 20,000 in each?” to which the Managing Director replied that he would do it himself.
In addition to directly paying cash bribes, Wirtgen Thailand used a third-party consultant to assist in paying bribes to government officials at DOH and DRR in order to secure four lucrative tenders for machine sales worth approximately $4.67 million. For each tender, Wirtgen Thailand entered into a sham commission agreement with the third-party consultant, which provided no legitimate services and was simply a conduit for paying bribes to the Thai government officials.
The sham commission agreements authorized payments of approximately $285,129 and were signed by the Managing Director of Wirtgen Thailand. Wirtgen Thailand’s Finance Manager also signed the sham commission agreement related to the DRR tender. Prior to the signing of the commission agreements, Wirtgen Thailand’s Managing Director submitted Applications for Approval of Commissions to another Manager in Thailand.
Communications between Wirtgen Thailand’s Managing Director and its Finance Manager refer to a series of bribe payments made by the third-party consultant on Wirtgen’s behalf to numerous government officials, including cash bribes to the new director of DOH, the former director of DOH, and a set of golf clubs given to the deputy director of DRR. All of these improper payments were made in connection with a 2020 DRR tender.
Wirtgen Thailand’s commission agreement with the third-party consultant in connection with the DRR tender contained bank account information on where to direct the commission payment. The account holder was a senior official of DOH who, along with his wife, had also gone on the nine-day sightseeing and “factory visit” trip to Germany, Prague and Austria in October 2019, and this same official was entertained in December 2018 at a massage parlor as described above.
In 2018, this same third-party consultant was used to facilitate the sale of machinery outside of the tender process to SKT, an organization that operated as a dealer in the sale to DOH. Wirtgen Thailand paid the third-party approximately $46,205 and obtained the sale of 10 units of pneumatic tire rollers for approximately $924,104. 27. Between 2018 through 2020, as a result of bribes made through the third-party consultant, Wirtgen Thailand obtained illicit profits of approximately $2.7 million on sales of machinery to SKT, DOH and DRR.”
A portion of the SEC’s order also contains a section titled “Commercial Bribery of Customer A” which states in pertinent part:
“During this same time period, Wirtgen Thailand engaged in commercial bribery of Customer A [a private company that handles construction, project management, and design of large-scale infrastructure projects in Thailand] by employing a similar scheme to secure sales of large industrial machines, which required the subsequent purchase of spare parts to keep them operational. The bribes occurred in at least 2018 and 2019, and included improper gift and entertainment expenses, extravagant sightseeing vacations under the guise of “factory visit” trips and making cash payments disguised as “brokerage fees” to Customer A employees involved in procurement. Wirtgen Thailand benefited from Customer A’s purchases of spare parts required to service machines purchased as a result of the bribe scheme through 2023.
[…]
As a result of these bribes paid through cash, gifts, entertainment, and travel, Wirtgen Thailand made profits of approximately $1.5 million on $5.3 million in gross sales of machines and spare parts to Customer A from 2018 to 2023.”
Based on the above, the SEC found that Deere & Co. violated the FCPA’s books and records and internal controls provisions.
As to the former, the order states:
“the improper payments were inaccurately recorded in Deere’s books and records as legitimate commissions and other business expenses, and its records further lacked sufficient detail and support to record payments to agents in Thailand as legitimate commissions and business expenses.”
As to the later, the order states:
“Deere’s failure to fully integrate Wirtgen Thailand into its existing internal control system contributed to its failure to devise and maintain a sufficient system of internal accounting controls with respect to employee expense reimbursements, third party payments, and gifts, travel, and entertainment. As illustrated by the conduct described above, those controls were insufficient to detect or prevent these improper payments that occurred for a period of several years.”
Without admitting or denying the SEC’s findings Deere & Co. agreed to cease and desist from committing future violations and agreed to pay $9,930,355 (disgorgement of $4,343,401 and prejudgment interest of $1,086,954, and a civil monetary penalty in the amount of $4,500,000).
Under the heading “Cooperation and Remediation” the order states in pertinent part:
“Respondent’s cooperation included providing translations of certain relevant documents, making current and former employees available to the Commission staff, including witnesses located overseas, and timely providing the details of facts developed during its internal investigation, including the sharing of forensic accounting analysis, relevant emails and company documents, and information pertaining to current and former employees.
Respondent’s remediation included termination of employees responsible for the misconduct and initiating significant improvements to its internal audit and compliance programs. Respondent revised its Code of Business Conduct, including its anti-bribery and corruption and travel policies, and introduced new compliance initiatives, including the circulation of a companywide bi-monthly compliance newsletter and a new podcast dedicated to discussion of compliance issues. Respondent also increased training on anti-bribery issues. Respondent has also undertaken an analysis of its compliance program and continues to make improvements utilizing anticorruption risk assessments, internal audits and enhanced internal accounting controls related to third party management.”
In the SEC’s release, Charles Cain (Chief of the SEC’s FCPA Unit) stated:
“After acquiring Wirtgen Thailand in 2017, Deere failed to timely integrate it into its existing compliance and controls environment, resulting in these bribery schemes going unchecked for several years. This action is a reminder for corporations to promptly ensure newly acquired subsidiaries have all the necessary internal accounting control processes in place.”
