Late last Friday afternoon on a holiday weekend, the SEC released one of the more pedestrian FCPA enforcement actions of recent memory.
The action involved Gartner Inc. (a technological research and consulting company) concerning conduct in 2014 and 2015 in South Africa.
To resolve the matter, Gartner agreed to pay approximately $2.5 million (856,764 in disgorgement and prejudgment interest and a $1.6 million civil penalty).
In summary fashion, this administrative order states:
“This matter concerns Gartner’s violations of the anti-bribery, books and records, and internal accounting control provisions of the FCPA, as a result of a scheme to obtain and retain business from a South African government entity, the South Africa Revenue Service (“SARS”).
At the direction of SARS senior officials, a manager of Gartner’s consulting segment (the “Gartner Consulting Manager” – described as an individual responsible for Gartner Consulting’s public sector business covering Europe, the Middle East, and Africa, including oversight of the SARS engagement) authorized Gartner to enter into sub-contracts with a South African information technology consulting company (the “Private Company” – described as a private South African information technology consulting company formed in 2009 whose Executive Director was a close friend of a SARS senior official.). At the time of the sub-contracts, the manager knew or consciously disregarded the possibility that all or part of the money paid to the Private Company would be offered, given, or promised, directly or indirectly, to those SARS officials, to induce the officials, in violation of their lawful duty, to award multi-million dollar sole-source contracts to Gartner.
The purported justification for hiring the Private Company offered by the Gartner Consulting Manager was that (1) Gartner needed to sub-contract with the Private Company in order to meet the requirements of South Africa’s Broad-Based Black Economic Empowerment legislation (“B-BBEE”) and (2) neither Gartner nor its local sub-agents qualified under the applicable law. This justification was false because Gartner, through its local sub-agents, did in fact qualify under the B-BBEE.”
The order provides the relevant background.
“Gartner, Inc. is a U.S. public company incorporated in Delaware and with headquarters in Connecticut. Gartner has three primary business segments: Gartner Research, Gartner Consulting, and Gartner Conferences. In 2015, Garner Consulting’s revenue was approximately 15% of the company’s total revenue of $2.2 billion. Prior to 2017, Gartner operated in South Africa through its exclusive sales agent, Future Trends Ltd., and sub-agents, IT Management Advisory Services Pty. Ltd. (“ITMAS”) and Zimeleyo Research & Consulting Pty Ltd (“Zimeleyo”). Beginning in 2017, after it incorporated and operated directly in South Africa, Gartner allowed these agency relationships to lapse. Gartner stock is now, and was during the relevant time period, registered under Section 12(b) of the Exchange Act and trades on the New York Stock Exchange under the ticker symbol “IT.”
According to the order:
“On December 10, 2014, the Private Company’s executive director advised Zimeleyo’s General Manager that SARS wanted to conduct an assessment of its information technology systems, and that SARS had offered to meet to discuss the scope of the work. The two executives drafted proposed “terms of reference” for the SARS project, which sought to define the mandate for the work that the project would entail and was based on information that SARS provided to the Private Company’s executive director.
On December 18, 2014, senior officers at SARS invited other Zimeleyo representatives to discuss the potential engagement. The SARS representatives provided the Zimeleyo representatives with a draft request for proposal that included the substantive terms contained in the “terms of reference” referenced above.
On January 1, 2015, Zimeleyo provided SARS with Gartner’s response to the proposal, which did not make any mention of the Private Company or its executive director.
On January 9, 2015, SARS requested to expand the scope of the proposal and suggested that Gartner use the Private Company in order to qualify for the contract under South Africa’s B-BBEE legislation.
The Gartner Consulting Manager explained in an email to Gartner management that, in order to win the contract, Gartner had no option but to agree to SARS’ request to use the Private Company: “[B]oth the client and the [Private Company] [are] quite sav[v]y . . . The [Private Company] knows that we cannot bid without them.”
SARS signed a Master Consulting Services Agreement with Gartner on February 5, 2015. The contract, which had a value of approximately $1 million, contained no reference to the Private Company or any provisions regarding B-BBEE qualifications or requirements, and Gartner did not enter into a sub-contract with the Private Company. Rather, Gartner’s agent Zimeleyo directly engaged as consultants four individuals affiliated with the Private Company to conduct work on Gartner’s behalf with the full knowledge of key personnel within SARS’s procurement division, notwithstanding the fact that the contract contained no reference to the Private Company.
In April 2015, the Gartner Consulting Manager and Zimeleyo’s General Manager met with the SARS Commissioner and several top officers to discuss Gartner’s report on its completion of the service agreement (“Phase I”). The SARS Commissioner suggested a follow-up project to implement Gartner’s recommendations and asked the Gartner Consulting Manager for a rough estimate of the cost. The Gartner Consulting Manager advised that the work would cost approximately $10 million.
On June 1, 2015, the Gartner Consulting Manager and the Zimeleyo General Manager exchanged emails regarding Gartner’s draft proposal to SARS for the follow-up project (“Phase II”). Zimeleyo’s General Manager advised that the Private Company’s executive director was working with SARS officials “to set the expectations with them” regarding the pricing for Phase II of the SARS project in advance of Gartner submitting its formal proposal to SARS.
The Gartner Consulting Manager did not question whether there was possible collusion between the Private Company and SARS officials. When the Gartner Consulting Manager provided senior Gartner management with an update on the Phase II contract, he referred to the Private Company’s executive director as “extremely well connected within Government and SARS.” Weeks before Gartner submitted its formal proposal, the Gartner Consulting Manager conveyed to other senior Gartner management his expectation that the Phase II contract would be made on a sole-source basis.
SARS signed the Phase II Master Consulting Services Agreement on July 31, 2015, on a sole-source basis. The value of the contract was approximately $10 million to be paid over 18 months. In a communication to a colleague, the Gartner Consulting Manager described the Private Company as a “client mandated partner to meet Black Empowerment Legislation.” He further advised that the Private Company was to receive 40% of the contract: “Client directed 50% workshare with [Private Company] – we have negotiated this down to 40% on the basis that we own the risk and key skills.”
The Phase II contract required Gartner to meet B-BBEE qualifications and to provide a “Verification Certificate” to SARS on an annual basis. Gartner satisfied this requirement through its South African sub-agent, ITMAS, which at that time held a B-BBEE certification. A provision of the SARS Phase II contract specifically defined “Gartner” to include ITMAS.
Prior to signing the Phase II contract, a SARS procurement officer requested to see Gartner’s B-BBEE certificate. In response, Zimeleyo’s General Manager sent SARS the B-BBEE verification certificate that ITMAS had been issued on April 17, 2015, and emailed a blind carbon copy of the communication to the Private Company.
Gartner did not enter into a sub-contract with the Private Company for Phase II of the SARS project. Rather, Gartner’s agent Zimeleyo directly engaged as consultants several individuals affiliated with the Private Company to conduct Phase II work on Gartner’s behalf with the full knowledge of key personnel within SARS’s procurement division, notwithstanding the fact that the contract contained no reference to the Private Company or to the approximately 40% of the contract that the Private Company was to be paid, pursuant to the instructions that SARS officials had made to Gartner.
Gartner’s invoices, like the other official transaction documents, omitted any reference to the participation of the Private Company. As a condition of Gartner’s right to bid on the contract, SARS officials had instructed Gartner to manage its subcontractor, the Private Company. Gartner’s invoices to SARS contained only a single line item for “Professional Fees.” Zimeleyo invoiced Gartner monthly through a single invoice containing two line entries with different hourly rates. The Zimeleyo invoice did not identify the hourly rates as pertaining to Zimeleyo and the Private Company. Gartner made its payments to Zimeleyo, which in turn paid the Private Company. The Gartner Consulting Manager approved all invoices submitted by Zimeleyo. Gartner’s payments to South Africa were initiated from its operations facility in Fort Myers, Florida.
During the relevant time period, Gartner’s internal FCPA risk assessments identified the company’s “[s]ales agent, consultant or third party relationships with public sector clients” as a potential “bribery red flag.” Gartner’s policy regarding the hiring of third party consultants did not adequately address anti-corruption risks. At the time of the SARS engagement, the company lacked risk-based screening procedures for hiring third party contractors, had no anticorruption related vendor onboarding procedures, and lacked adequate monitoring procedures.”
The order then states:
“[T]he Gartner Consulting Manager authorized multiple payments to the Private Company in connection with the Phase I and Phase II contracts with SARS. The Gartner Consulting Manager had been advised of (i) the Private Company’s executive director’s close relationship to a senior SARS official; (ii) his role in introducing Gartner to SARS and in setting expectations with SARS officials; and (iii) SARS’ directives to Gartner to hire the Private Company and pay it fixed percentages of the SARS contracts in order to win the contracts on a sole-source basis. The Gartner Consulting Manager also knew or consciously avoided knowing that the purported justification for hiring the Private Company – Gartner was told by SARS to hire the Private Company in order to qualify for the contracts under South Africa’s B-BBEE legislation – was false. Gartner’s Consulting Manager knew or consciously disregarded the high probability that the Private Company’s executive director would offer, provide or promise the payments his company received, or a portion thereof, to SARS officials for the purpose of influencing such officials to obtain or retain business for Gartner. As a result, Gartner was awarded the Phase I and Phase II SARS contracts and received ill-gotten net profits associated with the contracts of $675,974.”
Based on the above, the order finds that Gartner violated the FCPA’s anti-bribery, books and records, and internal controls provisions.
Without admitting or denying the SEC’s findings, Gartner agreed to cease and desist from committing future FCPA violations and agreed to pay approximately $2.5 million (856,764 in disgorgement and prejudgment interest and a $1.6 million civil penalty).
Under the heading “Gartner’s Remedial Efforts and Cooperation,” the order states:
“In determining to accept the Offer, the Commission considered Gartner’s self disclosure following press reports in South Africa, cooperation, and remedial efforts. Its cooperation included providing regular updates and sharing facts identified in the course of its own internal investigation, making foreign-based employees available for interviews in the United States, and encouraging cooperation by former employees. Gartner’s remediation included revising and enhancing relevant policies and procedures and training programs, increasing both financial and human resources for compliance, and enhancing its due diligence procedures.”
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