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.
As highlighted in this previous post, in July 2019 3M disclosed:
“The Company, through its internal processes, discovered certain travel activities and related funding and record keeping issues raising concerns, arising from marketing efforts by certain business groups based in China. The Company initiated an internal investigation to determine whether the expenditures may have violated the U.S. Foreign Corrupt Practices Act (“FCPA”) or other potentially applicable anti-corruption laws. The Company has retained outside counsel and a forensic accounting firm to assist with the investigation. On July 23, 2019, the Company voluntarily disclosed this investigation to both the Department of Justice and Securities and Exchange Commission and is cooperating with both agencies.”
Thus, from start to finish, 3M’s FCPA scrutiny lasted approximately 4 years.
I’ve said it many times, and will continue saying it until the cows come home: if the DOJ/SEC want their FCPA enforcement programs to be viewed as more credible and more effective, the enforcement agencies must resolve instances of FCPA scrutiny much quicker.
This is particularly true in the 3M matter given the following language from the SEC:
“3M promptly self-reported the misconduct after first learning of it. The company’s cooperation included making witnesses available for interviews, voluntarily producing translations of relevant documents, sharing facts uncovered during its internal investigation – including notes of witness interviews – and providing comprehensive, periodic updates on its investigation.”
No Interpreters Were Provided
The 3M enforcement action was based on findings that alleged Chinese officials participated in tourism activities at or near the location of educational events sponsored by the company.
The SEC seems to suggest that the educational events were largely a sham because many of the Chinese officials did not understand English and no interpreters were provided. The (relatively) short SEC order makes reference to this issue not just once, not just twice, but three times.
FCPA enforcement officials have often suggested that compliance professionals look to enforcement actions as “evidence” of best practices. Thus, compliance professionals should add to their checklist the following: when travel is provided to foreign officials that meets the standards of the FCPA’s affirmative defense, is foreign language interpretation being provided?
Healthcare Professionals as Foreign Officials
Even though the 3M enforcement action was “merely” a books and records and internal controls enforcement action, the enforcement action (like so many others) was very much about the alleged foreign officials. Specifically, the SEC stated that the foreign officials were Chinese health care officials employed by state-owned entities.
As highlighted in prior posts, since first being introduced to FCPA enforcement in 2002, this dubious enforcement theory has been used in connection with approximately 35 enforcement actions.
“No-Charged Bribery Disgorgement”
The 3M enforcement action represents yet another so-called “no-charged bribery disgorgement action.”
In other words, the bulk of the $6.5 million SEC settlement amount ($4.5 million) consisted of disgorgement and associated prejudgment interest even though the SEC only found violations of the FCPA’s books and records and internal controls provisions (and not anti-bribery violations).
As highlighted in this previous post (and numerous prior posts thereafter), no-charged bribery disgorgement is troubling. Among others, Paul Berger (here) (a former Associate Director of the SEC Division of Enforcement) has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” Berger noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”