Just when you think you’ve seen all possible combinations of Foreign Corrupt Practices Act enforcement, along comes yesterday’s “two for Tuesday” in which the SEC announced in the same press release two non-prosecution agreements against two separate companies and the DOJ simultaneously released two so-called “declination” letters against the same two companies.
This post highlights the enforcement action against Akamai Technologies and today’s first post highlights the enforcement action against Nortek Inc.. From there future posts will highlight issues to consider from the enforcement actions (and there are many including the question of just what charges – based on the SEC’s statement of facts – did the DOJ actually decline?”).
The Akamai Technologies enforcement action was based on the conduct of Akamai (Beijing) Technologies Co. Ltd. (Akamai-China) which is described as a wholly owned subsidiary of Akamai that provides technical and sales support to its local Chinese channel partners for content delivery services, which are resold by the channel partners in China.
Based on the SEC’s findings, highlighted below, Akamai Technologies agreed to a SEC non-prosecution agreement for what the NPA termed “possible violations of the books and records and internal accounting controls provisions of the FCPA.”
Pursuant to the NPA, Akamai Technologies agreed to pay approximately $672,000 in disgorgement and prejudgment interest.
The Statement of Facts in the NPA (stripped of identifying information, self-reporting, and remedial measures issues) is approximately one page and states in full:
“Under China’s regulatory system, Akamai-China is required to contract with third-party channel partners to deliver its services to end customers. From at least 2013 through 2015, an Akamai-China Regional Sales Manager (the “Regional Sales Manager”) schemed with an Akamai-China channel partner (the “Channel Partner”) to bribe employees of three end customers, two of which were Chinese state owned entities, to obtain and retain business. The bribes were paid to induce the end customers’ employees, including the employees of the Chinese state owned entities (hereinafter the “Chinese government officials”), to contract to purchase up to 100 times more network capacity from the Channel Partner than each company actually needed. The Channel Partner would in turn purchase this capacity from Akamai-China, add its own markup, and sell the capacity to the end customers.
To effectuate the scheme, the Channel Partner paid monies to the Regional Sales Manager’s (or his nominees’) accounts. The Regional Sales Manager then paid a portion of these funds, and also provided expensive gifts, to employees of the three end customers. Overall, the Regional Sales Manager paid approximately $155,500 to employees of end customers, including approximately $38,500 in cash to Chinese government officials.
During the same time period, employees of Akamai-China routinely provided improper gifts and entertainment to employees of its end customers, some of whom were Chinese government officials, to obtain or retain business. The gifts and entertainment given to Chinese government officials totaled approximately $32,000 and were provided in violation of Akamai’ s corporate governance and internal accounting controls policies. Akamai-China improperly recorded the gifts and entertainment to Chinese government officials as legitimate business expenses.”
Under the heading “Akamai’s Inadequate Internal Accounting Controls and Inaccurate Books and Records,” the NPA states:
“As evidenced by Akamai-China’s improper payments to employees of end customers, Akamai failed to devise and maintain a system of internal accounting controls at Akamai-China sufficient to provide reasonable assurances, among other things, that transactions were executed in accordance with management’s general or specific authorization and transactions were recorded as necessary to maintain accountability for assets. Akamai’ s internal accounting control failures included: the lack of formalized due diligence of China-based channel partners; the failure to proactively exercise audit rights to ensure compliance with anti-bribery policies; failure to monitor or review customer usage in high-risk regions; failure to translate anti-bribery and anti-corruption policies into Mandarin; inadequate employee training on compliance and anti-bribery policies; and the lack of effective procedures for reviewing and approving business entertainment. Akamai’s internal accounting control failures allowed Akamai-China’s bribery scheme to go undetected.
Akamai-China’s books and records were inaccurate because AkamaiChina had made improper payments, in the form of gifts and entertainment, which were inaccurately recorded as legitimate business expenses. Akamai-China’s books and records were subsequently consolidated with Akamai’s books and records, rendering Akamai’ s books and records inaccurate.”
Under the heading “Akamai’s Self-Report,” the NPA states:
“Akamai promptly self-reported the misconduct to the Division of Enforcement and conducted a timely and thorough investigation. Akamai discovered the violations in late December 2014 when it received a complaint from an Akamai-China sales representative alleging that the Regional Sales Manager had received improper payments from channel partners and had made improper payments to end customer employees to secure business. Within weeks, Akamai voluntarily disclosed its investigation to the Commission staff and the Department of Justice.”
Under the heading “Remedial Measures and Cooperation,” the NPA states:
“Akamai took immediate action to end the illicit payments and implemented significant remedial measures. Shortly after being interviewed by Akamai, the Regional Sales Manager involved in the misconduct was placed on administrative leave, and then later resigned in April 2015. Subsequently, the company also terminated its relationship with the Channel Partner. Akamai also comprehensively reviewed its then existing compliance program and undertook corrective action to enhance its compliance program and ensure that its employees around the globe were receiving adequate training. As part of its remedial efforts, Akamai: (i) implemented comprehensive due diligence processes for channel partners, including engaging an outside consultant to conduct channel partner risk assessments; (ii) strengthened its anticorruption policies; (iii) implemented enhanced compliance monitoring functions and structures, such as naming a Chief Compliance Officer and staffing a global team of dedicated compliance professionals in Europe, the U.S., and Asia; (iv) provided extensive mandatory in-person and on-line trainings on FCPA and anti-corruption policies to its employees around the globe in appropriate languages; and (v) enhanced its travel and expense control requirements in China, including requiring more detailed expense descriptions and supporting documentation and appointing an independent function with Chinese language capability to review and approve expense claims.
Akamai provided comprehensive, organized, and real-time cooperation with the staff of the Enforcement Division during the course of its internal investigation, including: (i) sharing the detailed findings of its internal investigation, including the results of its audits of its Chinese channel partners, analyses of customer usage versus purchased capacities, summaries of witness interviews, and factual chronologies and supporting documentation; (ii) identifying and presenting relevant documents to the staff; (iii) timely updating the staff with additional findings when its investigation uncovered new information; (iv) proactively updating the staff on its remedial measures, including updates to its compliance policies and procedures; (v) voluntarily translating documents from Chinese into English; and (vi) voluntarily making witnesses available for interviews and testimony.”
The NPA contains a so-called muzzle clause in which Akamai, as well as its attorneys, employee and agents, agree not to take any action or to make or permit any public statement “denying, directly or indirectly, the factual basis of any aspect” of the NPA.”
In the SEC’s release, Andrew Ceresney (Director of the SEC Enforcement Division) stated:
“When companies self-report and lay all their cards on the table, non-prosecution agreements are an effective way to get the money back and save the government substantial time and resources while crediting extensive cooperation.”
Kara Brockmeyer (SEC FCPA Unit Chief) stated:
“Akamai and Nortek each promptly tightened their internal controls after discovering the bribes and took swift remedial measures to eliminate the problems. They handled it the right way and got expeditious resolutions as a result.”
“I write regarding the investigation by the Department of Justice, Criminal Division, Fraud Section into your client Akamai Technologies, Inc. (“Akamai” or the “Company”) concerning possible violations of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1, et seq. Based upon the information known to the Department at this time, we have closed our inquiry into this matter. Consistent with the FCPA Pilot Program, we have reached this conclusion despite the bribery by an employee of the Company’s subsidiary in China and one of that subsidiary’s channel partners, based on a number of factors, including but not limited to Akamai’s prompt voluntary self-disclosure of the misconduct, the thorough investigation and fulsome cooperation by the Company (including by identifying all individuals involved in or responsible for the misconduct and by providing all facts relating to that misconduct to the Department) and its agreement to continue to cooperate in any ongoing investigations of individuals, the steps that the Company has taken to enhance its compliance program and its internal accounting controls, the Company’s full remediation (including promptly suspending at the start of the investigation the individual involved in the China misconduct who then resigned shortly thereafter, terminating the relationship with the channel partner involved in the misconduct, and disciplining five other employees who should have prevented other violations of the Company’s policies), and the fact that Akamai will be disgorging to the SEC the full amount of disgorgement as determined by the SEC. If additional information or evidence should be made available to us in the future, we may reopen our inquiry.”