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SEC Fines International Conglomerate $6.5 Million For FCPA Violations Related To Client Travel And Hospitality Expenses
09/06/2023On August 25, 2023, the Securities and Exchange Commission (“SEC”) accepted an Offer of Settlement (the “settlement”) from 3M Company (“3M”), related to alleged violations of the Foreign Corrupt Practices Act’s (“FCPA”) books and records and internal accounting control provisions (§§ 13(b)(2)(A) – (B) of the Securities Exchange Act of 1934). Without admitting or denying the findings, 3M agreed to pay $6,581,618 to resolve allegations that 3M’s China subsidiary (“3M-China”) improperly accounted for overseas trips it provided to 3M-China’s customers who were employed by Chinese state-owned entities (SOEs). According to the SEC, 3M-China invited SOE customers, who are deemed foreign officials under the FCPA, “to attend overseas conferences, educational events, and health care facility visits … ostensibly as part of 3M-China’s marketing and outreach efforts, but that in fact were often a pretext to provide overseas travel, sightseeing and entertainment … to the Officials to obtain and retain business from the SOE Customers.” The SEC alleged that many of the tourism and entertainment activities were scheduled at the same time as events designed to educate SOE customers on 3M’s business, but these educational events were primarily held in English, despite the SOE customer often not speaking English, and no translator was provided. The SEC alleged that the SOE customers often skipped the educational events entirely.
According to the SEC, between 2014 to 2018, 3M-China paid nearly $1 million to fund these trips and improperly recorded the expenses in 3M’s books and records as legitimate, even though the trips primarily consisted of tourist-related activities. The SEC found that, as a result of these trips, 3M realized approximately $ 3.5 million in improper sales.
Under the settlement, 3M agreed to cease and desist, and to pay over $6.5 million in civil penalties, disgorgement, and prejudgment interest. The SEC credited 3M’s self-reporting of the misconduct shortly after discovering it, cooperation in witness interviews and document production, and remediation efforts in disciplining the involved employees and enhancing 3M’s internal controls. This settlement is the latest FCPA action brought by the SEC and/or the Department of Justice targeting the provision of travel and hospitality to SOE customers and underscores the need for diligence by corporate compliance officers in reviewing and approving expenses related to gifts, travel, and hospitality for clients.
