A Connecticut-based multinational corporation agreed to pay $13.9 million to settle SEC charges for violating the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act.
According to the SEC Order, United Technologies Corporation ("United"), through a Russian affiliate of Otis Elevator Company (a wholly owned subsidiary of United), engaged intermediaries to help channel illicit payments to Azerbaijani officials to promote the sale of elevator equipment. The SEC also alleged that unlawful payments were made by another Otis affiliate in connection with a kickback scheme to sell elevators in China.
The SEC further asserted that another United subsidiary paid roughly $55 million in fee commissions to a sales agent who used a portion of the funds to make illegal payments to a Chinese airline official in exchange for confidential information related to the sale of engines to Chinese state-owned airlines. As alleged by the SEC, United subsidiaries also improperly provided gifts and trips to foreign officials in China, Kuwait, South Korea, Pakistan, Thailand and Indonesia.
United will pay $9,067,142 in disgorgement, $919,392 in prejudgment interest and a civil monetary penalty of $4 million. In resolving the matters, the SEC considered remedial acts undertaken by United, as well as the cooperation the company provided. United self-reported the misconduct, provided documents to the SEC for the investigation, terminated employees and third parties culpable for the alleged misconduct, and strengthened its internal accounting controls.
United neither admitted to nor denied the SEC findings.
Commentary / James Treanor
In addition to the glaring due diligence lapses described in the SEC Order – for example, little or no scrutiny was applied to intermediaries that were recommended by foreign officials and/or had no relevant experience in the industry – this settlement is notable for the self-reporting credit awarded by the SEC. While such credit is a component of many SEC FCPA settlements, what is atypical about this case is that the company learned of the potential misconduct not through a compliance hotline, audit review or other internal channel, but, rather, from public sources. In Azerbaijan, the company learned of potentially improper payments from media reports based on statements made by a foreign official's relative, while issues in China surfaced through media reports and, in one case, the criminal prosecution of an employee. Thus, the SEC conceivably could have learned of the alleged violations on its own, without input from the company, through careful monitoring of foreign press reports and law enforcement activity. The awarding of self-reporting credit in these circumstances is consistent with the SEC's "Seaboard Report" (described here), which sets out the SEC's analytical framework for evaluating cooperation and incentivizes the provision of "information [the SEC] did not directly request and otherwise might not have uncovered." Companies confronted with foreign reports of alleged bribery, therefore, should not abandon all hope of earning self-reporting credit from the SEC – but word can travel fast in the digital age, and they would be well-advised to act swiftly.
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