The US Securities and Exchange Commission (SEC) and Department of Justice (DOJ) announced that a US-based technology company and its two Chinese subsidiaries have been fined more than $28 million after it provided non-business related travel and other improper payments to various Chinese governmental officials in an effort to win business, according to the release.
The Massachusetts-based technology company PTC, Inc and its two Chinese subsidiaries agreed to pay $11.858 million in disgorgement and $1.764 million in prejudgment interest to settle the SEC’s charges following the agency’s investigation, and to pay a $14.54 million fine in a non-prosecution agreement concurrently announced today by the U.S. Department of Justice (as part of the joint investigation) citing violations of the Foreign Corrupt Practices Act (FCPA).
According to a company statement on the matter, it has implemented extensive remedial measures related to the SEC’s charges. A number of employees responsible for the scandal have been terminated, while the company has parted ways with several business partners. PTC has also appointed a new leadership team in China and setup a dedicated compliance function.
The SEC order found that PTC violated the anti-bribery, internal controls, and books and records provisions of the securities exchange act of 1934, and commenting in the official press release Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, said: “PTC failed to stop illicit payments despite indications of potential corruption by agents working with its Chinese subsidiaries, and the misconduct continued unabated for several years.”
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The SEC order found that improper gifts, travel and entertainment that totaled nearly $1.5 million were linked to Chinese government officials who were employed by state-owned entities who were PTC customers. In return, PTC gained roughly $11.8 million in profits from related contract dealings with state-owned entities whose officials received the said improper payments.
Bribery fueled a nearly eightfold return on illegal spending, now resulting in a huge loss from the fine.
Beyond the blemishes from the related bribes, not to be confused with appropriate client entertainment, included the following activities as per the release:
– Chinese officials were compensated directly and through third-party agents for sightseeing and tourist activities.
– Third-party agents typically arranged overseas sightseeing trips in conjunction with a visit to a PTC facility, typically the corporate headquarters in Massachusetts. After one day of business activities, the additional days of sightseeing visits lacked any business purpose.
– Typical PTC-paid travel destinations for Chinese officials included New York, Las Vegas, San Diego, Los Angeles, and Honolulu. Officials enjoyed guided tours, golfing, and other leisure activities.
– Employees of PTC’s Chinese subsidiaries also provided improper gifts and entertainment to Chinese government officials, including small electronics such as cell phones, iPods, and GPS systems as well as gift cards, wine, and clothing.
– The improper payments were disguised as legitimate commissions or business expenses in company books and records.
The SEC also noted that based on a deferred prosecution agreement (DPA), the first of its kind in this type of case, a Mr. Yu Kai Yuan – who was noted as a former employee at one of PTC’s Chinese subsidiaries in the announcement – will have his prosecution delayed as a result of the significant cooperation he has provided during the SEC’s investigation. In addition, the SEC noted that in the settlement it considered PTC’s self-reporting of its own misconduct as well as the significant remedial acts the company has since undertaken. The investigation was lead by the agency’s Boston office, supervised by the FCPA unit and with support from the DOJ.