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3M to Pay $6.5 Million for Foreign Bribery Charges

Posted  August 29, 2023

On Friday (August 25), the Securities and Exchange Commission (SEC) announced that Minnesota-based global manufacturer 3M Company agreed to pay $6.5 million to settle SEC charges of violating the Foreign Corrupt Practices Act (FCPA).  According to the SEC Order finalizing the settlement, the SEC found that employees of 3M’s wholly-owned Chinese subsidiary provided improper consideration to Chinese officials of state-owned health care facilities in return for business favor.

Specifically, the SEC found 3M’s Chinese subsidiary claimed to be sending the Chinese officials to overseas conferences, educational events, and health care facility visits when in truth it was all pretext for paid vacations to induce them to purchase 3M products.  To conceal this illicit activity, 3M apparently scheduled the foreign travel around the legitimate events the officials were supposedly attending.  The complicit 3M employees even created fake travel itineraries, with no mention of the tourism activities in which the Chinese officials were actually partaking.

All of this is improper under the FCPA, which bars providing foreign officials with any form of consideration in exchange for business.  It covers any kind of consideration.  Not just money.  And it broadly covers any kind of business favor.  Not just securing actual business, but any kind of business advantage such as avoiding a contract termination; securing favorable tax treatment; evading taxes or penalties; avoiding customs duties; preventing competitors from entering a market; avoiding a licensing or permit requirement; favorable treatment in lawsuits or enforcement actions; and so on

The statute also has “books and records” and “internal controls” provisions, which require a company to accurately record its foreign business transactions and maintain a system of controls sufficient to make sure the company is engaging in proper oversight to assure compliance with the statute.  A company can violate these provisions even if it never engages in bribery.  These were the provisions the SEC found 3M had violated with its Chinese subsidiary misconduct.

3M’s $6.5 million payout was relatively paltry and likely due to the relatively limited scope of the scheme.  Fines and penalties in this area can often reach nine figures as can be seen in the Top 10 listing of FCPA settlements from last year.  With 3M, the SEC also pointed to the company’s prompt reporting of the misconduct upon learning of it and its cooperation with the SEC’s investigation.  The SEC also noted 3M has undertaken significant remedial measures, including firing complicit employees and overhauling its internal controls and compliance program

Despite this self-reporting and cooperation, the SEC still insisted on imposing a penalty.  As the SEC’s FCPA Chief Charles Cain stressed: “This matter highlights the dangers to companies with global operations posed by inadequate internal accounting controls.”  Making clear once again that FCPA compliance remains a top priority for the agency.

It is not clear whether a whistleblower was involved in uncovering the conduct here, but as with all of its enforcement work, the SEC relies on whistleblowers to assist the agency in uncovering violations.  And the SEC has shown it is willing to reward those who come forward under the SEC Whistleblower Program.  Those who provide the SEC with information under the program which leads to a successful enforcement action are entitled to up to 30 percent of the government’s recovery.  For one lucky whistleblower recently, that amounted to almost $300 million, the largest award ever under the program (or any other whistleblower rewards program for that matter).

So if you have any information relating to potential violations of the FCPA or any potential securities violations, the SEC is waiting to hear from you.  In the meantime, if you would like to speak to a member of the experienced Constantine Cannon whistleblower lawyer team to learn about what it means to be a whistleblower, please do not hesitate to contact us for a free and confidential consultation.

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Tagged in: FCPA, Financial and Investment Fraud, Misrepresentations,