Another SEC FCPA Action Tied to Hospitality
Another SEC FCPA Action Tied to Hospitality
Hospitality and effective compliance procedures are often critical issues when dealing with government officials. Those two issues came into sharp focus in the SEC’s latest FCPA case. In the Matter of BHP Billiton Ltd., Adm. Proc. File No. 3-16546 (May 20, 2015).
BHP Billiton is a combination of two companies, BHP Billiton Ltd. of Melbourne, Australia and BHP Billiton Plc of London, England. Both are Respondents. The two firms operate as a single entity. Both have shares traded in the U.S. The firm is among the world’s leading producers of major commodities, including iron ore, coal, oil, gas and others. While the two firms operated together and have an advisory body called the Global Ethics Panel, there was no centralized compliance group within the firm’s legal department.
In December 2005 the firm became an official sponsor of the 2008 Beijing Olympic Games. This meant that it had the right to use the Olympic trademark and intellectual property and priority access to tickets, hospitality suites and accommodations during the games. One of the firm’s objectives in being a sponsor was to reinforce and develop relationships with key stakeholders in the product and investor markets where it wanted to have operations. Accordingly, select guests were invited to attend he games to implement with that objective. Hospitality packages were put together which included luxury hotel accommodations, meals, event tickets, sightseeing excursions and in some instances airfare. The value of the packages ran about $12,000 to $16,000.
In early 2007 BHPB employees prepared country-specific Olympic Leverage Plans which represented the firm’s business and Olympic-related objectives. In some instances the plans discussed inviting key shareholder, including government officials, to help relationship build. Eventually about 650 people were invited, including 176 government officials. Of those invited, 98 were official s represented state-owned enterprises that were BHPB customers or suppliers.
While the company assessed the risk of inviting government officials to the Olympics, the Order states that adequate precautions were not taken. Applications were developed that were prepared by business managers. Those applications included questions about existing business obligations and contracts and whether the hospitality would create an impression of an improper connection.
The controls were inconsistent. For example, in most instances there was little review although the website noted that requests would be approved by the Olympic Sponsorship Steering Committee and the Global Ethics Panel Sub-Committee. In fact there was no meaningful review of requests. In some cases applications were incomplete and/or contained incorrect information. There was no training regarding the application process.
As a result of the inadequate controls over the selection process, BHP invited a number of government officials who were directly involved with, or in a position of influence regarding pending negotiations. For example, in mid-2007 there was a hospitality application for the then to be named Burundi Minister of Mines and spouse. At the time the application for a hospitality package noted that the firm was not in negotiations with the Minister of Mines. Later, however, the company began to negotiate with the Minister regarding a dispute with a joint venture partner. There was no update process for the hospitality applications.
In another instance, at the time an invitation was extended to the Secretary of Department of Environment and Resources of the Philippines the firm did not have any matters involving the Secretary. Later, the Secretary took on a role in reviewing a dispute with another joint venture partner. BHPB later withdrew the invitation. Overall the firm’s procedures were inadequate to ensure that those invited were not in positions to influence firm business.
The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and13(b)(2)(B). In resolving the matter the Commission considered the cooperation and remedial efforts of the firm which included creating a compliance group within the legal department independent from the business units.
To resolve the matter the firm consented to the entry of a cease and desist order based on the Sections cited in the Order. It also agreed to pay a $25 million penalty.