Cooperation Yields No Penalty in SEC FCPA Settlement
The SEC filed another settled FCPA proceeding in which cooperation substantially mitigated the sanctions. Specifically, a monetary penalty was not imposed on the firm in view of its cooperation, although the company did not self-report. In the Matter of SAP SE, Adm. Proc. File No. 3-17080 (February 1, 2016).
SAP SE is a European Union corporation based in Waldorf, Germany whose ADSs are registered with the SEC and traded on the NYSE. The firm operates through 272 subsidiaries, selling software licenses and serves customers in 188 countries. While its global business is directed from Waldorf, business is conducted through numerous subsidiaries and a network of over 11,500 partners.
From 2008 through early 2014 Vincente Garcia served as Vice-President of Global and Strategic Accounts. He was responsible for sales in Latin America. Technically Mr. Garcia was employed by a subsidiary but was frequently presented as an SAP employee. This tended to blur his reporting lines. Although he was found to have violated the firm’s Code of Business Conduct concerning an event to which he took a foreign government representative, there was no finding of improper influence.
Mr. Garcia learned through a business associate in 2009 that there were opportunities for the sale of software to the government of Panama. The associate, a lobbyist in Panama, claimed to have an existing relationship with the newly elected government. To secure the business bribes would have to be paid to three government officials.
There was a potential for business at the Panamanian social security agency. An initial effort to secure business focused on a potential sale of a software license. To facilitate the bribery plan certain existing partners were replaced. That, along with other red flags, triggered a compliance review which ended the scheme.
Subsequently, Mr. Garcia and others finalized an arrangement with the social security agency through a local partner using their bribery plan. That plan was implemented by causing SAP to sell the software to the local partner at an 82% discount. The partner could then mark it up and pay the bribes from the increased price. Mr. Garcia was able to arrange for the discount through his knowledge of how the firm provided them. Thus the social security agency awarded a contract to the local partner who had purchased software at an 82% discount, marked it up in the sale to the agency and used the profits to create a slush fund to pay bribes. The contract was awarded in January 2011 to the local partner on a bid of $14.5 million for software he had acquired for $2.1 million.
Between June 2012 and December 2013 the Panamanian government awarded three additional contracts that included SAP products valued at about $13.5 million. Again the products were acquired at deep discounts by local partners who then marked them up when selling to the government. The contracts generated revenues of about $3.7 million for SAP.
The Order alleges that SAP had insufficient internal controls. Specifically, there was no requirement for heightened anti-corruption scrutiny for large discounts. In addition, Mr. Garcia was able to evade the basic approval procedures through his position and knowledge at the firm. His reporting structure permitted him to use employees from various parts of the firm to implement the bribery scheme.
Once the staff began its investigation SAP conducted a complete internal investigation and extensively cooperated. The company voluntarily produced about 500,000 pages of documents and other information quickly, identified significant documents and furnished translations while conducting witness interviews and sharing presentations and timelines. It also facilitated an interview with Mr. Garcia without first alerting him to the inquiry and initiated a third party audit of a local partner. Later Mr. Garcia was terminated and remedial efforts were taken.
The Order alleges violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B). To resolve the proceeding 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 disgorgement of $3.7 million and prejudgment interest. A penalty was not imposed based on cooperation.