by T. GormanPosted on Posted in SECActions

The Department of Justice resolved another FCPA investigation centered on payments made to health officials. Olympus Corporation of the Americas, a wholly owned subsidiary of Olympus Corporation, Tokyo, Japan, and Olympus Latin America, Inc., resolved FCPA charges with the DOJ.

Olympus is the largest distributor of endoscopes and related medical equipment in the United States. It sells the devices world-wide. The activity here took place in Brazil Bolivia, Chile, Columbia, Argentina, Mexico and Costa Rica.

From 2006 through 2011 unlawful payments were made to medical officials. During the period the firm implemented a plan to increase medical equipment sales in Central and South America. The plan called for payments in cash, through money transfers, personal grants, personal travel and free or significantly discounted equipment.

The payments were delivered through what were called training centers. While those centers were supposedly set up to educate and train doctors in fact they were used with selected practitioners to provide benefits.

Nearly $3 million in payments were made. Those payments yielded over $7.5 million in profits. Company officials reportedly kept a spread-sheets of the illegal payments and tied them to sales and revenues. Employees were instructed on how to keep the payments secret.

The FCPA action was resolved with Olympus Latin America, Inc. entering into a deferred prosecution agreement. Under the terms of the Agreement the firm will pay a criminal fine of $22 million. The company will also retain a corporate compliance monitor for three years.

The fine is below the bottom of $28.5 million range calculated under the sentencing guidelines. While the company cooperated with the DOJ, it did not “timely” report. The firm did, however, terminate its involvement with a number of responsible parties. Those included employees and third party distributors in Latin America. It also enhanced its due diligence as to third parties.

The company also entered into a corporate integrity agreement with HHS and resolved parallel criminal and civil investigations under the Anti-Kickback Statute and False Claims Act. The firm paid a fine of $612 million.

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by T. GormanPosted on Posted in SECActions

Gifts and hospitality continue to be a key theme in the SEC’s latest FCPA case. The action also involves hiring relatives of officials and ignoring risk in the face of a weak compliance and internal control environment. In the Matter of Qualcomm Inc., Adm. Proc. File No. 3-17145 (March 1, 2016).

Qualcomm designs and sells wireless telecommunication products. The firm develops and patents wireless communications technologies including those incorporated into CDMA, WCDMA and LTE, all used by wireless carriers. As the wireless technology evolved Qualcomm began warning investors that its licensing program for certain non-CDMA technologies that might be adopted by 4G products were less established.

By 2010 95% of the firm’s revenue came from international handset manufactures and other customers and licensees. By 2012 about 42% of its revenue came from Chinese handset manufacturers and other customers in China.

In May 2008 China announced the restructuring of its telecommunications industry. Three SOEs were created each with a different technology. One license was issued to SOE 2 the next year which launched a version of Qualcomm’s CDMA technology. SOE 1 was awarded a license for WCDMA and deployed a network using that technology.

Beginning in 2002 Qualcomm provided various things of value to officials from a Chinese government agency to help expand the use of the firm’s technology and ensure that executives at SOE 1 and 2 adopted Qualcomm technology. The company also provided or offered full-time employment and paid internships to family members and other referrals of foreign officials at SOE 1 and 2 was well as at the Agency. FCPA compliance was not considered. Qualcomm also offered foreign officials hospitality packages to world-class sporting events. The employees involved in planning the events for foreign officials did not have FCPA training. The firm did have FCPA compliance policies but there was no head of compliance for the firm or in China.

Qualcomm failed to maintain a system of internal accounting controls that was sufficient to provide reasonable assurances that transactions were executed and that access to assets was permitted in accord with authorization. Meal, gift and entertainment entries, for example, were repeatedly missing from logs. Internal audit reports found that employees repeatedly failed to request pre-approvals for furnishing things of value to foreign officials or to keep the appropriate records. Neither the local management in China, nor the executive management team, adequately identified the FCPA risks in offering lavish hospitality packages to foreign officials. The Order alleges violations of Exchange Act Sections 30A, 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. The firm also agreed to pay a penalty in the amount of $7.5 million and to report to the staff for a two year period on its progress regarding remediation and the implementation of compliance procedures.

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