Qualcomm Settles FCPA Charges With SEC
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.