A subsidiary of a major electronics company agreed to pay a total of $280 million to settle DOJ and SEC charges arising from alleged Foreign Corrupt Practices Act ("FCPA") violations. In settlement of criminal charges against it, Panasonic Avionics Corporation ("PAC") entered into a three-year deferred prosecution agreement, during which term PAC must make enhancements to its compliance policies and fully cooperate with the DOJ as it continues its investigation. In addition, PAC agreed to the imposition of a compliance monitor for a period of two years. PAC also settled an SEC civil case against it, acknowledging that it had insufficient controls to detect the corrupt payments at issue.
The DOJ charging documents show that PAC, a subsidiary of electronic company Panasonic Corporation, improperly paid third-party "consultants" including a foreign official, to assist in negotiating a lucrative contract between a state-owned airline in the Middle East and PAC. PAC also allegedly obtained confidential information about one of its domestic airline customers by making improper payments to a consultant for the domestic airline. PAC allegedly used that information to win additional business from the domestic airline. PAC characterized the payments as "legitimate consulting expenses in its books and records, and thereby caused its parent company, Panasonic, to have inaccurate books and records in violation of the securities laws.
Further, the charging documents allege that PAC employees improperly retained the services of certain sales agents, in violation of the company's internal diligence requirements, and hid payments to those agents by improperly reporting them as commission payments to a different vendor that had passed muster under PAC's compliance policies.
PAC agreed to pay a fine of $137 million to DOJ in connection with its settlement agreement. The fine represents a 20% discount from the low end of the sentencing guidelines range applicable to the conduct at issue. In announcing the settlement, DOJ noted that PAC cooperated with the DOJ's investigation, and agreed to several remedial measures including terminating the employment of a group of senior executives who were all aware of or involved in, the improper payments and the attempts to disguise them.
In a parallel administrative proceeding, PAC agreed to settle SEC charges of FCPA violations and accounting fraud by paying $143 million in disgorgement.
Commentary / Jodi Avergun
PAC paid a heavy price for waiting to cooperate with the government and for its apparent inaction in the face of fairly overt violations of its own internal policies. In addition to the hefty monetary fines, DOJ required PAC to retain an independent monitor to oversee its compliance program and report back to DOJ. Under the recently codified FCPA enforcement policy, the imposition of a monitor as part of a settlement is reserved for egregious cases. The facts underlying the PAC settlement make a useful case study for corporate compliance officials and directors of how NOT to handle payments to third-party agents.
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