August 25, 2023

US manufacturer pays $6.5 million to settle FCPA books and records violations

On August 25, 2023, the US Securities and Exchange Commission announced a Foreign Corrupt Practices Act (“FCPA”) settlement with 3M Company whereby the Minnesota-based manufacturer agreed to pay over $6.5 million in disgorgement, prejudgment interest, and civil penalties.  In settling the matter, 3M did not admit or deny the SEC’s findings.

The SEC Order describes a scheme in which employees of a Chinese subsidiary of 3M, 3M-China Ltd., colluded with two travel agencies to provide overseas trips for Chinese government officials between 2014 and 2017.  The SEC Order states that 3M-China Ltd. employees created fake itineraries that included various legitimate business, training, and marketing activities that were submitted to 3M-China Ltd.’s compliance personnel.  The SEC Order further states that the focus of the trips was actually entertainment and tourism, as certain 3M-China Ltd. employees created “alternate itineraries” that were hand delivered or communicated via WeChat to the government officials.  As evidence of the improper purpose of the trips, the SEC noted that (1) tourism activities were scheduled in the alternate itineraries for the same time as the educational events; (2) the educational events were in English and many of the government officials did not speak English (and arrangements were not made for translators); and (3) the government officials missed whole days of the educational events or never attended at all.  The SEC alleged there were at least 24 such trips, and that they were recorded improperly in 3M’s books and records, which described the expenses as legitimate business expenses without any reference to tourism or entertainment.

According to the SEC, 3M-China Ltd. employees arranged for 3M to pay one of the travel agencies directly, with the travel agency then using these funds to offset some of the costs of the tourism and entertainment.  The SEC claimed that 3M provided the funds to the travel agency without allocating the money to particular projects, and without sufficient oversight as to how the funds were used.  According to the SEC, 3M “improperly benefited by at least $3.5 million in increased sales” as a result of the entertainment and tourism.

The SEC found that 3M’s conduct violated the books and records and internal controls provisions of the FCPA.  In assessing the appropriate sanctions to be imposed, the SEC took into consideration the company’s prompt self-reporting of the misconduct as soon as it was discovered, 3M’s voluntary production of documents and translations, and its willingness to make witnesses available for interviews.  The SEC also noted that the Company kept the SEC staff abreast of the progress and findings of its own internal investigation, and undertook remedial measures such as terminating employees implicated in the misconduct, terminating its relationship with the travel agencies that were complicit in the scheme, and enhancing its internal controls and compliance program.

The SEC order requires that 3M cease and desist from future violations and pay disgorgement of $3,538,897, prejudgment interest of $1,042,721, and a civil money penalty of $2 million.

SEC press release | Order