This week, the SEC and Justice Dept. resolved another FCPA enforcement action, this one involving Johnson Controls, Inc. (JCI). This case continues the path set up by the new Justice Dept. Pilot Program and three subsequent FCPA enforcement actions, Akamai Technologies, Inc. and Nortek, Inc. and Analogic Corp.; where the Justice Dept. issued a Declinations to Prosecute the first two companies and the third received a non-prosecution agreement. Clearly, the Justice Dept. is communicating that companies will see significant benefits if they follow the precepts set out in the Pilot Program.
JCI made serious missteps in its compliance program and was the unlucky recipient of a Chinese business unit bent on doing business in complete violation of the FCPA. JCI acquired the Chinese unit, China Marine, through an acquisition. The company recognized the FCPA issues present at the time of acquisition and terminated those involved. However, the new set of employees brought in to to run China Marine were just as bad, if not worse. According to the SEC Cease and desist order, the new team created “a multi-stepped arrangement that required the complicity of nearly the entire China Marine office from the managing director, to the sales managers, the procurement managers and finally to the finance manager.”
JCI accepted over $11.8 million in profits as a result of approximately $4.9 million in improper payments made by China Marine. JCI agreed to disgorge these profits, pay pre-judgment interest of $1,382,561 and a civil penalty of $1,180,000 for a total amount of $14,362,561. Yet again we see a Declination issued by the Justice Dept. Bob Dylan was right, (as often cited by Mike Volkov) that it does not take a weatherman to see which way the wind is blowing for companies. The Justice Dept. is communicating that if your company comes in and self-discloses, cooperates and extensively remediates and remits the profits it generated a Declination may well be issued.
The fact that JCI’s entire Chinese business unit was in on the bribery conspiracy certainly does not reflect well the company. If you cannot even determine what is going on in your own business, it may be time for management to take a look in the mirror, or at least go back to school.