Tokyo-based Hitachi today reached a $19 million settlement with the Securities and Exchange Commission to resolve charges that it violated the Foreign Corrupt Practices Act by inaccurately recording improper payments to South Africa’s ruling political party in connection with contracts to build two multi-billion dollar power plants.
According to the SEC's complaint, Hitachi sold a 25 percent stake in a South African subsidiary to a company serving as a front for the African National Congress (ANC). This arrangement gave the front company and the ANC the ability to share in the profits from any power station contracts that Hitachi secured.
Hitachi ultimately was awarded two contracts to build power stations in South Africa and paid the ANC’s front company approximately $5 million in “dividends” based on profits derived from the contracts, the SEC said. Through a separate, undisclosed arrangement, Hitachi paid the front company an additional $1 million in “success fees” that were inaccurately booked as consulting fees without appropriate documentation.
“Hitachi’s lax internal control environment enabled its subsidiary to pay millions of dollars to a politically-connected front company for the ANC to win contracts with the South African government,” said Andrew Ceresney, Director of the SEC’s Enforcement Division. “Hitachi then unlawfully mischaracterized those payments in its books and records as consulting fees and other legitimate payments.”
The SEC’s complaint, filed in U.S. District Court for the District of Columbia, finds that Hitachi was aware that Chancellor House Holdings was a funding vehicle for the ANC during the bidding process, and nevertheless continued to partner with Chancellor and encourage the company to use its political influence to help obtain government contracts from Eskom Holdings SOC, a public utility owned and operated by the South African government. Additionally, Hitachi paid “success fees” to Chancellor for its exertion of influence during the Eskom tender process pursuant to a separate, unsigned side-arrangement, according to the complaint.
Hitachi’s misconduct violated the books and records and internal accounting controls provisions of the federal securities laws. In reaching a settlement, which is still subject to court approval, Hitachi did not admit or deny the SEC’s allegations. In addition to the $19 million penalty, Hitachi will be permanently enjoined from future violations.
In a statement, Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit acknowledged the assistance of the African Development Bank’s Integrity and Anti-Corruption Department. “We particularly appreciate the assistance we received from the African Development Bank’s Integrity and Anti-Corruption Department and hope this is the first in a series of collaborations,” she said.