Johnson Controls, a diversified technology and industrial services provider, this week entered into a $14.4 million settlement with the SEC to resolve violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act with respect to the company’s operations in China. JCI’s quick response, however, resulted in a declination with the Department of Justice.
According to the SEC’s administrative proceeding, from 2007 to 2013, the managing director and approximately 18 employees of China Marine made payments to sham vendors, some of which were then used to make improper payments of approximately $4.9 million to employees of Chinese government-owned shipyards, and ship-owners and others, to obtain and retain business, as well as to personally enrich China Marine employees.
The improper vendor payments were improperly recorded on
JCI’s books and records, and JCI failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent such payments.
The company said it is neither admitting nor denying the SEC’s findings.
As Compliance Week previously reported, Johnson Controls self-disclosed the alleged FCPA violations to the SEC and Justice Department in June 2013. Under the oversight of its audit committee and board of directors, the company said it also conducted a thorough investigation into the matter with the assistance of external legal counsel and external forensic accountants.
Remedial actions
In addition to self-reporting the alleged FCPA violations, the SEC said it considered the following additional remedial acts in reaching a settlement:
JCI provided thorough, complete, and timely cooperation throughout the investigation. JCI promptly and routinely provided the staff with the results of its investigation as it progressed, and provided all supporting documentation requested. It also provided factual chronologies, hot document binders, and interview summaries, as well as English translations of numerous documents and e-mails.
JCI made employees available for interviews. JCI provided “real-time” downloads of employee interviews and made other foreign employees available for interviews.
When the company caught a Chinese employee shredding documents, it quickly secured the office to preserve evidence. JCI’s cooperation assisted the staff’s investigation. JCI’s timely self-report as well as the thorough productions allowed the staff to initiate and complete its investigation quickly.
JCI has undertaken remedial efforts. JCI terminated or separated 16 employees implicated in or associated with the illegal scheme and placed all suspect vendors on a do-not-use/do-not-pay list. The managing director resigned from the company before JCI was alerted to the wrongdoing.
JCI has closed down its China Marine offices. Additionally, it moved all remaining China Marine employees, none of whom performs a sales or procurement function, into existing BE offices.
JCI enhanced its integrity testing and internal audits to re-evaluate vendor on-boarding for all JCI business worldwide. JCI implemented random site audits to ensure the delivery of goods on purchase orders. The random testing of delivery of goods would have tested the transactions at issue here and potentially detected the improper payments.
According to JCI, the Department of Justice also made public a letter of declination. In that letter, the Justice Department similarly cited, among other things, the company’s voluntary disclosure, thorough investigation, full cooperation, remediation and additional enhancements to the company’s internal accounting controls and compliance program.
“At Johnson Controls, integrity is at the center of everything we do,” Johnson Controls CEO Alex Molinaroli said in a statement. “The ability to identify and address issues when they do occur, reflects the company’s commitment to ethics, responsible management practices and the good governance systems that uphold them. Our continuous improvement culture also involves continuing to make those systems even stronger.”
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