Two China subsidiaries of computer software company PTC today reached a combined $28 million settlement with the Department of Justice and the Securities and Exchange Commission to resolve an investigation of potential violations of the Foreign Corrupt Practices Act in China.
The company agreed to pay a $14.5 million criminal penalty to the Justice Department, along with $11.8 million in disgorgement and $1.764 million in prejudgment interest to the SEC through an administrative order. “PTC failed to stop illicit payments despite indications of potential corruption by agents working with its Chinese subsidiaries, and the misconduct continued unabated for several years,” Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, said in a statement.
According to admissions made in the resolution documents, Parametric Technology (Shanghai) Software Company and Parametric Technology (Hong Kong), through local business partners, arranged and paid for employees of various Chinese state-owned enterprises to travel to the United States, ostensibly for training at PTC’s headquarters in Massachusetts, but primarily for recreational travel to other parts of the United States, including New York, Los Angeles, Las Vegas, and Hawaii.
“PTC China paid a total of more than $1 million through its business partners to fund these trips, while during the same time period, PTC China entered into more than $13 million in contracts with the Chinese state-owned entities. Company employees typically accompanied the Chinese officials on these trips,” according to the Justice Department. “PTC China admitted that the cost of these recreational trips was routinely hidden within the price of PTC China’s software sales to the Chinese state-owned entities whose employees went on the trips.”
As Compliance Week previously reported, the FCPA investigation related to an SEC subpoena PTC received in May 2014. The company first disclosed settlement talks with the Justice Department and SEC in February 2014.
NPA and DPA
As part of a non-prosecution agreement with the Justice Department, PTC China also agreed to continue to cooperate, to enhance its compliance program, and to periodically report to the Justice Department on the implementation of its enhanced compliance program.
The Department said it weighed numerous factors in resolving the case. Among those factors, PTC China did not receive voluntary disclosure credit or full cooperation credit because, at the time of its initial disclosure, it failed to disclose relevant facts that it had learned in connection with a prior internal investigation and did not disclose those facts until the Justice Department uncovered additional information independently and brought them to PTC China’s attention. By the conclusion of the investigation, however, the companies had provided to the department all relevant facts known to them, including information about individuals involved in the FCPA misconduct.
The SEC also announced its first deferred prosecution agreement with an individual in an FCPA case. DPAs facilitate and reward cooperation in SEC investigations by foregoing an enforcement action against an individual who agrees to cooperate fully and truthfully throughout the period of deferred prosecution. The SEC said FCPA charges will be deferred for three years against Yu Kai Yuan, a former employee at one of PTC’s Chinese subsidiaries, as a result of “significant cooperation” he provided during the SEC’s investigation.