Digital telecommunications maker Qualcomm this week reached a $7.5 million settlement with the Securities and Exchange Commission to resolve charges that it violated the Foreign Corrupt Practices Act by hiring relatives of Chinese government officials. These officials were in positions to decide whether to select Qualcomm’s mobile technology products amid increasing competition in the international telecommunications market.
An SEC investigation found that Qualcomm also provided gifts, travel, and entertainment to try to influence officials at government-owned telecom companies in China. “With insufficient internal controls to detect improper payments, Qualcomm misrepresented in its books and records that the things of value provided to foreign officials were legitimate business expenses,” the SEC said.
“Companies must effectively design and implement internal controls across all business operations to prevent FCPA violations, including its hiring practices,” said Michele Wein Layne, director of the SEC’s Los Angeles regional office. “For more than a decade, Qualcomm went to extraordinary lengths to gain a business advantage with foreign officials deciding between Qualcomm’s technology and its competitors.”
According to the SEC order, Qualcomm offered and provided full-time employment and paid internships to foreign officials’ family members internally referred to as “must place” or “special” hires in order to try to obtain or retain business in China. One official asked Qualcomm employees to find an internship for her daughter studying in the U.S. and the company obliged, acknowledging in internal communications that her parents “gave us great help for Q.C. new business development.”
In another example, Qualcomm provided a $75,000 research grant to a U.S. university on behalf of the son of a foreign official so he could retain his position in its Ph.D. program and renew his student visa. Qualcomm also provided him an internship and later permanent employment, and sent him on a business trip to China (during which he visited his parents over the Chinese New Year) despite concerns expressed about his qualifications for the assignment.
Qualcomm also provided frequent meals, gifts, and entertainment with no valid business purpose to foreign officials to try to influence their decisions, such as airplane tickets for their children, event tickets and sightseeing for their spouses, and luxury goods.
Without admitting or denying the findings, Qualcomm agreed to pay the $7.5 million penalty and self-report to the SEC for the next two years with annual reports and certifications of its FCPA compliance.