Juniper Networks, a networking and cyber-security solutions provider, has reached an $11.7 million settlement with the Securities and Exchange Commission for violations of the Foreign Corrupt Practices Act concerning its sales practices in Russia and China.
The settlement includes $4 million disgorgement; a $6.5 million civil penalty to the SEC; and pre-judgement interest of $1.2 million. In February 2018, Juniper had disclosed in a securities filing that the Department of Justice had closed its FCPA investigation into the company and would not be bringing an enforcement action, but it is unclear when the investigation began.
In its Aug. 29 administrative order, the SEC charged Juniper with violations of the internal accounting controls and record-keeping provisions of the FCPA.
Allegations of improper travel practices in Russia
From 2008 to 2013, certain sales employees of the Russian representative office of Juniper’s subsidiary JNN Development (JNN) allegedly misrepresented to senior management the need for increased discounts to meet competition. These JNN sales employees secretly agreed with third-party channel partners to increase the incremental discount on sales made to customers through those channel partners without passing those increased discounts on to customers, according to the SEC.
Instead, the channel partners diverted the additional discounts into a fund held by the channel partners for travel and marketing expenses, the SEC states. These off-book funds were referred to as “common funds” and were directed, in part, by JNN sales representatives.
The proceeds from the “common funds” were allegedly used, in part, to pay for customers’ trips, including trips for government officials. Many of these trips were predominately leisure in nature and had little to no educational or business purpose, the SEC explains. Included in the customer travel paid for through the “common fund” were instances of customer travel for foreign officials to various locations where there were no Juniper facilities or industry conferences related to Juniper’s business.
In late 2009, Juniper learned of these off-book “common fund” accounts and improper use of additional discounts, both of which were prohibited under Juniper policies. Despite this, JNN’s off-book accounts, funded through diverted additional discounts, and improper travel practices allegedly continued through 2013.
Allegations of improper travel practices in China
Additionally, from 2009 through 2013, certain sales employees of Juniper’s Chinese subsidiaries falsified trip and meeting agendas for customer events that understated the true amount of entertainment involved on the trips, according to the SEC. The sales employees allegedly submitted these falsified and misleading trip agendas to Juniper’s legal department to obtain event approval. In violation of Juniper’s travel policies, Juniper’s legal department approved numerous trips without adequate review and after the event had taken place.
Juniper failed to accurately record the incremental discounts and travel and marketing expenses in its books and records and failed to devise and maintain a system of internal accounting controls to prevent and detect off-book accounts, unauthorized customer trips, falsified travel agendas, and after-the-fact travel approvals, the SEC states.
Juniper’s remedial actions included revising its compliance policies and making enhancements to its compliance group. The company has realigned its compliance function into an integrated unit, all reporting into a “newly created and empowered” chief compliance officer.
Other measures Juniper has taken include:
- Creating an independent and expert investigations function;
- Implementing a mandatory escalation policy to ensure that the company’s board is informed of serious issues;
- Instituting mandatory due diligence and prior approval processes by the compliance department of channel partners and other vendors;
- Instituting a compliance preview and required pre-approval of non-standard discounts and required pre-approval for third-party gifts, travel, and entertainment, channel partner marketing expenses, and even certain operating expenses in high risk markets; and
- Conducting additional employee training on anti-corruption issues and improving its processes for conducting internal investigations of potential violations of anti-corruption laws.