Japan-based electronics company Panasonic will pay more than $143 million to settle charges with the Securities and Exchange Commission of violating the Foreign Corrupt Practices Act (FCPA) and engaging in accounting fraud involving its global avionics business. It further charged the company of having insufficient internal controls, which has become a more common component of FCPA charges by the agency, under the “books and records” provision of the law.
The U.S. Department of Justice also announced that PAC would pay a criminal penalty of more than $137 million as part of a deferred prosecution agreement related to causing books and records violations of the FCPA.
According to the SEC’s order, Panasonic’s U.S. subsidiary, Panasonic Avionics Corp. (PAC), which provides in-flight entertainment and communication systems, offered a lucrative consulting position to a government official at a state-owned airline to induce the official to help it obtain the airline’s business. At the time it orchestrated the bribery scheme, PAC was negotiating two agreements with the airline valued at more than $700 million. PAC ultimately retained the official and paid approximately $875,000 for a position that required little-to-no work. The SEC also accused the company of using an unrelated third-party vendor to conceal the payments.
The SEC’s order also found that Panasonic fraudulently overstated pre-tax and net income by prematurely recognizing more than $82 million in revenue for the fiscal quarter ending June 30, 2012. PAC carried out the fraud by backdating an agreement with the airline and providing misleading information to PAC’s auditor, the SEC charged.
‘Insufficient Internal Controls’
The SEC order further found that Panasonic lacked sufficient internal accounting controls and failed to make and keep accurate books and records in connection with purported consultants retained by PAC, as well as sales agents used to solicit business from state-owned airlines and other customers throughout the Middle East and Asia.
“Investors rightfully expect that the companies they invest in will not engage in bribery or fraud,” said Antonia Chion, associate director of the SEC’s Enforcement Division. “Issuers must implement effective controls for the selection and engagement of consultants and agents to ensure compliance with anti-bribery statutes.”
“Issuers need to ensure that their rules and controls address the specific bribery and corruption risks they face when operating in global markets with customers that are state-owned entities,” said Charles Cain, chief of the Enforcement Division’s FCPA unit. “It is not enough for a company merely to set up policies and procedures that are not enforced or are easily circumvented by employees.”
Panasonic consented to the SEC’s order finding that it violated the anti-bribery, anti-fraud, books and records, internal accounting controls, and reporting provisions of the Securities Exchange Act of 1934, and ordering it to pay approximately $143 million in disgorgement and pre-judgment interest. 