Corruption Crime & Compliance 3M's SEC FCPA Settlement
3M’s recent $6 million settlement with the SEC for violating the FCPA serves as a stark reminder of the risks global companies face in today's economy and underscores the crucial role of ethics and compliance programs. In this episode of Corruption, Crime and Compliance, Michael Volkov sheds light on the unethical conduct that led to legal repercussions and offers valuable insights into compliance, bribery mitigation, and the importance of tight control over official visits.
You’ll hear Michael talk about:
- 3M Corporation, a global company, was found to have made improper payments to Chinese healthcare officials employed by state-owned enterprises. These payments were disguised as expenses for attending overseas conferences and educational events.
- The scheme involved deceptive tactics where 3M presented these events as educational, but in reality, they included tourism and entertainment activities. This included creating fake agendas and hidden tourism components.
- Employees at 3M's China operations colluded with travel agencies to set up alternative itineraries that combined tourism activities with the purported educational events. Chinese officials either did not attend the educational events or missed significant portions of them. 3M China employees tracked the impact of these events on the company's sales. The costs of these trips were improperly recorded as legitimate business expenses, resulting in 3M benefiting by at least $3.5 million in increased sales.
- In the aftermath of this ethical breach, 3M took crucial steps towards remediation through self-reporting, cooperation with the investigation, and taking disciplinary actions such as terminating employees involved, severing relationships with travel agencies, and enhancing controls over cross-border fund transfers.
KEY QUOTES
“But 3M made payments to Chinese healthcare officials from state-owned enterprises or hospitals or healthcare delivery systems to attend overseas conferences, educational events, and healthcare facility visits. And these were paid for presumably as permissible educational events, but they actually were pretexts to provide overseas travel, sightseeing, and entertainment or tourism activities.” - Michael Volkov
“3M employees accompanied the Chinese officials on the tourism activities, and the tourism activities included guided tours, shopping visits, day trips to nearby sites, and other leisure activities.” - Michael Volkov
“This case also reminds me of a case several years ago called Johnson Controls, where the local China operation was able to secure funding and engaged in a sort of collusion process by which they sought funds and expenditures for less than $5,000. And they did that because it didn't require corporate approval above just the local level.” - Michael Volkov
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