Landmark SEC Decision Cites Compliance, Diligence in Decision Not to Prosecute FCPA Violations

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In a remarkable affirmation of the value of robust compliance and due-diligence programs, the Securities and Exchange Commission last month announced that it would not prosecute a U.S. company for potential violations of the Foreign Corrupt Practices Act, even as the agency charged an officer of the company with bribing Chinese officials.

The SEC’s decision is believed to be the first of its kind; in every previous case where it moved to prosecute an employee for FCPA violations, the agency charged the employer as well. But in the case of Harris Corp., a multinational communications and technology company, the SEC decided not to prosecute--specifically pointing to Harris’s compliance programs and cooperation. Full disclosure, Harris is a client of NAVEX Global.

The SEC’s announcement said:

Although only able to perform limited pre-acquisition due diligence on the subsidiary, Harris took immediate and significant steps after the acquisition to train staff in China and integrate the subsidiary into Harris’s system of internal accounting controls. As a result of Harris’s post acquisition measures, including the implementation of an anonymous complaint hotline, Harris discovered the misconduct at the subsidiary within five months of the acquisition. [Emphasis added]

The investigation arose from Harris’s acquisition of CareFX Corp., which sells electronic medical-record software around the world. After the acquisition, Harris’s internal auditors discovered what looked to them like a scheme to bribe Chinese public officials. After a full investigation by Harris’s law firm and NAVEX Global partner, Baker & McKenzie, confirmed that suspicion, the company reported its findings to the SEC and Department of Justice. The DOJ decided not to prosecute.

The SEC’s has been widely cited as evidence that federal authorities are making good on their recent promises of support for companies that self-report wrongdoing and maintain strong compliance policies and programs. The agency’s statement on the Harris decision went on to say:

The SEC determined not to bring charges against Harris, taking into consideration the company’s efforts at self-policing that led to the discovery of Ping’s misconduct shortly after the acquisition, prompt self-reporting, thorough remediation, and exemplary cooperation with the SEC’s investigation.                                                                         

That language, and the SEC’s action on the Harris case, should vanquish any lingering doubt about the value of creating and implementing strong compliance policies, reporting systems and employee training programs.

We’ll provide more analysis of this important moment soon. 


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