[Note - because of my involvement in the below Rockwell matter while in private practice, this post is devoid of my customary commentary and analysis as to the enforcement action]
Yesterday, the SEC announced (here) a cease and desist proceeding and imposition of a cease and desist order as to Rockwell Automation, Inc.
As stated in the SEC’s order, the matter involved “violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by Rockwell, through one of its former subsidiaries in China, Rockwell Automation Power Systems (Shanghai) Ltd. (“RAPS-China”), which was divested by Rockwell in January, 2007.”
In summary fashion, the SEC found as follows.
“From 2003 to 2006, certain employees of RAPS-China paid approximately $615,000 to Design Institutes, which were typically state-owned enterprises that provided design engineering and technical integration services that can influence contract awards by end-user state-owned customers. The payments were made through third-party intermediaries at the request of Design Institute employees and at the direction of RAPS-China’s Marketing and Sales Director. RAPS-China’s Marketing and Sales Director intended that these funds be paid directly to the Design Institute employees, with the expectation that they would influence the ultimate state-owned customers to purchase RAPS products. While the Design Institutes did provide some bona fide engineering and other services in connection with RAPS-China’s end-user contracts, RAPS-China could not substantiate the specific services rendered or the value of those services. Also during the same period, employees of RAPS-China paid approximately $450,000 to fund sightseeing and other non-business trips for employees of Design Institutes and other state-owned companies.”
“Rockwell realized approximately $1.7 million in net profits on sales contracts with end-user Chinese government-owned companies that were associated with payments to the Design Institutes.”
“Rockwell failed to accurately record the payments in its books and records, and failed to implement or maintain a system of internal accounting controls sufficient to prevent and detect the payments.”
Under the heading, “Discovery, Self-Reporting and Remediation” the SEC order states as follows.
“Rockwell discovered the DI Payments and the third-party payment mechanism in 2006 through its normal financial review process. This process was part of Rockwell’s global corporate compliance/internal controls program, which had targeted China for enhanced FCPA training and scrutiny starting in 2004. Upon discovery of the issue, Rockwell hired counsel and investigated the DI Payments with the oversight of its Board of Directors. It voluntarily self-reported the DI Payments to the Commission and voluntarily provided the Commission Staff with all relevant facts found in the investigation, and otherwise cooperated with the Commission. As a result of the discovery of this matter, Rockwell undertook numerous remedial measures, including employee termination and disciplinary actions, enhancements to its internal controls and compliance program and conducted a broad, global review of its other operations.”
The SEC order further states as follows.
“In connection with the payments described above, Rockwell failed to make and keep accurate books, records and accounts as required by Section 13(b)(2)(A) of the Exchange Act.”
“Further, as evidenced by the DI Payments (as described above) and leisure travel payments, Rockwell failed to devise or maintain sufficient internal controls as required by Section 13(b)(2)(B) of the Exchange Act.”
As noted in the SEC order, Rockwell, without admitting or denying the SEC’s findings, agreed to “pay disgorgement of $1,771,000, prejudgment interest of $590,091and a civil money penalty of $400,000.”
The SEC order concludes by noting that “the Commission is not imposing a civil penalty in excess of $400,000 based upon [Rockwell's] cooperation” in the investigation.
See here for Rockwell’s press release.
The Rockwell matter represents the second time in the past month (approximately) that the SEC has resolved an FCPA inquiry via the administrative cease and desist route. See here for the prior post regarding Ball Corporation.
Other FCPA enforcement actions focused on alleged improper travel and entertainment benefits to employees of Chinese state-owned enterprises include: Lucent Technologies (see here) and UTStarcom Inc. (see here).
Other FCPA enforcement actions focused (in whole or in part) on allegedly improper payments to employees of so-called Chinese “Design Institutes” include: ITT Corp. (see here); and Avery Dennison (see here).