On September 2016, the Securities and Exchange Commission declined to bring an enforcement action against Harris Corporation for violating the Foreign Corrupt Practices Act.
Robert Kent Jr.
Baker & McKenzie
Last month, the Justice Department followed and also declined to bring an enforcement action.
Robert W. Kent Jr., a partner at Baker & McKenzie in Chicago, represented Harris in the case.
“This is the first time that in a pure FCPA investigation that a multinational corporation has avoided prosecution entirely while one of its former employees was sanctioned for FCPA violations that created clear potential FCPA liability for the company,” Kent wrote in a recent client advisory. “Morgan Stanley received a declination while its former employee was prosecuted for FCPA violations, but that case involved self dealing by the employee, a factor not present in the Harris case.”
“By issuing a declination to Harris while charging its former employee with having paid $1 million in bribes, the enforcement authorities have matched their rhetoric with deeds, and have demonstrated the real benefit to companies of an effective compliance program, voluntary disclosure, and substantial cooperation. The Harris declination shows how the acquisition of a company, even one that represents a small portion of an acquirer’s total revenue, can expose the acquirer to potential substantial FCPA liability — and how effective anti-corruption due diligence and post-closing integration can significantly mitigate that risk.
The investigation grew out of Harris’ acquisition of CareFx Corporation in April 2011.
CareFx had a wholly-owned subsidiary in China that was in the business of developing and selling electronic patient medical records software to Chinese health agencies and hospitals.
The chairman and CEO of CareFx China was Jun Ping Zhang.
The SEC alleged that, after the acquisition, Ping (who was also a Harris employee) caused CareFx China to provide between $200,000 and $1 million in improper gifts to Chinese health officials, who awarded $9.6 million in contracts to CareFx China.
Ping allegedly concealed the gift giving scheme from Harris by causing CareFx China’s employees to describe the gift expenses in CareFx China’s accounting records as “entertainment,” “office supplies,” and “transportation.”
Kent reports that Harris discovered the scheme as a result of its post-acquisition integration efforts, conducted an internal investigation, and voluntarily disclosed the investigation to the Department of Justice and the SEC in August 2012.
After making its voluntary disclosure, Harris closed all of CareFx China’s sales operations in September 2012.
Ping paid $46,000 to settle /sec charges that he violated the FCPA.
“FCPA commentators have justifiably been suspicious of the claims from the Department of Justice and the SEC that they will reward companies who have a strong compliance program and who respond to allegations of misconduct by voluntarily disclosing and cooperating,” Kent wrote. “With the Harris declination, the enforcement authorities have finally supported their claims with real action. Ping, while a Harris employee, engaged in a scheme to provide up to $1 million in improper gifts to Chinese health officials in order to gain $9.6 million in contracts. In previous years, that sort of conduct would have resulted in a costly enforcement action against Harris, regardless of whether the scheme had been actively concealed. The fact that Harris was able to obtain a declination in this situation — without any allegation that Ping had also stolen from Harris — is a significant development that changes the voluntary disclosure calculus.”