American voice and video communication technology provider Polycom, Inc. (Polycom), headquartered in California, recently agreed with the U.S. Securities and Exchange Commission (SEC) to pay USD 10.7 million in disgorgement of profits earned from alleged FCPA violations over an eight-year period. It also agreed to pay prejudgment interest of USD 1.8 million, and a penalty of USD 3.8 million. Polycom did not admit or deny the SEC’s allegations. In addition to the SEC settlement, the U.S. Department of Justice (DOJ) recently declined to prosecute Polycom. Polycom agreed with the DOJ to pay USD 10.15 million in disgorgement to the U.S. Postal Inspection Service Consumer Fraud Fund and USD 10.15 million to the U.S. Treasury Department.
During the relevant period, Polycom’s products were sold in China by distributors engaged by Polycom Communications Solutions (Beijing) Co., Ltd (Polycom China). These distributors sold Polycom’s products to resellers, who sold them on to end users.
According to the SEC, Polycom China’s distributors obtained business from public-sector customers in China by offering and making cash payments to government officials who exercised influence over those customers’ purchasing decisions. When a distributor sought to make such a payment, according to the SEC, it requested that Polycom provide it with a discount on the equipment that was to be sold to the public-sector customer.
Also according to the SEC, Polycom China’s senior managers directed sales personnel to enter data concerning sales opportunities, deals, and the requested discounts into a separate sales management system, outside of Polycom’s centralised, company-approved systems. Sales personnel were directed to use non-Polycom email addresses when discussing these deals with distributors. Polycom China’s senior managers approved the discounts in this separate system, knowing that they were not passed on to the end customer, but were instead used to make improper payments to Chinese government officials. Polycom China’s senior managers then recorded information about each deal in Polycom’s centralised sales database. These entries falsely attributed the discounts to purportedly legitimate purposes so as to mislead competitors. Polycom personnel outside of China were unaware of the existence of this parallel system.
The SEC accused Polycom of failing to devise and maintain adequate controls to ensure that the reasons recorded for discounts in the centralised sales system were accurate. Polycom consequently failed to devise and maintain sufficient accounting controls to detect whether the use of product discounts was being used as a vehicle for funding improper payments to government officials.
Polycom was also accused of failing to translate anti-corruption training materials into Mandarin, and for not following up on the non-attendance of Polycom China’s personnel at anti-corruption training. Furthermore, the SEC blamed Polycom China for not completing a due diligence review of a distributor that, years prior, on a deal unrelated to Polycom, had made an improper payment to a Chinese government official.
In the settlement, the SEC considered Polycom’s self-disclosure and its appointment of outside counsel to conduct an independent investigation, subsequently sharing its findings. Significance was attributed to Polycom voluntarily producing all documents requested by the SEC, translating a large volume of documents into English and ensuring that its employees were available for interviews.
Polycom took extensive remedial measures. It terminated the employment of eight individuals and disciplined 18 others. Polycom also ended its relationship with one of its channel partners, and required personnel changes with several others. Other remedial measures included improving anti-corruption and other related training, and hiring additional personnel, including in China, to enhance oversight.
The American broker-dealer and investment advisor, UBS Financial Services, Inc. (UBSFS), a Delaware corporation with its principal place of business in New Jersey, agreed with the SEC to pay USD 5 million as a penalty for allegations of not filing Suspicious Activity Reports (SAR) over a 26-month period. UBSFS separately agreed to pay USD 10 million to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the Financial Industry Regulatory Authority (FINRA) to resolve parallel allegations. UBSFS did not admit or deny the SEC allegations, except to the extent that they appeared in the settlement with FinCEN.
UBSFS offers brokerage accounts that allow customers to move funds via wires, journals, cheque writing, ATM withdrawals and cash advances. These products and services present additional money-laundering risks not typically associated with brokerage-only accounts. In addition, UBSFS provided these services to non-resident alien (NRA) customers who often engage in cross-border money movements, including to and from high-risk jurisdictions, using off-shore shell companies or personal investment companies for complicated fund movements.
UBSFS’s anti-money laundering policies recognised that NRA accounts presented greater money-laundering risk than domestic accounts. According to the SEC, the UBSFS programme to detect suspicious activity on NRA accounts was inadequate as the parameters were too narrow.
Analysts detected some, but not all, suspicious activity. Alerts were closed where a SAR should have been filed. The SEC states that analysts reviewed transactions on a stand-alone basis, and not within the context of a longer-term pattern of activity on a customer’s account. Consequently, according to the SEC and in violation of the law, UBSFS failed to file SARs on suspicious transactions.
In the settlement, the SEC considered the substantial remedial acts undertaken by UBSFS, which had upgraded and enhanced its oversight of the AML surveillance monitoring system, set minimum experience requirements for its AML monitoring staff, and provided extensive training.
Barclays Bank PLC and its New York branch (Barclays) recently agreed with the New York State Department of Financial Services (DFS) to pay a penalty of USD 15 million. The CEO of Barclays had attempted to identify the author(s) of two anonymous whistleblowing letters which criticised his role, and that of Barclays’ management, in the recruitment and employment of a recently-hired senior executive.
The CEO’s primary motivation in seeking to identify the author(s) was apparently to protect the new executive, who was a friend and colleague, from a complaint which the CEO believed to be false and malicious. According to the DFS, the CEO’s efforts to identify the anonymous author(s) contravened Barclays’ whistleblowing policies and procedures, and the advice he received from several senior executives.
The investigation, according to the DFS, revealed shortcomings in governance, controls and corporate culture relating to Barclays’ whistleblowing function. The DFS found that the tone at the top of the organisation was improper and, although Barclays’ annual whistleblowing training requirements applied to all employees, they exempted most senior management and board members from attending.
In addition to the penalty, Barclays agreed to take several remedial actions. Barclays were obliged to submit: a written plan to ensure the implementation of enhanced internal controls, a compliance programme related to whistleblowing and a plan to improve the board’s oversight of that programme.
The CEO has apologised for his personal involvement. The DFS has recognised and appreciated the steps he took to accept responsibility for his actions. The U.K. Financial Conduct Authority and the U.K. Prudential Regulation Authority jointly fined the CEO GBP 642,430 last year.
The Brazilian Fifth Chamber for Coordination and Review and Anti-corruption has recently accepted a leniency agreement between SBM Offshore and the Brazilian Federal Prosecutor’s Office (MPF) relating to alleged improper sales practices.
Following the Fifth Chamber’s approval, the MPF and SBM Offshore will jointly request the Federal Court to formally close the improbity lawsuit previously filed by the MPF, including the associated provisional measure to secure payment of potential damages. Upon closure of that lawsuit, the leniency agreement will become fully effective, after which SBM Offshore will pay the earlier announced fine of BRL 200 million (approximately USD 54 million).
The leniency agreement with the MPF followed a similar leniency agreement signed by SBM Offshore last year with other Brazilian Authorities and Petrobras. Upon signing, this recent leniency agreement became final, allowing SBM Offshore to effectively compete for new business opportunities in Brazil.