United States: SEC Settles Enforcement Action Against Beam Suntory for Improper Payments by Its Foreign Subsidiary

On July 2, 2018, the Securities and Exchange Commission (Commission or SEC) settled an enforcement action against Beam Suntory Inc. (Beam), a worldwide beverage maker and distributor, over alleged violations of the Foreign Corrupt Practices Act (FCPA) related to improper payments by its Indian subsidiary, Beam Global Spirits & Wine (India) Private Limited (Beam India).1 Beam was required to disgorge over $5 million in profits and pay a $2 million civil penalty, for total sanctions of more than $8 million.

Beam is alleged to have made both direct and indirect improper payments to Indian government officials in connection with inspections, distribution, licenses and registrations, and to secure advantageous product placement and promotion of its products in government and retail stores. Indian management maintained a second set of financial records to track these payments and recorded the payments with descriptions intended to disguise the true nature of the payments such as "Customer Support" and "Off-Trade Promotions."

Although the alleged improper payments appear to have been small individually, and the monetary penalties imposed by the Commission were relatively small by today's FCPA standards, the case is notable in a number of respects. Among other things:

  • In 2006, Beam, Inc., a US issuer and domestic concern, acquired Beam India. According to the Commission's papers, Beam India regularly made direct and indirect payments to Indian government officials in connection with the manufacture and distribution of its products. After the acquisition, Beam retained Beam India's management, who continued to orchestrate the alleged bribery scheme until 2012.
  • Beam, Inc., was later acquired by Suntory Holdings Limited, a Japanese corporation, and Beam delisted from the New York Stock Exchange in 2014. However, the wrongful conduct occurred while Beam was still listed, so the Commission found it appropriate to bring an enforcement action against Beam pursuant to Section 12(b) of the Exchange Act.
  • Despite numerous references to improper payments in the cease-and-desist order, the Commission charged only books and records and internal accounting controls violations. The Commission did not bring an anti-bribery charge, perhaps because there was no relevant connection to the United States.
  • The Commission made repeated references to Beam's failure to remediate red flags, noting that Beam had hired an accounting firm, a US law firm and an Indian law firm, all of which raised concerns. The Commission specifically noted a comment by a Beam lawyer that "I am concerned about [the Indian law firm] digging and finding information that we cannot impact, specifically, finding activities and practices by [promoters] that we cannot remediate or change." The Commission also noted that its earlier enforcement action against Diageo plc, which also related to improper payments by a beverage maker in India, had been brought to the attention of Beam's general counsel's office. Despite receiving recommendations from its outside advisors that more testing and review should take place, Beam elected not to do so, and the Commission criticized Beam for the scope and timeliness of its response.
  • Although the Commission stated that it considered Beam's self-disclosure, cooperation and remediation, the Commission still imposed a civil monetary penalty of $2 million, in addition to the disgorgement of $5,264,340 and the prejudgment interest of $917,498.
  • Since the publication of the Commission's order, the company has stated that it continues to cooperate with the ongoing investigation by the Department of Justice (DOJ).

The Commission's enforcement action shows again the risks inherent in making acquisitions of businesses in challenging jurisdictions. Here, a US company acquired an Indian company and did not detect or remediate conduct that subsequently created FCPA liability due to the ownership by a US issuer. A Japanese company later acquired that liability, even after delisting from the New York Stock Exchange (although presumably the Japanese acquirer was aware of the ongoing DOJ and SEC investigations when it purchased Beam in 2014). This action underscores how critical robust anti-corruption diligence and integration processes are in avoiding or mitigating corruption issues in acquired entities.

The enforcement action also shows the dangers in failing to conduct follow-up investigations and remediation when red flags are identified. While a failure to conduct audits and identify risks can create or exacerbate exposure in itself, the Commission's order shows the potential repercussions of identifying red flags through audits and reviews and then failing to adequately remediate them. The order was particularly interesting in its references to the Commission's prior enforcement action in a similar case, demonstrating the Commission's view that it expects companies to be aware of the enforcement environment and industry risks that have been identified in prior actions.

The imposition of a civil penalty by the Commission of almost 50% of the disgorgement amount after voluntary disclosure, cooperation and remediation is also noteworthy. While the Commission encourages voluntary disclosures, it is not clear from this result what benefit Beam received from the Commission by making a disclosure.

Relatedly, it is interesting that Beam resolved the case with the Commission before resolving the DOJ investigation. While companies generally prefer to resolve SEC and DOJ investigations simultaneously to avoid multiple announcements, and the SEC and DOJ have historically accommodated this, we have seen a number of matters in recent years where SEC and DOJ resolutions have been announced separately. Here, it would seem that a DOJ declination would be likely, given the DOJ's FCPA Corporate Enforcement Policy's presumption of declinations in voluntarily disclosed cases, and the DOJ's new "piling on" policy favoring taking into consideration penalties imposed by other US and foreign enforcement authorities. Because the Commission's order was entered on a neither-admit-nor-deny basis (which the Commission typically does not do where there is a criminal resolution), and because the Commission imposed a civil penalty (which the Commission often does not do if there is a criminal fine), it seems more likely than not that the DOJ will decline to prosecute. If that determination were certain, however, it is odd that the DOJ matter would still be under investigation. Only time will tell.

Footnotes

1. Order Instituting Cease-And-Desist Proceedings, In the Matter of Beam Inc., Securities Exchange Act Rel. No. 83575 (July 2, 2018).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Lillian Howard Potter
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions