Criminal and supervisory authorities regularly settle enforcement actions. In light of these developments, we advise companies to take appropriate measures. This month we highlight the settlement of Las Vegas Sands Corp. with the Securities and Exchange Commission for allegedly violating the Foreign Corrupt Practices Act. According to the official press release, this company paid a Chinese consultant more than USD 62 million for his intermediary services and advice regarding certain projects in China. But the underlying documentation and authorisation for these payments, however, was allegedly lacking. Similar to previous settlements, we once again emphasise the importance of observing the FCPA's books and records provisions and having an effective compliance programme in place.
The SEC announced that Las Vegas Sands Corp. (LVS), the owner of resorts and casinos in Asia and the United States, had agreed to pay a USD 9 million civil penalty for allegedly violating the FCPA. The settlement also includes the appointment of an independent consultant for a two-year period. According to the SEC, LVS had insufficient internal accounting controls for its business in China and Macao between 2006 and 2011. This lack of controls allegedly led to the transfer of payments to a Chinese consultant without proper authorisation and documentation. Moreover, multiple payments were made while LVS senior management knew that the company could not account for previous transfers. LVS neither denied nor confirmed the SEC's findings, but the company did emphasise that the settlement was not based on findings of bribery or corruption.
In 2006, LVS hired a Chinese consultant to advise and assist LSV in certain projects in China. The press release focused firstly on the purchase of a professional basketball team. Because of strict regulations for game companies, LVS itself could not own a team. According to the SEC, LVS used the consultant as a "cover" to buy the team while LVS presented itself as a sponsor. After a Senior Director of Finance questioned the lack of documentation underlying repeated transfers to the consultant and, therefore, their legitimate purpose, he was placed under administrative leave while the transfers continued to be approved. Moreover, the transfers were allegedly also falsely recorded in LVS' books and records.
Furthermore, LVS wanted to build a resort which required government approval, and the president of LVS believed that involving a Chinese company would further this. A state-owned entity was therefore approached to be part of the deal. Since LVS could again not purchase the building itself due to the strict regulations for gaming companies, the consultant was allegedly used as a cover to buy the building from the state-owned enterprise. According to the SEC, LVS did not thoroughly consider this purchase, and many employees supposedly suspected it was solely based on political motives. Again, multiple payments were allegedly made to the consultant without sufficient authorisation.
Apart from its conduct in China, LVS also set up a ferry service from China to Macao. According to the SEC, this ferry service had an entertainment budget where government officials were allegedly given envelopes containing cash around Chinese New Year. Supposedly, the entertainment was required to obtain ferry routes. Company policy regarding entertainment was not enforced and, in addition, it was allegedly deliberately circumvented by employees.
The SEC emphasises in the LVS agreement that it took LVS' cooperation with its investigation into account. LVS shared the results of its own investigation with the SEC, facilitated interviews with foreign witnesses, and translated key documents. Furthermore, LVS took multiple compliance measures, including the establishment of a Board of Directors Compliance Committee, an update of all relevant policies, and development of anti-corruption training. This "credit" for cooperating and sharing results with the SEC fits with recent statements of the current SEC Chair, Mary Jo White. White has emphasised the importance of companies communicating and sharing information with the SEC. White has also called compliance personnel "the first line of defence for investors" and has emphasised that all companies should have an effective compliance programme and "systems to govern and supervise all of their employees". The LVS settlement proves that the FCPA can also be violated by not sufficiently enforcing policies and procedures against bribery and corruption. Companies should ensure that their anti-bribery and corruption policies are followed by personnel in all transactions.
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