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Entries in Lucent (12)

Tuesday
Jan292008

Most Corruption Comes From Abroad, Says China

A Special Warning For U.S. Companies

As China battles indigenous corruption, it's also spotlighting foreign and especially U.S. companies that are importing illegal practices into the PRC. A story in the Chinese press in December 2007 said, "According to a report by local consulting company Anbound, of the 500,000 bribery cases investigated in China over the last 10 years, 64 percent involved foreign companies." It mentioned allegations involving Lucent Technologies Inc., IBM, Cisco and NCR. Four of Lucent's employees in China, the story reported, were apparently fired in 2004 for violating the Foreign Corrupt Practices Act. The story quotes a Beijinger as saying: "I cannot understand after many foreign companies complain about corruption and bribery in China, then why are they doing similar things?"

Official statistics about corruption from the PRC can be dodgy. But any discussion about foreign companies involved or suspected of being involved in corrupt payments, and the naming of some U.S.-based headliners, may mark an important new strategy. Presumably, China will use the foreign companies' names to defend itself against charges from the U.S. and OECD that its anti-corruption enforcement is lax. Most of our corruption, China will argue, actually came from you first. We're the victim here.

One result is that foreign companies -- particularly those subject to the FCPA -- will be very attractive targets during the PRC's Olympic-year anti-corruption campaign. That means it's a good time to put China-related compliance programs on high alert.

Meanwhile, Chinese President Hu Jintao told leaders of the Communist Party that the country's anti-corruption drive remains a top priority. President Hu -- who also serves as general secretary of the Communist Party of China Central Committee -- spoke at the organization's important three-day plenary session in mid-January. "Anti-corruption measures and the upholding of integrity should run thoroughly through the nation's economic, political and cultural makeup and the Party's ideological, organizational, work style and institutional building," he said. In typical PRC practice, President Hu's speech became a "guideline document to enhance the work of anti-corruption and upholding of integrity," the communique said.

By June 2007, some 24,879 cases of official corruption had been investigated in the PRC, the communique said. The cases involved bribes totaling more than 6.156 billion yuan (US$860 million). Government employees were involved in 5,523 bribery cases, accounting for 22.2 percent of those caught, the communique said. For example, He Minxu, former vice-governor of eastern Anhui Province, was sentenced to death with a two-year reprieve for taking bribes of 8.41 million yuan (US$1.12 million) from 27 organizations and individuals, the latest senior official to be brought down in a corruption scandal. Another case cited was that of Zheng Xiaoyu, former director of China's State Food and Drug Administration. He was executed in July 2007 and was the fourth senior official to be sentenced to death since 2000. Zheng was found guilty of taking 6.49 million yuan (US$910,000) in bribes. When he was sentenced, the Supreme People's Court said his dereliction of duty undermined China's drug monitoring and supervision, endangered public life and health and had a very negative social impact. Speculation in China and elsewhere is that some of the bribes Zheng took came from foreign companies.

View articles from the December 12, 2007 edition of China Daily Here and January 17, 2008 edition Here.

Friday
Dec212007

Lucent Settles FCPA Violations For $2.5 Million

It Misused Affirmative Defense For Promotional Expenses

Lucent Technologies Inc. settled U.S. Foreign Corrupt Practices Act charges with the Department of Justice and the Securities and Exchange Commission for $2.5 million. The settlement includes a $1 million criminal fine and $1.5 million in civil penalties. Lucent's violations involved promotional expenses for Chinese government officials. The FCPA includes an affirmative defense that allows payment or reimbursement of expenses of foreign officials that are directly related to “the promotion, demonstration, or explanation of products or services." 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A). Many of Lucent's payments, however, were not directly related to legitimate business purposes and were not recorded accurately in its books and records.

According to the DOJ, from at least 2000 to 2003, Lucent -- a global communications company that became part of Alcatel SA in November 2006, after the violations occurred -- spent millions of dollars on approximately 315 trips for Chinese government officials that included primarily sightseeing, entertainment and leisure. These trips were requested and approved with the consent and knowledge of the most senior Lucent Chinese officials and with the logistical and administrative assistance of Lucent employees in the United States, including at corporate headquarters in Murray Hill, N.J. Lucent improperly recorded expenses for these trips in its books and records and failed to provide adequate internal controls to monitor the provision of travel and other things of value to Chinese government officials.

Lucent provided Chinese government officials with pre-sale trips to the United States to attend seminars and visit Lucent facilities, as well as to engage in sightseeing, entertainment and leisure activities. In 2002 and 2003 alone, there were 24 Lucent-sponsored pre-sale trips for Chinese government customers. Of these, at least 12 trips were mostly for the purpose of sightseeing. Lucent spent over $1.3 million on at least 65 pre-sale visits between 2000 and 2003. The individuals participating in these trips were senior level government officials, including the heads of state-owned telecommunications companies in Beijing and the leaders of provincial telecommunications subsidiaries.

Between 2000 and 2003, Lucent also provided Chinese government officials with post-sale trips that were typically characterized as “factory inspections” or “training” in contracts with its Chinese government customers. By 2001, however, Lucent had outsourced most of its manufacturing and no longer had any Lucent factories for its customers to tour. Nevertheless, Lucent provided individuals with trips for “factory inspections” to the United States, Europe, Australia, Canada, Japan and other countries that involved little or no business content. These trips consisted primarily or entirely of sightseeing to locations such as Disneyland, Universal Studios, the Grand Canyon, and in cities such as Los Angeles, San Francisco, Las Vegas, Washington, D.C., and New York City, and typically lasted 14 days each and cost between $25,000 and $55,000 per trip.

The DOJ's non-prosecution agreement requires Lucent to adopt new or modify existing internal controls, policies and procedures. Those enhanced internal controls must ensure that Lucent makes and keeps fair and accurate books, records and accounts, as well as a rigorous anti-corruption compliance code, standards and procedures designed to detect and deter violations of the FCPA and other applicable anti-corruption laws. Lucent will not be prosecuted if it complies with all of the requirements contained in the agreement for two years.

View other posts about promotional expenses Here.

View the DOJ's December 21, 2007 release Here.

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