We continue our exploration of the Foreign Corrupt Practices Act (FCPA) enforcement action involving Panasonic Avionics Corporation (PAC) and its parent Panasonic Corporation (Panasonic). Today, I want to explore what actions led to PAC receiving a 20% discount from the minimum range suggested under the US Sentencing Guidelines.

The penalty assessed was approximately $280 million broken down into a $137 million payment by the company’s US unit, PAC, in criminal penalties to the Department of Justice (DOJ). The Japanese parent, Panasonic, agreed to pay disgorgement of $126,900,000 and prejudgment interest of $16,299,018.93, for a total payment of $143,199,018.93 to the Securities and Exchange Commission (SEC). The DOJ resolution documents included a Deferred Prosecution Agreement(DPA) and a Criminal Information(the Information). The SEC issued a Cease and Desist Order(the SEC Order). Both the DOJand SECalso issued Press Releases.

As I have previously noted, this matter involved massive bribery and corruption schemes, for nearly 15 years, with the participation of top management at PAC. Two of these men left the company in 2017. They were Chief Executive Officer (CEO) Paul Margis and Vice President of Finance/Chief Financial Officer (CFO) Paul Bottiaux. The corruption schemes encompassed airlines across the globe and even domestically in the US. In addition to the bribery and corruption, the conduct was also anti-competitive in nature. It certainly appears that such illegal conduct was a part of the overall business strategy and business plan of the US subsidiary. It almost begs the question of why there were no individual prosecutions. From the parent company perspective, while there were no individuals identified, one can only wonder how closely, if at all, they were watching their money-making US subsidiary from the compliance perspective.

However, at some point, the company found religion and decided that violating the law as a business strategy was not the way to move forward. Obviously, PAC was aware of potential FCPA violations as far back as 2009 when PAC’s internal audit department flagged that services providers where (1) hired without following procurement department processes; (2) contracted with no oversight; and (3) paid without delivering anything tangible to PAC. The initial internal audit report stated, “consultant payments should be carefully reviewed in light of FCPA regulation [sic] due to lack of clarity in deliverables” [bold in Information] and was circulated to PAC senior management but this highlighted language was removed from the final audit report.

The DPA also noted that PAC was made aware of the allegations by a “whistleblower complaint and civil lawsuit, which the Company took steps to investigate internally.” However, as the DPA dryly noted, PAC “chose not to voluntarily report to the relevant authorities”. The DPA went on to state, “The Company did not receive voluntary disclosure credit because the Company’s disclosures occurred only after the Securities and Exchange Commission requested documents from Panasonic related to possible violations of anti-corruption laws.”

Once when it did gain that old time (FCPA) religion, PAC conducted a “thorough internal investigation; making factual presentations to the Fraud Section; providing facts learned during witness interviews conducted by the Company; voluntarily making U.S. and foreign employees available for interviews in the United States with the Fraud Section and the SEC; in one instance, proactively alerting the Fraud Section to material information relevant to the investigation; collecting, analyzing, and organizing voluminous evidence from multiple jurisdictions; and disclosing to the Fraud Section conduct in the Middle East of which the Fraud Section was previously unaware.”

PAC also engaged in significant remediation. The above-mentioned CEO and CFO left the company. Additionally, caused “several senior executives who were either involved in or aware of the misconduct to be separated” even if it was in a manner which the DOJ characterized as “in some respects untimely”. The company enhanced and “committed to continuing to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth” in the best practices compliance program found in Attachment C to the DPA. Although not part of the penalty calculation set out in the DPA, the SEC Order provided additional information on PAC’s conduct, noting the entity afforded cooperation to the SEC “in the later stages of the staff’s investigation.”, the company “replaced the senior PAC executives involved in the violations”. It also “established an Office of Compliance and Ethics led by a new Chief Compliance Officer, implemented new compliance and accounting procedures, and enhanced internal accounting controls.”

In the DPA listing of the Culpability Score under the USSG, it stated, “The organization fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct.” For the conduct, PAC’s overall liability was reduced by a factor of ‘minus 2’. The highest score on this factor can be a ‘minus 5’. However under the 2017 FCPA Corporate Enforcement Policy it states, in the section entitled Limited Credit for Full Cooperation and Timely and Appropriate Remediation in FCPA Matters Without Voluntary Self-Disclosure,the following, “If a company did not voluntarily disclose its misconduct to the Department of Justice (the Department) in accordance with the standards set forth above, but later fully cooperated and timely and appropriately remediatedin accordance with the standards set forth above, the company will receive, or the Department will recommend to a sentencing court, up to a 25% reduction off of the low end of the U.S.S.G. fine range.” [emphasis mine]

One can only conclude that the religion PAC found after the SEC delivered it a subpoena met this threshold.

Tomorrow I will wrap up my consideration of the Panasonic FCPA enforcement action with lessons learned from it, contrasting it with the actions of Dun & Bradstreet Inc. (D&B) who received a full declination.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2018