Last week Juniper Networks, Inc. (JNPR) resolved their long-standing Foreign Corruption Practices Act (FCPA) enforcement action by settling with the Securities and Exchange Commission (SEC) via a Cease and Desist Order (Order). The fine paid by JNPR was $4,000,000 in disgorgement, $1,245,018 prejudgment interest, and a civil penalty of $6,500,000, for a total payment of $11,745,018.

The conduct involved two of the company’s business units, Russia and China. In Russia, the conduct occurred from 2008 until 2013 and in China the conduct began in 2009 and continued until 2013 as well. The bribery schemes were different in each country but they provide significant points for every Chief Compliance Officer (CCO) and compliance practitioner to study and consider.

In Russia, from 2008 through 2013, employees of the company’s subsidiary, JNN Development Corp. (JNN) secretly agreed with third party channel partners to increase the discounts on sales made to customers. However rather than passing the discounts back to the customers, the channel partners diverted the additional discounts into an off-book fund held by the channel partners. These funds were referred to as “common funds” and were directed in part by JNN sales representatives.

These common funds were used in part to pay for customer trips, including trips for government officials, some of which were predominately leisure in nature and had little to no educational or business purpose. This travel was also to locations where there were no JNN facilities or industry conferences related to Juniper’s business. Perhaps most damningly, “In late 2009, Juniper learned of these off-book “common fund” accounts and improper use of additional discounts, both of which were prohibited under Juniper policies. Despite this, JNN’s off-book accounts, funded through diverted additional discounts, and improper travel practices continued through 2013.”

The trips paid for with these common funds included sightseeing tours, amusement parks, national park excursions and meals and entertainment for customers and their family members. JNN employees communicated the corrupt purposes of these off-book trips via email. In one instance, in an internal communication seeking approval for a five day international sightseeing trip, a JNN employee explained that the “purpose of the trip” was to meet with a “top [state-owned customer] manager to speed up Q2 bookings,” and as such this employee directly linked the trip and future bookings. In another instance, a JNN employee asked to take a state-owned customer on a seven-day leisure trip to the US, explaining his belief that if the trip was not approved, “Juniper would lose customer sales.”

The biggest problem for JNPR was its response to all of the above. When the corporate headquarters found out about these acts of bribery and corruption, they took some very problematic steps. The Order stated, “In late 2009, a then member of senior management initially learned that JNN employees in Russia had created off-book accounts that were funded in part by improperly obtaining incremental discounts, both violations of Juniper policies. Although Juniper instructed JNN employees to discontinue these practices, Juniper’s overall remedial efforts were ineffective, and JNN employees continued these practices through 2013.” Here it even seemed as if the company was not serious about stopping the FCPA violative conduct. The Order noted, “At times, these JNN employees used personal communication devices instead of corporate email, in one instance cautioning each other to “not write about additional discounts in exchange for something else via e-mail.””

In China, the bribery scheme was one well-known which we have previously seen in several FCPA enforcement actions and also the Chinese domestic corruption enforcement action involving GlaxoSmithKline PLC (GSK). From 2009 through 2013, employees incorrectly listed the true amount of entertainment involved on the trips. The amount charged was excessive and inconsistent with JNPR internal company policy. In addition to falsified expenses, local Chinese marketing employees also created false agendas for trips provided to end-user customer employees. These falsified trip agendas understated the true amount of entertainment involved on the trips.

The China business unit employees, then submitted these falsified and misleading trip agendas to JNPR’s Legal Department to obtain event approval. In contravention of the company’s review and approval policy, the Legal Department approved numerous trips without adequate review and after the event had taken place. There was nothing in the Order which spoke to the efficacy of the Legal Department review around the falsified expenses.

These bribery schemes are instructive for every compliance professional. The Russia example once again points to several FCPA enforcement actions involving distributors and other third parties creating slush funds through which bribes were paid or at the very least the monies spend could not be traced. The creation of these off-books accounts are an issue that every compliance professional needs to be cognizant.

It also points to another critical issue in compliance – follow the money. But it is more than simply following the money internally; in the case of JNPR, that would mean successfully auditing the various funds of the company’s subsidiaries. This enforcement action begs the question of what controls does your organization have in place to ascertain that discounts provided to customers actually are rebated to those customers? This is the where post contract-execution management comes into play. Compliance does not end when a contract is signed but compliance oversight must continue during the entire contract lifecycle.

The final area of instruction from the violative conduct was the failure of the Legal Department to ascertain the fraud perpetrated by the Chinese business unit. It is not surprising the corporate Legal Department approved the fraudulent invoices, given the difficulty audit organizations, such as at GSK, are unable to unmask similar frauds at their entities. The company was on notice that red flags had appeared in China so heightened scrutiny was appropriate, yet it failed.

In both the Russia and Chinese business units, red flags had appeared and the company was aware of problematic conduct. Yet, perhaps other than speaking sternly to those business units involved, apparently there was no other substantive action taken. The message is if you uncover such conduct, there must be greater actions than simply speaking sternly to those involved. Not only must you put controls in place to prevent the conduct you are aware of from continuing to occur; you must also have more robust detect controls.

The JNPR FCPA enforcement has several important features that inform best practices compliance programs. You should not only study it for the lessons to be garnered but also use it as a benchmark to see what is happening with the discounts being given to your company’s customers. Are your organization’s customers actually receiving discounts or rebates due them? Finally, while you should always speak sternly to your employees NOT to engage in bribery and corruption, you had also better enhance your internal controls to make sure they adhere to your stern statements.

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© Thomas R. Fox, 2019