Show Notes for Episode 26, week ending October 14, 2016-the East Lansing Edition

  1. World Bank Debarments- as reported on the FCPA Blog;
  2. Spanish pharma Grifols lands its second DOJ declination-as reported on the FCPA Blog;
  3. Wells Fargo CEO Stumpf resignation and botched crisis management-as reported in the WSJ;
  4. First FCPA Mock Trial Institute-for information and registration, click here;
  5. Fox/Scher presentation at FCPA Blog NYC Conference-for information and registration click, here. Best of all, for listens of this podcast you are entitled to a 20% discount off the regular price. You can access the discount by clicking here.
  6. Jay Rosen Weekend Report and
  7. Patriots seal home field advantage with two consecutive Denver losses.

john-fogertyI recently saw John Fogerty in concert. For those you are not aware, he was a founding member and the driving force behind Creedence Clearwater Revival (CCR), one of the very top American groups from the 1960s and early 1970s. After the band’s disintegration, Fogerty continued on as a solo artist. CCR was distinctive in that its rock and roll roots were Stephen Foster as much as anyone and in the middle of the British invasion brought a uniquely American sound with a very hard edge. From the anthem of Vietnam vets, Who’ll Stop the Rain, to the greatest Halloween song Bad Moon Rising (that is – after Boris Karloff’s version of the Monster Mash); CCR brought serious American root chops to rock.

Fogerty continues to rock out and played a 2.5 hour set straight through from his opening song of Proud Mary to his encore performances of Travelin’ Band, Bad Moon Rising and Fortunate Son; it was one great night of rock and roll for any who listened to music in the 60s or 70s. His son played lead guitar for him and it was very obvious that Fogerty had a father’s joy in working with his son. If he comes to your town, I suggest you run, don’t walk, to the show.

Fogerty’s performance informs today’s blog post about the recent Foreign Corrupt Practices Act (FCPA) enforcement action brought by the Securities and Exchange Commission (SEC) against Nu Skin Enterprises Inc. (Nu Skin) and its Chinese subsidiary, Nu Skin (China) Daily Use & Health Products Co. Ltd. (Nu Skin China). Nu Skin is a Utah based entity, which, according to the SEC Cease and Desist Order (Order), is “in the business of manufacturing and marketing cosmetic and nutritional products primarily through direct selling, or multi-level marketing [MLM], channels.”

Although it was a relatively small enforcement action with a civil money penalty in the amount of $300,000, coupled with a disgorgement profits in the amount of $431,088, plus prejudgment interest of $34,600, the matter has several interesting aspects for the Chief Compliance Officer (CCO) or compliance practitioner to consider. First, although it might seem somewhat unusual for such an entity to become embroiled in a FCPA enforcement action it is the uniqueness of it that points to several lessons to be garnered by any company doing business under a MLM sales model. Next the case involved corruption around a charitable donation and it, therefore, serves as a stark reminder of the high-risk of charitable donations under the FCPA. Finally, the matter reminds everyone of the strict liability nature of violations of the Accounting Provisions of the FCPA including both internal control provisions and books and records provisions of the Act.

The allegations are that Nu Skin China made a donation which totaled approximately $154,000 to a charity in China to secure the intercession of a Chinese Communist Party (CCP) official to stop an ongoing investigation of the company. Nu Skin China had engaged in direct selling in China, in violation of Chinese domestic law, and was under investigation by the Administration of Industry and Commerce.

Nu Skin China decided, rather than comply with the law, it would seek to influence the investigation through corrupt means. According to the Order, “A Nu Skin China employee contacted the Party Official, who was his acquaintance, to suggest a charity located in the province. The Party Official had a pending request to Nu Skin China to facilitate obtaining college recommendation letters to U.S. universities from an influential U.S. person for his child. The Party Official proposed a charity, although at the time a branch of the charity had not yet been established in the province and it had no operations there. The Party Official, however, was associated with the entity that was responsible for establishing the charity in the province. Further, the provincial head of the AIC had previously reported to the Party Official.” Not only was a donation to the Party officials suggested charity made by but “the request for the recommendation letters was elevated to “top priority” as it was “becoming increasingly important” for Nu Skin China. Nu Skin US subsequently reported to Nu Skin China that it had secured an agreement from an influential U.S. person to write the college recommendation letters for the Party Official’s child.”

Nu Skin China did not inform its US parent of the true nature of the donation; to wit, to corruptly influence the AIC investigation and proposed fine of approximately $485K. Because of the size of the donation, the US parent had to approve and advised its Chinese subsidiary that such a “large donation in China could pose FCPA risks, so it advised Nu Skin China to consult with outside U.S. legal counsel based in China to ensure that the donation complied with the FCPA. Outside counsel, in turn, recommended that Nu Skin China include anti-corruption language, which included language regarding the illegality of influencing government officials, in the written donation agreement with the charity. That language was inserted into a draft of the donation agreement between Nu Skin China and the charity. The anticorruption language, however, was removed from the final version of the donation agreement that Nu Skin China executed. Nu Skin US was not aware that the language had been removed.”

All of this presents several significant and important lessons for the CCO and compliance practitioner. There was no evidence that Nu Skin self-reported so it is not clear how the SEC was made aware of the FCPA violation. However, it is not too far a stretch to opine that the Chinese government could have tipped off the SEC. The case also demonstrates that it is every transaction that matters as this enforcement action was for a one-time transaction. Ongoing due diligence, compliance terms and conditions in contracts and monitoring the relationship after the contract is signed are mandatory for any high-risk transaction. This donation had been flagged by the US entity as high-risk yet there was no oversight by the US entity to make sure that the compliance mandates were followed.

This enforcement action also reinforces the need for robust management of FCPA high-risk charitable donations. As was noted in the Order, “given the well-known corruption risks in China, Nu Skin US did not ensure that adequate due diligence was conducted by Nu Skin China with respect to charitable donations to identify links to government or political party officials and to prevent payments intended to improperly influence such persons in violation of the company’s anticorruption policy and the FCPA.” The reason there are levels of oversight in any best practices compliance program is to prevent just this type of FCPA violation from occurring. It really does not matter if the China subsidiary misrepresented to the US parent both what it was doing and then failed to follow specific instructions. Oversight is there to make sure that internal rules and procedures are followed. That is the responsibility of the US parent.

Finally, companies need to understand the strict liability nature of enforcement actions involving Accounting Provision violations of the FCPA. The statute itself refers to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” as the SEC had interpreted this portion of the FCPA to set a reasonableness standard. If there are payments which violate the FCPA, there were not sufficient internal controls to prevent them. It may sound like very backward logic but that is the reality of SEC enforcement actions and it points directly to the need for companies to have functioning internal compliance controls in place.

John Fogerty took me back many years to some great music I listened to and indeed loved as a teenager. The Nu Skin FCPA should remind every CCO and compliance professional that vigilance must be maintained in any high-risk country or high-risk transaction, even if you are selling through MLM. Failure to follow through with all required compliance program steps, including oversight from the home corporate office, can lead to serious consequences.


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

© Thomas R. Fox, 2016




Show Notes for Episode 25, week ending October 7, 2016-the Krakow Edition

  1. Breakdown of GSK Foreign Corrupt Practices Act settlement with SEC and declination from the DOJ, click here for SEC Order and here for commentary in the in the FCPA Compliance and Ethics Blog;
  2. The SCCE 2016 Compliance Effectiveness Survey, click here for the survey;
  3. My interview with Professor Sam Buell on the FCPA Compliance Report,
  4. Wells Fargo clawbacks from CEO John Stumpf and Carrie Toldstet, as reported in the Financial Times and in the New York Times and here for my commentary;
  5. The International Gaming Tech (IGT) SEC penalty, which is the first enforcement action for relational only, as reported in the FCPA Blog; and
  6. Jay previews his Weekend Report.

oscar-meyer-wienerLast week a true American original died when Richard Trentlage passed away. If you do not know his name you certainly know signature contribution to American culture, the Oscar Meyer Weiner Song. Rather amazingly Trentlage wrote the jingle in response to a contest sponsored by the Oscar Meyer Wiener Company for a new theme in 1962 and did so in an hour. According to his  obituary in the New York Times the song “debuted in 1962 a3 and became the company’s signature advertising tune in 21 English speaking countries until 2010.” Moreover the “song became a part of the fabric of American culture, with airings on the children’s television show ‘Captain Kangaroo’, on the cartoon ‘The Jetsons’ and on an episode of the ‘The Simpsons’ in 1990. The song and its writer were true American originals.

Another original was in the news last week when the UK pharmaceutical giant GlaxoSmithKline PLC resolved its outstanding Foreign Corrupt Practices Act (FCPA) issues with its settlement with the Securities and Exchange Commission (SEC) by agreeing to pay $20 million civil penalty when China-based subsidiaries spent millions of dollars on pay-to-prescribe schemes for several years to pump up sales. Even more amazingly the company received a declination from the Department of Justice. I say even more amazingly because at the time of the conduct at issue, GSK was under a Corporate Integrity Agreement, the pharma equivalent of a Deferred Prosecution Agreement. The CIA required GSK not only to obey laws (and to pay bribes) but have a functioning compliance program in place, which the company obviously did not give one whit about, at least in China.

For those who have long forgotten our friends over at GSK (hum the Oscar Meyer Wiener theme now) they were four or five major corruption scandals ago, way back in the summer of 2013 when news broke that the Chinese  government had accused the company of five years of institutional bribery and corruption. Senior GSK business unit leaders were arrested and GSK claimed to be shocked, just shocked that anyone would accuse it of bribery and corruption, especially after just paying the US government $3bn for false labeling products. Yet the corruption continued even after being reported by an anonymous whistleblower (cleverly monikered GSK Whistleblower) the company was not able to turn up any indicia of bribery and corruption in its China business in six months of looking.

As lightly as GSK apparently took these allegations, the Chinese authorities took them very seriously and in a few months of investigation turned up the massive and pervasive bribery scheme. They put numerous senior GSK China employees under house arrest and even managed to illicit a confession or two on public television.

All of this led to a secret trial in August 2014 where the company was fined approximately $490MM and the four top executives of GSK China were convicted. The non-Chinese citizens were deported. There was even a sex tape aspect to the matter but it was somewhat tangential to the case and (apparently) not a part of the SEC enforcement action. Most interestingly the SEC Order did not mention the fine paid in China and it is not part of the Order, although surely the SEC took it into account. At least I hope so.

Yet the SEC enforcement was not without some interest. The Order noted, “Between at least 2010 and June 2013, employees and agents of GSK’s China-based subsidiary and a China-based joint-venture engaged in various transactions and schemes to provide things of value to foreign officials, including healthcare professionals (“HCPs”), in order to improperly influence them and increase sales of GSK products in China.  This misconduct was facilitated in part by the use of collusive third parties that ostensibly provided legitimate travel and other services. The funds used for the improper inducements were frequently obtained under the guise of, and falsely recorded in GSK’s books and records as, legitimate travel and entertainment expense, marketing expense, speaker payments, medical associations payments, and promotion expense. Throughout this period GSK failed to devise and maintain a sufficient system of internal accounting controls and lacked an effective anticorruption compliance program. The deficiencies in GSK’s internal accounting controls and compliance program also led to instances of similar improper conduct in connection with sales in other countries in which GSK operates.”

Yet we learned more in the SEC Order about GSK China’s bribery scheme. One emphasis was the China business unit wide pervasiveness of the corruption. The Order noted that bribes were actually written into sale plans for the company, stating, “a 2013 work plan submitted by a sales representative to a regional sales manager described the intent to pay, among other things, an HCP RMB 20/box of prescribed product every month, and deliver appropriate gifts on each holiday in exchange for a guarantee of more than 40 boxes of prescribed product every month.”

There was also some attempt to investigate the conduct of the China business unit but they all failed uncover the systemic bribery of GSK China. One set of investigations noted, “During this period, local internal audit and compliance reviews identified controls deficiencies and evidence of some mechanisms that were used to fund the improper payments, but they were treated as isolated instances rather than signs of a larger problem.”

Even more damning was the following, “As early as 2010, internal audit identified problems related to sales and promotions staff practices in China. Among other findings it noted: [d]uring 2010, several new policies governing commercial activities such as grants and donations and sponsorships were introduced. The significant changes, combined with the high staff turnover, contribute to an environment where many commercial and medical staff do not understand how to apply policies or the rationale behind them. This was evidenced by approval of non-compliant activities, a lack of clarity on which policy to apply for activities such as grants, and weaknesses in documentation to support the legitimate intent of activities such as advisory.”

One wonders whether the internal audit staff was simply not competent to properly identify the bribery and corruption or if they simply knew not to look with any more depth or seeing their findings as “signs of a larger problem.” However given the finality of these resolutions with the SEC and DOJ, it is doubtful there will be any further investigations going forward as to GSK’s China issues.

Nevertheless the matter continues to present multiple lessons to be learned for the compliance practitioner. Assuming one wants to actually find nefarious conduct, stop it and then remediate it, GSK in China presents several lessons on what to look for and how to move forward. The SEC Order also re-emphasizes the bribery schemes used by the company. What the SEC Order and DOJ declination may ultimately symbolize is the end of a long and sordid affair for the company.

One might also consider the damage the scandal did to the parent company and the legacy of the soon-to-retire chief executive Sir Andrew Witty. While the scandal did not reach either the corporate parent in England and certainly not Sir Andrew, the $490MM fine in China and the $20MM fine in the US, pale beside the true cost to GSK, which was its sales targets in China. GSK had targeted the over $30 bn Chinese medical product and services market to be 20% of GSK total revenue by 2020. That strategy is now in tatters as the Chinese prosecution made GSK a non-entity in the Chinese health care market. Any transaction involving GSK involving a Chinese health care provider, invites government scrutiny. It is far easier for health care providers to purchase pharmaceuticals, health care products and medical services from companies which have not gone through such a prosecution.

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

© Thomas R. Fox, 2016



Show Notes for Episode 24, week ending September 30, 2016-the SCCE Edition

  1. Misonix discloses possible FCPA violations, as reported in the FCPA Blog:
  2. The Anheuser-Busch InBev SEC FCPA enforcement action, click for the SEC Order;
  3. Och-Ziff SEC FCPA enforcement action, click for the SEC Order,
  4. HMT LLC and NCH Corp receive Declinations yet are required to disgorge profits, for the HMT Declination letter, click here and for the NCH Declination letter click here;
  5. Final thoughts by Tom and Jay on the recently concluded SCCE 2016 Compliance and Ethics Institute; and
  6. Jay previews his Weekend Report.