3M Agrees to Pay Over $6.5 Million to Settle Foreign Corrupt Practices Act Charges

In a move to resolve allegations of violating the Foreign Corrupt Practices Act (FCPA), the Securities and Exchange Commission (SEC) has announced that 3M will pay more than $6.5 million. The charges stem from violations of the books and records as well as internal controls provisions of the FCPA.

The SEC's order outlines that employees of a 3M wholly owned subsidiary located in China were involved in orchestrating arrangements for Chinese government officials, who were employed by state-owned health care facilities, to attend conferences, educational events, and health care facility visits overseas. These arrangements were purportedly a part of the subsidiary's marketing and outreach efforts. However, the actual intention of these events was often to provide Chinese government officials with overseas travel opportunities, including leisure and tourism activities, with the goal of inducing them to purchase 3M products.

The order specifies that between 2014 and 2017, the Chinese subsidiary of 3M facilitated overseas travel for Chinese government officials that included leisure activities such as guided tours, shopping visits, and day trips. Notably, some of these tourism activities were scheduled concurrently with the events that the officials were supposed to attend. There were instances where Chinese officials either missed portions of the events or didn't attend them altogether. In some cases, the events were conducted in English, making it difficult for officials who didn't understand the language or had inadequate translation services.

The Chinese subsidiary allegedly disbursed nearly $1 million to fund around 24 trips for Chinese government officials, combining tourism activities and product promotion events.

To gain approval for these trips, employees at the Chinese subsidiary created travel itineraries for officials, which seemingly included legitimate events. However, in collaboration with Chinese travel agencies, they also drafted alternate itineraries featuring tourism activities near the locations of the educational events. These alternate itineraries were then presented to the Chinese officials who were unaware of the hidden agenda. The employees further manipulated internal compliance documents by omitting references to the tourism activities.

In addition, between February 2016 and September 2018, the Chinese subsidiary arranged for 3M to directly transfer $254,000 to a Chinese travel agency to assist in funding some of the inappropriate tourism activities.

Commenting on the matter, Charles Cain, Chief of the SEC's FCPA Unit, underscored the importance of robust internal accounting controls for companies with global operations and highlighted the added risk posed by complicit third-party vendors.

As part of the settlement, 3M has agreed to a cease and desist order, refraining from future violations of the specified provisions. The company will also pay a civil penalty of $2 million and disgorge $4,581,618, along with prejudgment interest. This settlement underscores the need for corporations to adhere to stringent anti-corruption measures and internal controls to prevent misleading practices that could compromise transparency and integrity.