SEC Says Large Alcohol Producer to Pay over $16M for FCPA Violations
On July 27, 2011, the Securities and Exchange Commission charged London-based Diageo plc, one of the world’s largest producers of premium alcoholic beverages, with widespread violations of the Foreign Corrupt Practices Act (FCPA) stemming from more than six years of improper payments to government officials in India, Thailand, and South Korea. Diageo agreed to pay more than $16 million to settle the SEC’s charges.
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Allegedly Paid over $2.7M in Bribes to Obtain Customs, Sales & Tax Benefits
The SEC alleges that Diageo paid more than $2.7 million through its subsidiaries to obtain lucrative sales, customs, and tax benefits relating to its Johnnie Walker and Windsor Scotch whiskeys, among other brands. The illicit payments allegedly include:
- $1.7M to Indian officials to authorize sales. The company is alleged to have made more than $1.7 million in illicit payments to hundreds of government officials in India from 2003 to mid-2009. The officials were responsible for purchasing or authorizing the sale of its beverages in India, and increased sales from these payments yielded more than $11 million in profit for the company.
- $600,000 to Thai official for customs, tax disputes. The SEC found that from 2004 to mid-2008, Diageo paid approximately $12,000 per month -- totaling nearly $600,000 -- to retain the consulting services of a Thai government and political party official. This official lobbied other high-ranking Thai government officials extensively on Diageo’s behalf in connection with pending multi-million dollar tax and customs disputes, contributing to Diageo’s receipt of certain favorable decisions by the Thai government.
- $86K to Korean officials for tax rebates, etc. Diageo also allegedly paid 100 million in Korean currency (more than $86,000 in U.S. dollars) to a customs official in South Korea as a reward for his role in the government’s decision to grant Diageo significant tax rebates. Diageo also improperly paid travel and entertainment expenses for South Korean customs and other government officials involved in these tax negotiations. Separately, Diageo routinely made hundreds of gift payments to South Korean military officials in order to obtain and retain liquor business.
SEC Says Diageo Lacked Internal Controls, Concealed Payments
The SEC’s order found that Diageo and its subsidiaries failed to properly account for these illicit payments in their books and records. Instead, they concealed the payments to government officials by recording them as legitimate expenses for third-party vendors or private customers, or categorizing them in false or overly vague terms or, in some instances, failing to record them at all. Diageo lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting.
Diageo Cooperated with Investigation, Implemented Remedial Measures
Diageo cooperated with the SEC’s investigation and implemented certain remedial measures, including the termination of employees involved in the misconduct and significant enhancements to its FCPA compliance program. The company also agreed to cease and desist from further violations of the FCPA’s books and records and internal controls provisions.