3M has agreed to pay more than $6.5 million to settle U.S. charges that its Chinese subsidiary secretly sent Chinese officials on paid trips to the United States and Australia in an effort to boost company sales.
At least one former 3M China marketing manager and several staff from the sales, marketing, and professional services departments were involved in the scheme.
With the aid of two Chinese travel agencies, those 3M China employees targeted influential officials working at state-owned Chinese entities, creating a fake itinerary to get approval from the company’s compliance personnel—along with an alternative set of tourism activities near the event venue to entertain the Chinese officials.
The tourist destinations included Los Angeles, Nashville, Boston, Chicago, and Sydney, and sometimes, the officials’ spouses joined the trip. In a nine-day tour involving 11 Chinese officials through three cities, the official agenda was packed with educational events while the alternative itinerary had “primarily tourism activities.” At least some Chinese officials didn’t understand English and weren’t provided interpreters necessary for them at the educational events.
The SEC said 3M China paid nearly $1 million for 24 such trips and measured whether these payments were driving up sales.
Chinese Travel Agency
Between February 2016 and September 2018, 3M also paid a Chinese travel agency a total of $254,000 in 15 payments for vaguely termed “marketing” efforts, according to the SEC.The 3M employees then improperly recorded these costs as legitimate business expenses.
The tourism activities were scheduled at the same time as the events that the officials were supposedly attending, and at times, the Chinese officials missed whole days of the events or simply never attended at all.
3M has agreed to pay the fine without admitting or denying the findings.
The company told The Epoch Times it found out in 2018 that “certain employees had circumvented established procedural controls and company ethics policy to arrange prohibited entertainment activities, such as guided tours and shopping visits, to foreign government officials.” It had reported the issue to the U.S. government and fully cooperated with its investigation, a 3M representative said.
According to the SEC, 3M “promptly self-reported” its employees’ misconduct after first learning about it. The consumer products giant assisted the federal regulator by making witnesses available for interviews, voluntarily translating relevant documents, and sharing facts uncovered by its own internal investigation.
3M subsequently took remedial measures, including disciplining employees involved in the misconduct, terminating its relationship with Chinese travel agencies, and enhancing its internal controls environment and compliance program.
FCPA Cases
“This matter highlights the dangers to companies with global operations posed by inadequate internal accounting controls,” Charles Cain, chief of the SEC’s Foreign Corrupt Practices Act (FCPA) Unit, said in a statement about 3M’s settlement.“Those dangers were exacerbated here by complicit third-party vendors.”
In one incident, a district sales manager at Philips China provided $14,500 to a hospital director in return for the director’s help during the procurement process.
During the six-year plan, Philips China had “insufficient internal accounting controls” to prevent and detect its employees’ misconduct.
Altogether, Philips was “unjustly enriched” by about $41 million, according to the SEC.
Quad’s Chinese subsidiary in Shanghai used sham sales to “make and promise improper payments to employees of private and government customers to secure business,” according to the SEC.
As a result of its schemes, Quad was “unjustly enriched” by about $7 million, the SEC said.