In December 2007, Lucent Technologies Inc. (Lucent) agreed to settle Department of Justice and Securities and Exchange Commission FCPA enforcement actions related to the improper recording of travel expenses and other things of value to employees of Chinese state-owned enterprises (SOEs) (individuals deemed "foreign officials" under the FCPA).
According to the government, from at least 2000 to 2003, Lucent spent over $10 million on approximately 315 trips to the U.S. (and other countries) for over 1,000 employees of Chinese SOEs that had a disproportionate amount of sightseeing, entertainment and leisure. While the trips were ostensibly designed to allow the Chinese SOE employees to inspect Lucent's factories and to train the individuals in using Lucent's equipment, it was alleged that the individuals spent little or no time in the U.S. visiting Lucent's facilities, but instead visited tourist destinations throughout the U.S., such as Hawaii, Las Vegas, the Grand Canyon, Niagara Falls, Disney World, Universal Studios, and New York City. The trips were funded by Lucent China through its sales department and logistical and administrative assistance was provided by company employees located in the U.S. According to the government, Lucent employees knew that by including business aspects to the trip, they could help the Chinese visitors obtain visas or get through immigration controls in the U.S. In addition, Lucent acknowledged spending over $100,000 during the relevant time period on "educational opportunities" for relatives or associates of Chinese officials. Such expenditures included: (i) paying for tuition and living expenses for an employee of a government ministry to obtain a master's degree in China, (ii) paying for a deputy general manager of a Chinese SOE to obtain an MBA in China; and (iii) funding an internship for the daughter of a Chinese government official to work at the Chinese embassy in the U.S. According to the government, Lucent improperly recorded expenses for these trips in its books and records and failed to maintain adequate internal controls to monitor the travel expenses and other things of value given to the Chinese SOE customer.
Based on this conduct, Lucent entered into a two-year non-prosecution agreement with the DOJ under which the company agreed to pay a $1 million fine. Pursuant to the agreement, the DOJ will not prosecute Lucent for the underlying conduct if Lucent complies with the provisions of the agreement, including the requirement that the company enhance its internal controls and policies and procedures to detect and deter future violations of the FCPA. In a related SEC enforcement action, and based on the same conduct, Lucent was charged with violating the FCPA books and records and internal control provisions. According to the SEC, expenses for the majority of the trips were booked by the company under a "Factory Inspection" account (even though the Chinese SOE customers often did not even visit a Lucent factory at any time during the trip) or were otherwise booked as "services rendered - other services," "transportation international," "lodging" or "other services." The SEC further alleged that even though the Chinese SOE employees were specifically identified by the company, "Lucent China's internal controls provided no mechanism for assessing whether any of the trips violated the FCPA [and] Lucent employees made little or no inquiry regarding whether the Chinese visitors were government officials under the FCPA, and no Lucent policies or controls were triggered with respect to whether the entertainment and leisure activities Lucent paid for could constitute things of value under the FCPA, or whether the purpose of the visit may have violated the anti-bribery provisions of the FCPA." Without admitting or denying the SEC's allegations, Lucent agreed to pay a civil penalty of $1.5 million.
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