In February 2009, ITT Corporation ("ITT"), a New York-based multi-industry company with stock listed on the New York Stock Exchange, agreed with the SEC to settle an enforcement action charging it with violations of the FCPA's books and records and internal controls provisions. According to the SEC complaint, the violations resulted from payments made by ITT's wholly-owned Chinese subsidiary, Nanjing Goulds Pumps Ltd. ("NGP"), to Chinese government officials.
According to the SEC's complaint, between 2001 and 2005, NPG made, either directly or indirectly through third-party agents, approximately $200,000 in payments to employees of Chinese Design Institutes ("DIs") (some of which were Chinese state-owned entities ("SOEs") and assisted in the design of large infrastructure projects in China) in connection with one or more contracts for thirty-two different SOE customers. The SEC alleges that NGP employees agreed to the payments to induce the DIs to formulate request for proposals ("RFPs") that contained specifications corresponding to NGP manufactured pumps. According to the SEC, NGP and the DI employees understood that after the DIs received NGP's response to the RFP, the DIs would evaluate and grade NGP's response and then make favorable recommendations on the NGP products to the end-user SOEs. The SEC alleges that NGP employees either sent wire transfers to DI employees' personal bank accounts or gave DI employees checks made out to "cash." The SEC also alleges that NGP employees made certain of the payments through third-party agents using inflated commissions to the agents with the understanding that the agents would then make payments to the DI employees who specified and recommended NGP products. According to the SEC, the payments resulted in over $4 million in sales to NGP from which ITT realized profits of more than $1 million. The SEC complaint alleges that the payments to DI employees were improperly recorded in NGP's books and records as commission payments or cost of goods sold and that these improper entries were consolidated and included in ITT's financial statements filed with the SEC.
Without admitting or denying the allegations in the SEC's complaint, ITT consented to entry of a final judgment permanently enjoining it from future violations of the FCPA books and records and internal control provisions and ordering it to pay approximately $1.7 million in penalties (approximately $1 million in disgorgement, a $250,000 civil penalty and approximately $385,000 in prejudgment interest).
In resolving the matter, the SEC specifically noted that ITT self-reported the conduct at issue, cooperated with its investigation, and instituted subsequent remedial measures.