On July 27, 2011, the Securities and Exchange Commission (SEC) settled charges with London-based Diageo plc (“Diageo”), one of the world’s largest producers of premium alcoholic beverages, arising from alleged violations of the FCPA. According to the SEC press release, Diageo paid more than $2.7 million through various subsidiaries to obtain lucrative sales and tax benefits relating to its Johnnie Walker and Windsor Scotch whiskeys, among other brands. Diageo agreed to pay more than $16 million to settle the SEC’s charges and also agreed to cease and desist from further violations of the FCPA’s books and records and internal controls provisions.
According to the SEC press release, the improper payments stemmed from more than six years of improper payments to government officials in India, Thailand, and South Korea. Specifically, the SEC alleged that from 2003 to mid-2009, Diageo made more than $1.7 million in illicit payments to hundreds of Indian government officials who were responsible for purchasing or authorizing the sale of its beverages in India, resulting in more than $11 million in profit for the company. The SEC further alleged that from 2004 to mid-2008, Diageo paid approximately $12,000 per month to retain the consulting services of a Thai government and political party official, who then lobbied other high-ranking Thai government officials extensively on Diageo’s behalf in connection with pending multi-million dollar tax and customs disputes. Finally, in South Korea, the SEC alleged that Diageo paid more than $86,000 to a customs official in South Korea as a reward for his role in the government’s decision to grant Diageo significant tax rebates, improperly paid travel and entertainment expenses for South Korean customs and other government officials involved in tax negotiations, and routinely made hundreds of gift payments to South Korean military officials in order to obtain and retain liquor business.
According to the SEC press release, Diageo and its subsidiaries also failed to properly account for the alleged illicit payments in their books and records, concealing the payments to government officials by recording them as legitimate expenses for third-party vendors or private customers, categorizing them in false or overly vague terms, or failing to record them at all. The SEC settlement order also stated that Diageo lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting.
Without admitting or denying the findings, Diageo agreed to cease and desist from further violations and to pay $11,306,081 in disgorgement, prejudgment interest of $2,067,739, and a financial penalty of $3 million. The SEC press release noted that 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.