July 11, 2016 – The Securities and Exchange Commission today announced that a Wisconsin-
Johnson Controls settled SEC FCPA charges by paying over $14 million after its Chinese subsidiary, China Marine, used sham vendors to funnel $4.9 million in bribes to Chinese government officials and others from 2007 to 2013, exploiting weak internal controls despite prior remediation efforts.
Johnson Controls, a Wisconsin-based HVAC provider, agreed to pay $14,362,561 to settle SEC charges that its Chinese subsidiary, China Marine, violated the FCPA’s books and records and internal controls provisions. From 2007 to 2013, China Marine employees, led by its managing director, used approximately 18 staff across three offices to create sham vendor payments averaging $3,400 each, totaling $4.9 million in bribes to government shipyard employees and others to secure business and enrich themselves. The company self-reported the misconduct and cooperated with the investigation, resulting in a settlement that included $11.8 million in disgorgement, $1.38 million in prejudgment interest, and a $1.18 million civil penalty, plus a one-year reporting requirement on compliance improvements.
Johnson Controls, a Wisconsin-based global HVAC provider, agreed to pay over $14 million to settle SEC charges related to FCPA violations by its wholly-owned Chinese subsidiary, China Marine. From 2007 to 2013, China Marine’s managing director and approximately 18 employees used sham vendors to make $4.9 million in improper payments to employees of Chinese government-owned shipyards and other parties to obtain and retain business, while also enriching themselves. The scheme exploited weak internal controls inherited from Johnson Controls’ 2005 acquisition of York International, which had previously been sanctioned for FCPA violations in China; despite remediation efforts, oversight from Johnson Controls’ Denmark office remained inadequate, and managers failed to understand the highly customized, low-value vendor transactions averaging $3,400. The company self-reported the misconduct and fully cooperated with the SEC and DOJ investigation, leading to a settlement without admission of guilt. As part of the resolution, Johnson Controls paid $11.8 million in disgorgement, $1.38 million in prejudgment interest, and a $1.18 million civil penalty, and agreed to report to the SEC for one year on its FCPA and anti-corruption compliance remediation efforts. The SEC credited the company’s cooperation and acknowledged assistance from the Justice Department’s Fraud Section and the FBI.
Extracted insights
- $14.00M $14,000,000 $10M–$100M
- $11.80M $11,800,000 $10M–$100M
- $4.90M $4.9 million $1M–$10M
- $1.38M $1,382,561 $1M–$10M
- $1.18M $1,180,000 $1M–$10M
- $3K $3400 <$10K
- person china marine employees
- person china marine subsidiary
- person fcpa charges
- person johnson controls
- person johnson controls fcpa settlement
- person Kara N. Brockmeyer
- agency sec investigation
- person slush funds
- Johnson Controls settled FCPA charges
- Johnson Controls agreed to pay $14,000,000
- Johnson Controls violated books and records and internal accounting controls provisions of FCPA
- China Marine subsidiary made improper payments of approximately $4.9 million
- China Marine subsidiary made improper payments to employees of Chinese government owned shipyards
- Johnson Controls acquired Chinese subsidiary as part of 2005 acquisition of York International
- York International was subject to FCPA enforcement action in October 2007
- Managing director of China Marine continued bribery from 2007 to 2013
- Johnson Controls agreed to pay disgorgement of $11,800,000 plus prejudgment interest of $1,382,561
- Johnson Controls agreed to pay civil penalty of $1,180,000
- Johnson Controls violated Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B)
- SEC investigation was conducted by Irene Gutierrez and Tracy L. Price
- SEC investigation was supervised by Kara N. Brockmeyer
- File No. 3-17337 relates to Johnson Controls FCPA settlement
- China Marine employees used vendor scheme to create slush funds
ADMINISTRATIVE PROCEEDING File No. 3-17337 Global HVAC Provider Settles FCPA Charges July 11, 2016 – The Securities and Exchange Commission today announced that a Wisconsin- based global provider of HVAC systems has agreed to pay more than $14,000,000 to settle charges that it violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA). An SEC investigation found that a wholly-owned Chinese subsidiary of Johnson Controls used sham vendors to make improper payments of approximately $4.9 million to employees of Chinese government owned shipyards, and ship-owners and others, to obtain and retain business and personally enrich themselves. According to the SEC’s order instituting a settled cease-and- desist proceeding against Johnson Controls: • Johnson Controls acquired the Chinese subsidiary as part of a 2005 acquisition of York International, which was subject to a prior FCPA enforcement action in October 2007 , for conduct in China and other parts of York’s business. • Despite JCI’s efforts to remediate China Marine, the bribery continued. • From 2007 to 2013, the managing director of China Marine, with the aid of approximately eighteen China Marine employees in three offices, continued the bribery and theft that began under his predecessor by using vendors instead of agents to facilitate the improper payments. • Johnson Controls limited the use of agents, and thus the employees used the vendor scheme to create slush funds. The employees fashioned the improper scheme using vendors because vendor transactions were considered low risk by JCI due to the low dollar value of the transactions, with the average vendor payment approximately $3400. • Johnson Controls’ internal controls over vendor payments were less rigorous, and China Marine operated with very little oversight by JCI’s Denmark office, which oversaw the Global Marine business. Even in the instances where managers in Denmark did a review, they did not understand some of the highly customized transactions at China Marine or the projects involving the sham vendors. • Johnson Controls self-reported this misconduct to the SEC and cooperated with the investigation. The SEC’s order finds that Johnson Controls violated the internal accounting controls and books and records provisions of the Securities Exchange Act of 1934. Without admitting or denying the findings, Johnson Controls agreed to cease-and-desist from committing or causing any violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B), pay disgorgement of $11,800,000 plus prejudgment interest of $1,382,561, pay a civil penalty of $1,180,000, and to report to the SEC for one year on the status of its FCPA and anti-corruption related remediation and implementation of compliance measures. The SEC’s investigation was conducted by Irene Gutierrez and Tracy L. Price of the FCPA Unit and supervised by Kara N. Brockmeyer. The SEC appreciates the assistance of the Justice Department’s Fraud Section and the Federal Bureau of Investigation. See also: Order
ADMINISTRATIVE PROCEEDING File No. 3-17337 Global HVAC Provider Settles FCPA Charges July 11, 2016 – The Securities and Exchange Commission today announced that a Wisconsin- based global provider of HVAC systems has agreed to pay more than $14,000,000 to settle charges that it violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA). An SEC investigation found that a wholly-owned Chinese subsidiary of Johnson Controls used sham vendors to make improper payments of approximately $4.9 million to employees of Chinese government owned shipyards, and ship-owners and others, to obtain and retain business and personally enrich themselves. According to the SEC’s order instituting a settled cease-and- desist proceeding against Johnson Controls: • Johnson Controls acquired the Chinese subsidiary as part of a 2005 acquisition of York International, which was subject to a prior FCPA enforcement action in October 2007, for conduct in China and other parts of York’s business. • Despite JCI’s efforts to remediate China Marine, the bribery continued. • From 2007 to 2013, the managing director of China Marine, with the aid of approximately eighteen China Marine employees in three offices, continued the bribery and theft that began under his predecessor by using vendors instead of agents to facilitate the improper payments. • Johnson Controls limited the use of agents, and thus the employees used the vendor scheme to create slush funds. The employees fashioned the improper scheme using vendors because vendor transactions were considered low risk by JCI due to the low dollar value of the transactions, with the average vendor payment approximately $3400. • Johnson Controls’ internal controls over vendor payments were less rigorous, and China Marine operated with very little oversight by JCI’s Denmark office, which oversaw the Global Marine business. Even in the instances where managers in Denmark did a review, they did not understand some of the highly customized transactions at China Marine or the projects involving the sham vendors. • Johnson Controls self-reported this misconduct to the SEC and cooperated with the investigation. The SEC’s order finds that Johnson Controls violated the internal accounting controls and books and records provisions of the Securities Exchange Act of 1934. Without admitting or denying the findings, Johnson Controls agreed to cease-and-desist from committing or causing any violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B), pay disgorgement of $11,800,000 plus prejudgment interest of $1,382,561, pay a civil penalty of $1,180,000, and to report to the SEC for one year on the status of its FCPA and anti-corruption related remediation and implementation of compliance measures. https://www.sec.gov/litigation/litreleases/2007/lr20319.htm The SEC’s investigation was conducted by Irene Gutierrez and Tracy L. Price of the FCPA Unit and supervised by Kara N. Brockmeyer. The SEC appreciates the assistance of the Justice Department’s Fraud Section and the Federal Bureau of Investigation. See also: Order