3M fined $6.5M for covertly funding Chinese officials’ trips and shopping sprees.
3M Settles Charges for Secretly Sending Chinese Officials on Paid Trips
3M, the multinational conglomerate, has agreed to pay over $6.5 million to settle charges brought against its Chinese subsidiary. The charges allege that the subsidiary organized paid trips for Chinese officials to the United States and Australia, all in an effort to boost company sales.
According to the Securities and Exchange Commission (SEC), 3M’s Chinese unit arranged for Chinese health care officials to travel overseas under the guise of attending conferences or marketing activities. These trips included sightseeing and entertainment, all funded by 3M. The SEC’s investigation revealed that the scheme involved former 3M-China marketing managers and several staff members from various departments.
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Working with two Chinese travel agencies, 3M-China targeted influential officials from state-owned Chinese entities. They created fake itineraries to gain approval from the company’s compliance personnel, while also planning alternative tourism activities near the event venues to entertain the Chinese officials. The destinations included Los Angeles, Nashville, Boston, Chicago, and Sydney, with some officials even bringing their spouses along. The official agenda was filled with educational events, while the alternative itinerary focused on tourism activities. Notably, some officials were not provided with interpreters for the educational events due to language barriers.
The SEC revealed that 3M-China paid nearly $1 million for 24 such trips and monitored the impact on sales. The company’s management sought a return on investment, and one employee was responsible for tracking post-trip sales to ensure they aligned with 3M-China’s goals. The SEC estimates that 3M improperly benefited from increased sales amounting to at least $3.5 million.
Chinese Travel Agency
In addition to the trips, between February 2016 and September 2018, 3M made 15 payments totaling $254,000 to a Chinese travel agency for vaguely termed “marketing” efforts. These costs were falsely recorded as legitimate business expenses by 3M employees.
The tourism activities were scheduled to coincide with the events the officials were supposed to attend, resulting in officials missing entire days or not attending at all.
3M has agreed to the settlement without admitting or denying the findings. The company promptly reported the misconduct of its employees to the SEC and cooperated fully with the investigation. 3M took disciplinary action against the involved employees, terminated its relationship with the Chinese travel agencies, and implemented measures to enhance its internal controls and compliance program.
Under the settlement terms, 3M will pay over $4.5 million in disgorgement and prejudgment interest, along with an additional $2 million in civil penalties, totaling more than $6.5 million.
The Epoch Times has reached out to 3M for comment.
FCPA Cases
Charles Cain, chief of the SEC’s Foreign Corrupt Practices Act (FCPA) Unit, stated that this case highlights the dangers faced by companies with global operations due to inadequate internal accounting controls. He also emphasized the role played by complicit third-party vendors in exacerbating these dangers.
The FCPA, enacted in 1977, prohibits the payment of bribes to foreign officials to obtain or retain business. The U.S. Department of Justice and the SEC jointly enforce the FCPA. The SEC established its FCPA unit in 2010 to strengthen enforcement efforts.
There have been other notable FCPA cases, demonstrating the ongoing commitment to combat corruption in international business.
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