New Tariffs Create Greater Incentives for Customs Fraud

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New Tariffs Create Greater Incentives for Customs Fraud

Domestic importers are paying record amounts in customs duties due to a recent surge in the number of new tariffs, according to a recent article in the Wall Street Journal. In October, American companies paid $6.2 billion in duties, including $2.8 billion in new tariffs, according to Tariffs Hurt the Heartland, a lobbying group comprised of companies in the manufacturing, farming and technology sectors. Since May, the amount of import duties has doubled, including an increase of more than 30% from August to October.

Johnson Controls, Analogics Settle FCPA Investigations

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We have now seen our second Foreign Corrupt Practices Act settlement involving vendor payments over the past three weeks as Johnson Controls settled its SEC investigation for $14 million and Analogic previously agreed to pay nearly $15 million to the SEC and DOJ.

Novartis Settles FCPA Investigation into China for $25 Million

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Novartis agreed to settle civil charges with the U.S. Securities and Exchange Commission on Wednesday into its healthcare practices in China. The settlement of the investigation into the Foreign Corrupt Practices Act will result in a payment of more than $25 million to the SEC by Novartis.

SciClone and SAP Settle SEC FCPA Investigations

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This week, the SEC announced the resolution of its FCPA investigation into SAP and SciClone Pharmaceuticals announced its own resolution with the SEC.

FCPA Investigation of JPM Intern Program Proceeding

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The Wall Street Journal has published a story on a document generated as part of the government’s FCPA investigation into J.P. Morgan Chase which details the hiring of family members or friends of executives in most of the major Chinese IPOs the investment bank took public in Hong Kong. The individuals were hired into the bank’s intern program, known internally as the Sons and Daughters program.

Software Company Nearing Settlement Over Chinese Bribery

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PTC, a computer software company offering computer-design and engineering products based out of Massachusetts, is reportedly nearing settlement with the SEC and/or DOJ over a government investigation into potential violations of the Foreign Corrupt Practices Act (FCPA). The issues were reportedly discovered during an internal investigation in 2011 and the company self-reported them to the U.S. government.

McEldrew Young Purtell Merritt Client Exposes Customs Fraud by Military Contractor

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We are pleased to announce that our client, Todd Mihajlovic, exposed the concealment of the origin of goods imported into the United States by ECL Solutions Limited, Inc., a British company doing business with the U.S. military as Ban-Air Storage Systems (“ECL”). Yesterday, the U.S. Department of Justice announced that ECL pleaded guilty to conspiring to smuggle goods into the United States and was ordered to pay a forfeiture money judgment of $1,066,132.10 in the criminal prosecution in the U.S. District Court for the Eastern District of Pennsylvania. The Government’s press release announcing the success in the criminal matter can be found on the DOJ’s EDPA website here.

We represented Mr. Mihajlovic, who filed a civil qui tam lawsuit under the False Claims Act in the U.S. District Court for the District of Delaware in 2012. Mr. Mihajlovic’s complaint alleged that ECL violated the False Claims Act because of false representations made by the company that products it sold to the United States complied with the Buy American Act (BAA) and the Trade Agreements Act (TAA). According to the Complaint, ECL obscured the fact that its steel racking systems sold to the U.S. military were actually imported from China.

Mr. Mihajlovic has our profound gratitude for bringing the company’s scheme to the attention of the U.S. Government.  Here at McEldrew Young Purtell Merritt, Attorney Brandon Lauria took the lead on the case and spent countless hours on the case to see it to a successful resolution.  We were assisted by United Kingdom Solicitor-Advocate Howard S. Brown, who is associated with Shepherd, Finkelman, Miller & Shah, LLP.

This case is an example of the rise of international whistleblowing, as our client is located outside the United States.  Fortunately, the whistleblower laws incentivize reporting by individuals regardless of their location and citizenship.  The False Claims Act, as well as the SEC, CFTC, and IRS whistleblower programs, do not restrict the U.S. Government from rewarding international whistleblowers.  Otherwise, in the era of transnational commerce, fraud might go unchecked simply because the evidence of the corporate wrongdoing is located in a foreign country.

If you are a whistleblower, located here in the United States or abroad, interested in reporting customs fraud in America or the bribery of customs officials abroad, contact our office for a free initial legal consultation concerning your case.

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Cybersecurity and Chinese whistleblowers Growing

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Defense law firms are increasingly warning their corporate clients and prospective clients about whistleblowers – and two areas have stood out in articles they have published in the media recently. The rise of whistleblowers from China and cybersecurity whistleblowers have both been on their radar. We’ve been talking about these two areas for a while now – so let’s look at what they have to say.

China

An article in Global Compliance News details the rise of internal complaints about corporate wrongdoing by Chinese whistleblowers. It notes the long history of tips to China’s anti-corruption campaign and indicates that this willingness to report misconduct is spilling over to impact international corporations operating within China. Accordingly, internal reports by whistleblowers in China have in recent years increased substantially because of greater ease in filing and public awareness of compliance initiatives.

The article also notes the number of options available if a whistleblower is dissatisfied about the way their complaint is handled internally. The employee can report both to authorities in China as well as the United States (in the case of multi-national corporations operating from the U.S. or listed on an exchange in the U.S.).

Indeed, the Communist Party of China’s Central Commission for Discipline Inspection (CCDI) has a mobile phone app that allows individuals to tip the Chinese Government to low-level corruption and disciplinary violations. As governments make it easier to blow the whistle and remain confidential to the public, we expect more citizens will take advantage of them.

The other big option for people in China is the U.S. Security & Exchange Commission. The SEC pays rewards after successful enforcement actions resulting from information provided by whistleblowers. Because MNCs have been growing their China operations and employ large numbers of people in the country, this is increasingly an option for people who have interactions with them.

Although I don’t remember it being mentioned in the article, the specific reports are likely concerning the Foreign Corrupt Practices Act (FCPA). The U.S. anti-bribery law prohibits companies listed on an American stock exchange (U.S. issuers) from providing anything of value to foreign officials to obtain or retain business corruptly. The expense to corporations to investigate and defend these government investigations can be tremendous.

Cybersecurity

There have been a number of articles posted recently concerning cybersecurity whistleblowers as well. An article in The Recorder questioned how long it will be until we see cybersecurity whistleblowers become the next wave of tips to the SEC. The article also said that there is anecdotal evidence suggesting that the SEC is currently evaluating these claims. Furthermore, a National Law Review article from late September (from fellow whistleblower attorneys!) said that whistleblower tips related to cybersecurity may receive additional scrutiny because cyber-attacks are a hot-button issue.

These articles should come as no surprise since news of corporate hacking has increased and high profile incidents against Sony, Target and others have put this on the radar of Government regulators. Lately, the SEC has been pursuing enforcement actions against traders teaming with hackers to get access to material, non-public information about businesses and then taking advantage of it in the public markets.

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China’s Focus Media & CEO Get $55.6 Million SEC Fine

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China has been on the radar of U.S. businesses, investors and the SEC for some time now. And we aren’t just talking about it as a cause of the recent stock market tumble. China is the leading country for allegations of violations of the Foreign Corrupt Practices Act, and the SEC has been seeking information about Chinese companies to investigate potential accounting fraud. In light of these concerns and less advantage to being listed on a U.S. exchange, numerous Chinese companies have been delisting or entering going private transactions.

The agreement to settle an SEC investigation into Focus Media and its CEO over inaccurate disclosures to investors for $55.6 million isn’t surprising in that light, but it probably will open some eyes in China. Focus Media is a large Chinese advertising companies with displays in public locations such as elevators and outdoors. It was taken private in 2013 in a leveraged buyout.

In connection with the settlement, a SEC official in the New York office indicated that the SEC wasn’t going to let the geographic location of companies prevent them from ensuring public companies make accurate statements to investors. This is obviously aimed at sending a message to companies located outside of the United States that they can’t take advantage of the U.S. financial markets with impunity.

For whistleblower rewards, the SEC does not distinguish between the geographic location or citizenship of the source of the tip. Chinese whistleblowers can earn an award under the Dodd-Frank program the same as United States citizens.

Photo Credit. I have no idea if that is a Focus Media billboard or not, but I thought it was appropriate. Of course, I haven’t translated it.

Mead Johnson Settles FCPA Probe Over Bribery of Chinese Doctors

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Mead Johnson was fined $12 million today by the SEC for violations of the books and records provisions of the Foreign Corrupt Practices Act.

The company’s majority owned subsidiary in China improperly compensated health care providers, who were foreign officials under the law because they were employees of state-owned hospitals, to recommend its infant formula to expectant and new mothers. The payments came from distributor allowance funds which acted like an off-the-books slush fund. Ultimately, the subsidiary paid approximately $2 million to health care providers and made approximately $8 million in profits from the 2008 until 2013 time period.

The payments made by the employees of Mead Johnson China were not accurately reflected in the books and records of the Chinese subsidiary which was consolidated into the publicly reported accounting records. Moreover, the company had inadequate internal accounting controls in place to detect the improper practices.

The company received a tip about possible violations of the FCPA in 2011 regarding the conduct at issue but the company did not turn up evidence of the misconduct and did not either self-report the allegation or disclose it to the SEC when it inquired in connection with this matter.

Do you have questions about this area of the law? We have put together an informational guide for FCPA whistleblowers. If you have questions after reviewing it, one of our FCPA whistleblower attorneys will answer any remaining questions. We can assist you in reporting your evidence of bribery by a publicly traded company or other covered entity. Please contact an attorney via our contact form or call 1-800-590-4116.

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