3M Settles China "Educational Travel" FCPA Case

The Securities and Exchange Commission has accepted an Offer of Settlement from Minnesota's 3M Company, closing its investigation into violations of the Foreign Corrupt Practices Act by 3M's subsidiary, 3M-China Ltd.

Key findings from the investigation, which covered activities between 2014 and 2017, include:

• 3M-China disbursed approximately $1 million to fund at least 24 overseas trips for Chinese Government Officials, which incorporated Tourism Activities.
• The expenses for these trips were incorrectly recorded in 3M’s consolidated financial records as legitimate business expenditures, with no notation indicating the inclusion of Tourism Activities.
• As a result of these actions, 3M garnered improper benefits amounting to at least $3.5 million from augmented sales.

The SEC found that 3M-China employees and Chinese Government Officials participated in Tourism Activities outlined in confidential "Alternate Itineraries," which were conveyed through hand delivery or personal WeChat accounts. Internal compliance documents were either falsified or omitted to facilitate the scheme.

The SEC concluded that these activities led to inaccuracies in 3M-China's accounting records, and also highlighted a failure on 3M's part to maintain sufficient internal accounting controls for cross-border fund transfers.

3M has agreed to financial penalties including:

• Disgorgement: 3M will pay a disgorgement amounting to $3,538,897, essentially requiring the company to relinquish the profits gained from its violations.
• Prejudgment Interest: In addition to disgorgement, 3M is responsible for paying prejudgment interest of $1,042,721.
• Civil Money Penalty: 3M has been assessed a civil money penalty of $2,000,000.

In determining the acceptance of the Offer, the SEC considered several factors:

• Prompt Self-Reporting: 3M immediately self-reported the misconduct upon discovery.
• Cooperation: The company cooperated fully with the SEC investigation, including making witnesses available for interviews, providing translated documents, sharing findings from its internal investigation, and offering periodic, comprehensive updates.
• Remedial Measures: 3M took substantial corrective action, which included disciplinary action or termination for involved employees. The company also severed its relationship with the China-based travel agencies implicated in the scheme.
• Enhancement of Controls: 3M fortified its internal controls and compliance programs, including strengthening mechanisms governing cross-border fund transfers.

[SEC Order]. [Press Release]