The U.S. Securities and Exchange Commission (SEC) recently announced that a Massachusetts-based technology company and its Chinese subsidiaries have agreed to pay over $28 million to settle parallel civil and criminal actions involving violations of the Foreign Corrupt Practices Act (FCPA).

According to the SEC, two Chinese subsidiaries of PTC provided non-business related travel and other improper payments to various Chinese government officials in an effort to win business.

As a result, PTC agreed to pay $11.858 million in disgorgement and $1.764 million in prejudgment interest to settle the SEC’s charges, and its two China subsidiaries agreed to pay a $14.54 million fine in a non-prosecution agreement announced Tuesday by the U.S. Department of Justice.

Separately, the agency also announced its first deferred prosecution agreement (DPA) with an individual in an FCPA case. DPAs facilitate and reward cooperation in SEC investigations by foregoing an enforcement action against an individual who agrees to cooperate fully and truthfully throughout the period of deferred prosecution. The FCPA charges will be deferred for three years against Yu Kai Yuan, a former employee at one of PTC’s Chinese subsidiaries, as a result of significant cooperation he has provided during the SEC’s investigation.

Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit, commented:

PTC failed to stop illicit payments despite indications of potential corruption by agents working with its Chinese subsidiaries, and the misconduct continued unabated for several years.

The SEC detailed in its report:

• From at least 2006 to 2011, two PTC China-based subsidiaries provided improper travel, gifts, and entertainment totaling nearly $1.5 million to Chinese government officials who were employed by state-owned entities that were PTC customers.
• PTC gained approximately $11.8 million in profits from sales contracts with state-owned entities whose officials received the improper payments.
• Chinese officials were compensated directly and through third-party agents for sightseeing and tourist activities.
• Third-party agents typically arranged overseas sightseeing trips in conjunction with a visit to a PTC facility, typically the corporate headquarters in Massachusetts. After one day of business activities, the additional days of sightseeing visits lacked any business purpose.
• Typical PTC-paid travel destinations for Chinese officials included New York, Las Vegas, San Diego, Los Angeles, and Honolulu. Officials enjoyed guided tours, golfing, and other leisure activities.
• Employees of PTC’s Chinese subsidiaries also provided improper gifts and entertainment to Chinese government officials, including small electronics such as cell phones, iPods, and GPS systems as well as gift cards, wine, and clothing.
• The improper payments were disguised as legitimate commissions or business expenses in company books and records.

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