The U.S. Securities and Exchange Commission (SEC) recently announced that Qualcomm Inc. (NASDAQ: QCOM) has agreed to pay $7.5 million to settle charges that it violated the Foreign Corrupt Practices Act (FCPA) by hiring relatives of Chinese government officials deciding whether to select the company’s mobile technology products amid increasing competition in the international telecommunications market.
According to an SEC investigation, Qualcomm also provided gifts, travel and entertainment in an effort to influence officials at government-owned telecom companies in China. With insufficient internal controls to detect improper payments, the company misrepresented in its books and records that the things of value provided to foreign officials were legitimate business expenses.
As a result, and without admitting or denying the findings, Qualcomm agreed to pay the $7.5 million penalty and self-report to the SEC for the next two years with annual reports and certifications of its FCPA compliance.
Michele Wein Layne, director of the SEC’s Los Angeles Regional Office, commented:
Companies must effectively design and implement internal controls across all business operations to prevent FCPA violations, including its hiring practices. For more than a decade, Qualcomm went to extraordinary lengths to gain a business advantage with foreign officials deciding between Qualcomm’s technology and its competitors.
In the report, the SEC detailed:
- Qualcomm offered and provided full-time employment and paid internships to foreign officials’ family members internally referred to as “must place” or “special” hires in order to try to obtain or retain business in China.
- One official asked Qualcomm employees to find an internship for her daughter studying in the U.S. and the company obliged, acknowledging in internal communications that her parents “gave us great help for Q.C. new business development.”
- Another intern was hired by Qualcomm at the request of director general of a Chinese agency. Human resources department e-mails described the intern as “a MUST PLACE” and described the hiring as “quite important from a customer relationship perspective.”
- Qualcomm provided a $75,000 research grant to a U.S. university on behalf of the son of a foreign official so he could retain his position in its Ph.D. program and renew his student visa. Qualcomm also provided him an internship and later permanent employment, and sent him on a business trip to China (during which he visited his parents over the Chinese New Year) despite concerns expressed about his qualifications for the assignment.