Panasonic Avionics, a provider of in-flight entertainment and communication systems and a subsidiary of multinational electronics company Panasonic, has agreed (in conjunction with its parent company) to pay more than $280 million to resolve charges arising out of a scheme to retain consultants for improper purposes and conceal payments to third-party sales agents, in violation of the accounting provisions of the Foreign Corrupt Practices Act.

The settlement, which was announced Monday, calls for Panasonic Avionics to pay a $137.4 million criminal penaltyas part of a deferred prosecution agreement. In a related proceeding, the Securities and Exchange Commission (SEC) filed a cease and desist order against Panasonic, which agreed to pay approximately $143 million in disgorgement to the SEC, including prejudgment interest.  Thus, the combined total amount of U.S. criminal and regulatory penalties to be paid by Panasonic and Panasonic Avionics is just over $280 million.

According to admissions and court documents, Panasonic Avionics “knowingly and willfully” caused Panasonic to falsify its books and records with respect to Panasonic Avionics’ retention of consultants for improper purposes. “The consultants, which did little or no actual consulting work for Panasonic Avionics, were retained through a third-party service provider and were paid for out of a budget over which a senior Panasonic Avionics executive had complete control and discretion, without meaningful oversight by anyone at Panasonic Avionics or Panasonic,” the Justice Department stated.

Panasonic Avionics also admitted that employees in its Asia region concealed use of certain sales agents who did not pass the company’s internal diligence requirements.  According to admissions and court documents, Panasonic Avionics formally terminated its relationship with these sales agents, as required by its compliance policies, but Panasonic Avionics employees then secretly continued to use the agents by having them rehired as sub-agents of another company, which had passed Panasonic Avionics’ due diligence checks.  Through this process, employees hid more than $7 million in payments to at least 13 sub-agents.

By mischaracterizing the payments made to consultants and sales agents and providing false or incomplete representations and Sarbanes-Oxley sub-certifications to Panasonic about Panasonic Avionics’ financials and financial controls, Panasonic Avionics’ caused Panasonic to falsify its books, records, and accounts in violation of the FCPA.

SEC order

The SEC orderfound that Panasonic fraudulently overstated pre-tax and net income by prematurely recognizing more than $82 million in revenue for the fiscal quarter ending June 30, 2012. The fraud was accomplished by Panasonic Avionics backdating an agreement with a state-owned airline and providing misleading information to Panasonic Avionics’ auditor, according to the SEC.

The SEC order further found that Panasonic lacked sufficient internal accounting controls and failed to make and keep accurate books and records concerning purported consultants retained by Panasonic Avionics, as well as sales agents used to solicit business from state-owned airlines and other customers throughout the Middle East and Asia.

“Issuers need to ensure that their rules and controls address the specific bribery and corruption risks they face when operating in global markets with customers that are state-owned entities,” said Charles Cain, Chief of the Enforcement Division’s FCPA Unit. “It is not enough for a company merely to set up policies and procedures that are not enforced or are easily circumvented by employees.”

DPA entered

Panasonic Avionics entered into a deferred prosecution agreement(DPA), filed April 30, 2018 in the U.S. District Court for the District of Columbia, charging the company with one count of knowingly and willfully causing the falsification of the books, records, and accounts of its parent company Panasonic. 

As part of the DPA, Panasonic Avionics will pay a total criminal penalty of $137 million. It also agreed to continue to cooperate with the Department’s investigation, enhance its compliance program, implement rigorous internal controls and retain an independent corporate compliance monitor for at least two years.

The Criminal Division’s Fraud Section said it reached this resolution based on several factors, including the fact that Panasonic Avionics did not timely voluntarily self-disclose the conduct, but did cooperate with the department’s investigation after receiving a request for documents from the SEC. 

Panasonic Avionics received a 20 percent discount off the low end of the U.S. Sentencing Guidelines fine range “because of its cooperation and remediation, which, although untimely in certain respects, did include causing several senior executives who were either involved in or aware of the misconduct to be separated from Panasonic Avionics or Panasonic.”

“Because many of the company’s compliance enhancements were more recent, and therefore have not been tested, the DPA imposes an independent compliance monitor for a term of two years, followed by an additional year of self-reporting to the department,” the Justice Department stated.

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