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In re Diageo plc

 
:
Diageo plc
:
SEC Civil
:
July 27, 2011
:
In re Diageo plc
:
In re Diageo plc, No. 34-64978
:
Beverage
:
India, South Korea, Thailand
:
2003; 2004; 2005; 2006; 2008; 2009
:
Employees of Indian Government Liquor Stores; Employees of the Indian Military Canteen Stores Department; Indian government officials (North Region of India, State of Assam); Thai commerce, finance, customs officials; Members of Thai parliament; Koran Customs Service official; Korean government officials; Korean military officers
:
The SEC issued a cease-and-desist order on July 27, 2011, finding that Diageo, through its subsidiaries in India (“DI”), Thailand (“DT”) and South Korea (“DK”), made over $2.7 million in illicit payments to various government officials from 2003 to 2009 to obtain sales and tax benefits. The SEC alleged that Diageo and its subsidiaries failed to account for these illicit payments in their books and records and failed to devise and maintain internal account controls sufficient to detect and prevent the payments, in violation of Sections 13(b)(2)(A) and (B) of the Securities Exchange Act of 1934 (“Exchange Act”).

The SEC alleged that from 2003 to 2009, DI paid $792,310 through third-party distributors to employees of Indian government liquor stores to increase sales and improve product placement, as well as $186,299 in “cash service fees” to reimburse these distributors for payments made to government employees. The SEC also alleged that DI reimbursed $530,955, and made plans to reimburse an additional $79,364, to third-party sales promoters who made improper cash payments to Indian government employees of the military Canteen Stores Department to promote DI’s products, obtain listings and registration for Diageo’s brands and secure the release of seized shipments. The SEC alleged that DI also paid $78,622 in commissions to reimburse distributors for payments to Indian excise officials to secure import permits and administrative approvals. DI allegedly failed to properly account for these payments and fees.

In Thailand, the SEC alleged that from April 2004 to July 2008, DT paid $599,322 to a consulting firm, knowing this money was for the benefit an active Thai government official. The official lobbied on behalf of DT in customs and tax disputes between Diageo and the Thai government, and met with senior commerce, finance, and customs authorities, as well as the Prime Minister and members of the Thai parliament. DT allegedly improperly accounted for the monthly retainer paid to the Thai official.

According to the SEC's order, Diageo also made significant payments to tax and customs officials in South Korea. During negotiations on a difficult tax dispute, DK paid $109,253 in travel and entertainment costs to Korean customs and other government officials. After negotiations with South Korean officials on tax issues resulting in the grant of a rebate of approximately $50 million to DK, a DK manager allegedly paid the equivalent of $86,339 to a Korean Customs Service official by means of a kickback to a third-party customs broker. The SEC alleged that DK improperly and falsely accounted for this cash reward payment and for the travel and entertainment expenses to other officials. The SEC also alleged that from 2002 to 2006, DK made payments of at least $229,415 in the form of holiday or business development gifts to South Korean military officers to obtain or maintain business and secure a competitive business advantage. DK allegedly failed to properly account for these gifts.

Without admitting to any of the allegations, Diageo agreed to cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and (b) of the Exchange Act. Diageo agreed to pay disgorgement of $11,306,081, prejudgment interest of $2,067,739 and a civil penalty of $3,000,000 based on Diageo’s cooperation with the SEC investigation.
:
Books and records (Issuer), Internal controls (Issuer)
:
Civil penalty, Disgorgement, Injunction/Cease and desist, Prejudgment Interest
:
Disgorgement of $11,306,081, prejudgment interest of $2,067,739 and a civil penalty of $3,000,000
:
16,373,820
:
0
:
Issuer
:
Foreign
:
United Kingdom
:
Contract Procurement/Retention, Customs Clearance, Other Business Advantage, Tax
:
Not stated.
:
Cash, Entertainment, Gifts, Travel
:
Customs Broker or Agent/Consultant, Sales Agent/Consultant, Subsidiary Company
:
2,700,000
:
India, South Korea, Thailand
:
India, South Korea, Thailand
:
No
:
No