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From Securities Regulation Daily, December 15, 2014

Government officials' sightseeing trips were recorded as legit business expenses

By Rodney F. Tonkovic, J.D.

A Massachusetts-based maker of scientific equipment will pay over $2 million to settle findings that it violated the Foreign Corrupt Practices Act (FCPA). The Commission found that employees at Chinese subsidiaries of Bruker Corporation made unlawful payments to government officials in order to obtain or retain business from state-owned entities. According to the Commission, Bruker lacked an adequate system of internal accounting controls sufficient to prevent and detect the improper payments (In the Matter of Bruker Corp., Release No. 34-73835, December 15, 2014).

Background. Subsidiaries of four Bruker divisions are based in Asia and managed in China. According to the Commission, between 2005 and 2011, employees at these offices paid approximately $230,938 to Chinese government officials who were employed by state-owned entities in China that were Bruker customers. These payments included approximately $119,710 to fund leisure trips taken by government officials who authorized the purchase of products from Bruker's Chinese offices. One office also paid officials under “research” and “collaboration” agreements that had no legitimate business purpose.

These payments were made in order to obtain or retain business from state-owned entities, but were recorded as legitimate business and marketing expenses. Additionally, the books and records from Bruker's offices in China were consolidated into Bruker's books and records, causing them to be inaccurate. The improper payments were discovered in 2011, while Bruker was investigating the unrelated misappropriation of company funds by Chinese employees. Upon learning of the problem, Bruker notified the Commission and promptly undertook remedial measures, including terminating the senior staff at each Chinese office.

Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit said that "Bruker’s lax internal controls allowed employees in its China offices to enter into sham ‘collaboration agreements’ to direct money to foreign officials and send officials on sightseeing trips around the world." Brockmeyer noted that Bruker undertook "significant remedial steps to revise its compliance program and enhance internal controls over travel and contract approvals."

Sanctions. Bruker, the Commission said, lacked an adequate system of internal accounting controls sufficient to prevent and detect the improper payments. Bruker also failed to adequately monitor and supervise the senior executives at the Chinese offices to ensure that they enforced anti-corruption policies. As a result, the senior employees at those offices had unsupervised control over the compliance process and abused their privileges.

The Commission ordered Bruker to cease and desist from its violations of the books and records and internal controls provisions of the FCPA. Bruker was ordered to pay $1,714,852 in disgorgement, $310,117 in prejudgment interest, and a civil monetary penalty of $375,000. The Commission did not impose a higher civil penalty at this time due to Bruker's prompt and significant cooperation with the investigation.

The Release is No. 34-73835.

Attorneys: Todd Chronan (Goodwin Procter LLP) for Brucker Corp.

Companies: Brucker Corp.

MainStory: TopStory Enforcement AccountingAuditing FraudManipulation InternationalNews

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