On August 25, 2023, the Securities and Exchange Commission (“SEC”) accepted an Offer of Settlement from 3M Company (“3M”), an international conglomerate, in response to alleged violations of the Foreign Corrupt Practices Act’s (“FCPA”) books and records and internal accounting control provisions (§§ 13(b)(2)(A) – (B) of the Securities Exchange Act of 1934).
3M did not admit or deny the charges but agreed to pay a fine of $6,581,618 to resolve allegations that its China-based subsidiary, 3M China, improperly accounted for travel and hospitality expenses. This is a clear case with substantial lessons for legal professionals in corporations and law firms, particularly those dealing with international subsidiaries and issues of compliance with anti-bribery and corruption provisions.
While the FCPA’s primary goal is to prevent corrupt practices in international business operations, it also places a strong emphasis on accounting transparency. The provisions under the Securities Exchange Act require issuers to maintain accurate books and records and to implement a system of internal controls that can prevent and detect any FCPA violations.
The 3M case marks a critical reminder of these non-bribery provisions of the FCPA, paying specific attention to an organization’s management of its internal accounting procedures, especially related to travel and hospitality expenses for international clients. Effective compliance programs within firms are therefore crucial, both for minimizing legal risks and for building robust business practices globally.
The financial penalty imposed on 3M serves as a significant reminder of the SEC’s commitment to enforcing the FCPA provisions rigorously. It is a wake-up call to the business community and invites legal departments to reassess their internal processes and determine if they align with the standards required by the FCPA.
Moreover, with the focus on travel and hospitality expenses, the case invites further scrutiny of these often overlooked areas of potential FCPA concern. These matters underline the importance of ensuring that all corporate expenses, even those that do not appear directly related to business operations, comply rigorously with FCPA regulations.