Panasonic Avionics Corporation has agreed to pay a $137.4 million criminal penalty to settle 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 (FCPA). The company, based in Lake Forest, California, designs and distributes in-flight entertainment systems and global communications services for airlines and airplane manufacturers. According to court documents, PAC knowingly and willfully caused Panasonic to falsify its books and records with respect to its retention of consultants for improper purposes. The consultants, which did little or no actual consulting work for PAC, were retained through a third-party service provider and were paid for out of a budget over which a senior PAC executive had complete control and discretion, without meaningful oversight by anyone at PAC or Panasonic. One such individual was offered the consulting position by PAC at the time that he was employed by a state-owned airline and involved in negotiating a lucrative contract amendment on behalf of the airline with PAC. According to court documents, that consultant was subsequently paid $875,000 by PAC over a six-year period and PAC earned over $92 million in profits from portions of the contract over which the consultant had some involvement or influence while employed with the airline. PAC admitted that it mischaracterized these payments as “consultant payments” on its general ledger, which it knew caused Panasonic to incorrectly designate those payments as “selling and general administrative expenses” on Panasonic’s books, records, and accounts.
PAC also admitted that employees in its Asia region concealed PAC’s use of certain sales agents, which did not pass the Company’s internal diligence requirements. According to admissions and court documents, PAC formally terminated its relationship with these sales agents, as required by its compliance policies, but PAC employees then secretly continued to use the agents by having them rehired as sub-agents of another company, which had passed PAC’s due diligence checks. Through this process, PAC 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 subcertifications to Panasonic about PAC’s financials and financial controls, PAC caused Panasonic to falsify its books, records, and accounts in violation of the FCPA.PAC entered into a deferred prosecution agreement (DPA) in connection with a criminal information, filed today 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, PAC will pay a total criminal penalty of $137,403,812. PAC 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.
In a related proceeding, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against Panasonic, whereby the company 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 PAC is over $280 million.
Jeffrey Newman represents whistleblowers