United Technologies pays $13.9 million to settle S.E.C. charges it paid illegal foreign bribes in Azerbaijan and China

United Technologies Corporation of Connecticut will pay the Securities and Exchange Commission $13.9 million to end charges that it violated federal law by bribing Azerbaijani officials to get public housing elevator businesses in Baku. The company also bribed a Chinese sales agent in an attempt to obtain confidential information from a Chinese official to help win engine sales to state-owned Air China, through a joint venture. The SEC also said that United Technologies improperly provided trips and gifts to various foreign officials in China, Kuwait, South Korea, Pakistan, Thailand, and Indonesia through its Pratt & Whitney division and Otis subsidiary. Azerbaijan is located just north of Iran on the Caspian Sea.

In Azerbaijan, the Otis Elevator unit hired agents from Russia without doing any due diligence.”None of [the agents] had local experience in Azerbaijan or reliable experience in either import/export or the elevator industry,” the SEC order said.

In China, an agent for a joint venture that included Pratt & Whitney asked for and received “a commission advance of $2 million purportedly for an office expansion,” the SEC said. The agent didn’t provide any documentation to support its need for the advance. The joint venture paid the China agent $55 million in commissions from 2009 to 2013.

The Foreign Corrupt Practices Act (FCPA) prohibits companies and their individual officers from influencing foreign officials with any personal payments or rewards. It applies to any person who has a certain degree of connection to the United States and engages in corrupt practices abroad, as well as to U.S. businesses, foreign corporations trading securities in the U.S., American nationals, citizens, and residents acting in furtherance of a foreign corrupt practice, whether or not they are physically present in the U.S. Any individuals involved in these activities may face prison time.

The FCPA’s anti-bribery provisions prohibit US persons and companies (domestic concerns), (2) companies organised under US laws, (3) companies that have their principal place of business in the US, (4) companies listed on stock exchanges in the US or (5) companies required to file periodic reports with the SEC (issuers), and (6) certain foreign persons and businesses acting while in the territory of the US (territorial jurisdiction) from making corrupt payments to foreign officials to obtain or retain business.

A covered individual or entity that violates the FCPA can be subject to criminal charges by the DOJ, which might lead to imprisonment or a fine, in addition to penalties by the SEC of up to $500,000 or the amount by which the entity profited from the offense. The definitions of “payment” and “foreign official” are broad and cover virtually any benefit conferred on someone in a position to affect a person’s business dealings with a foreign government. Nonmonetary benefits, including travel and entertainment, fall within the FCPA’s definition. Likewise, the DOJ has taken the position that employees of state-owned business enterprises are “foreign officials” for purposes of the FCPA. The statute contains no monetary threshold; even the smallest bribes are prohibited.

Under the terms of the FCPA, a bribe need not actually be paid in order to violate the law. Rather, the FCPA prohibits the offer, authorization, or promise to make a corrupt payment in addition to the actual payment.  The FCPA prohibits payments made with a “corrupt” motive.