Lessons learned: BHP Billiton fined for providing public officials luxury travel

June 3, 2015

By Julie DiMauro, Regulatory Intelligence

NEW YORK, June 3, 2015 (Thomson Reuters Regulatory Intelligence) – The Securities and Exchange Commission on Wednesday charged global resources company BHP Billiton with violating the Foreign Corrupt Practices Act (FCPA) when it sponsored foreign government officials as guests at the 2008 Summer Olympics in Beijing.

As a result of the SEC’s cease and desist order, BHP Billiton agreed to pay a $25 million penalty to settle the regulator’s charges. BHP is headquartered in the UK and Australia and trades on the New York Stock Exchange via American Deposit Receipts, giving the SEC civil-enforcement jurisdiction in this case.

According to the order, BHP Billiton invited 176 government officials and employees of state-owned enterprises to the Olympic games at the company’s expense, ultimately paying for 60 guests and some spouses and others who joined them.

Sponsored guests came mainly from Africa and Asia, the SEC said. The guests enjoyed three- and four-day hospitality packages worth between $12,000 to $16,000 which included event tickets, luxury hotel accommodations and sightseeing excursions.

BHP informed its employees that “[o]ne of the core objectives [of the sponsorship] is to maximize the commercial investment made in the Games through assisting [BHP] to strengthen relationships with key local and global stakeholders, e.g.: Government Ministers, Suppliers and Customers,” and that the hospitality program was “a primary vehicle to ensure this goal is achieved.”

An SEC investigation found that the world’s biggest miner, “failed to devise and maintain sufficient internal controls over its global hospitality program connected to the company’s sponsorship of the 2008 Summer Olympic Games in Beijing.”

Internal control failures

BHP Billiton required business managers to complete a hospitality application form for any individuals they wanted to invite to the Olympics, including government officials. The company failed to give employees with any specific training on how to complete forms or evaluate bribery risks of the invitations, the SEC noted.

“BHP Billiton recognized that inviting government officials to the Olympics created a heightened risk of violating anti-corruption laws, yet the company failed to implement sufficient internal controls to address that heightened risk,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.

Due to these failures, a number of the hospitality applications were inaccurate or incomplete, and BHP Billiton extended Olympic invitations to government officials connected to pending contract negotiations or regulatory dealings, the SEC said.

BHP did not require independent legal or compliance review of hospitality applications by someone outside the customer service group (CSG) that was submitting the application, and did not clearly communicate to its employees the fact that its Ethics Panel was not reviewing and approving each invitation.

In fact, other than reviewing approximately 10 hospitality applications for government officials in mid-2007 in order to assess the invitation process, the company’s Olympic Sponsorship Steering Committee nor its Ethics Panel subcommittee did not review the appropriateness of individual hospitality applications or airfare requests.

Furthermore, BHP had no process in place to determine whether any invited government official also was involved in other corporate negotiations, efforts to obtain access rights, or other business dealings with itself.

Lessons learned

The accounting provisions in the FCPA require covered corporations to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls.

Although the regulatory environment continues to shift in many ways, since 1998, the FCPA’s provisions have applied to foreign firms whose securities are listed in the United State and persons who take any act in furtherance of such a corrupt payment while in the United States. There are few surprises here: the law makes it illegal to offer anything of value as a bribe, including cash or non-cash items.

The ascending numbers in FCPA case-settlement values underline the increasing severity of the Act’s enforcement and underscore the need for firms to invest extra due diligence in preventing violations and subjecting their business and stakeholders to costly fines and poor public publicity.

The main pitfalls into which BHP fell was the lack of training given to its business managers that had consistency, clarity and monitoring. Its communications with managers was replete with contradictions — encouraging them to invite key business contacts as guests to the Games, while warning them of the risks.

There was no clearly demarcated “Do not do this when they factors are present” and no central repository of knowledge for those managers to turn to with their questions about specific (and potential) business partners and specific, potential guests.

The firm should have done a complete risk assessment as to the potential risk issues such a program could have created, and how plausible containing these risks would be, with the input of the board of directors.

If the program was deemed worthy of the risks involved, BHP should have created a specific Code of Conduct related to the program, and crafted policies that clearly outlined the behaviors expected of employees.

The proper oversight is integral with any such initiative in which clients or potential clients are being given items of value. The firm’s compliance program must have adequate oversight at a people level in these cases and effective control measures at a process level.

Such controls will anticipate that when Manager A tries to extend an invitation to attend the Olympic Games to a client with pending business, Manager A’s action will be red-flagged and examined by an independent person who is trained to deal with this examination and cloaked with the authority needed to make overriding judgments based on potential risk to the firm.

A policy management system that makes it easy for employees to read and attest to the firm’s policies, and elevate their concerns, is always essential, but even more so when the policies relate to new programs and ones already flagged as risky.

Confidential, multi-language phone- and Web-based reporting options, backed by an experienced staff, can encourage employees to share their concerns, and help the firm evidence their adherence to proper risk-monitoring, compliance oversight, and incident follow-up.

 

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