PTC: Revisiting Individual Responsibility under the FCPA

Bailey Bliss

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Recently, the US Securities and Exchange Commission announced its first deferred prosecution agreement (DPA) with an individual in connection with a Foreign Corrupt Practices Act (FCPA) case. The SEC agreed not to charge Yu Kai Yuan, the sales executive for two Chinese subsidiaries of the US-based software company PTC Inc., for violating the FCPA’s internal accounting controls and recordkeeping requirements, so long as he continues to assist with the SEC’s on-going investigation of the company and does not commit further violations. The SEC’s decision to defer prosecuting Yuan reflects the increasing sophistication of US enforcement authorities in providing incentives to individual corporate employees in order to understand the true nature of possible company misconduct.

Even “regular” employees can become embroiled in foreign bribery incidents, so make sure your anti-corruption compliance efforts target all the right people.

In many ways, Yuan was a “regular Joe”; he was in sales. But as an executive, Yuan also likely had some degree of visibility into and responsibility for the activities his sales team was undertaking on behalf of the company. Many of these activities were suspect. According to the DPA, PTC’s Chinese sales team worked with local partners to drum up business with state-owned enterprises, paying them based on fees negotiated ad hoc at the time deals were closed (rather than basing fees on clear market-based standards). The sales team also provided “training trips” (which were in fact sightseeing trips) and other improper benefits to customers, and disguised or hid the costs of these benefits in the company’s books.

Think about your sales function. Do sales executives follow clear policies, procedures, and controls that limit opportunities for similar situations? Do they exercise appropriate oversight to ensure that their teams do the same? Does their compensation include a compliance component or is it purely sales-based (however achieved)? What about other corporate functions that could be involved (through helping to circumvent controls or otherwise) in similar misconduct?

Foreign bribery laws cast a wide net – sometimes even over employees on the other side of the world.

Yuan lived in China. He may not have expected to become involved in an investigation by US authorities. When engaging in anti-corruption training, personnel in far reaches of the world may ask, “What does this US (or UK or other country’s) foreign bribery law have to do with me? I don’t live in that country.” Foreign bribery laws often have a wide jurisdictional net, and the US in particular vigorously enforces the FCPA. Cases like Yuan’s can be used to remind foreign staff of the serious reasons supporting your company’s anti-corruption compliance program, including far-reaching enforcement.

Cooperation may be prudent

Public records do not say much about the circumstance under which Yuan began helping the SEC with its investigation of PTC. It is clear, however, that his cooperation with the SEC was a large part of why he was not charged. Both US and other enforcement authorities look favorably on individuals and companies that cooperate in investigations.

Companies with an operational view of compliance do not wait until they are under investigation to communicate with their employees (on an on-going, two-way basis) about what is happening on the ground. Instead, they encourage employees to bring up questions and issues of concern as soon as they arise. This allows the company to work with the individuals involved to screen the serious from the unimportant, to deal with actual incidents, investigate their underlying causes, and make any needed changes to the compliance program.

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