SEC, in a cease and desist order, said London-based Diageo offered bribes of $2.7m across India, Thailand and South Korea, violating the US Foreign Corrupt Practices Act (FCPA).
Diageo and its subsidiaries failed to properly account for the ‘illicit’ payments in their books and records, said the SEC. The bribes related to the firm’s Johnnie Walker and Windsor Scotch whiskeys, among other brands, said the US authorities.
The SEC said Diageo violated sections 13 (b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.
The revelations of the US SEC“are very serious, highlighted by the order to pay not only a $3m dollar penalty and the disgorgement of $11m, plus $2m interest on top of that,” said a food and beverage industry legal advisor, who wished to remain anonymous.
Disgorgement essentially means that monies obtained through alleged illegal or unethical means must be paid back as much as possible to the victims, he explained.
The SEC said Diageo cooperated with its investigation, implementing certain corrective measures, including the termination of employees involved in the misconduct and significant enhancements to its FCPA compliance programme.
“Diageo takes the SEC’s findings seriously and regrets this matter,” said the drinks group.
“Systems and controls have been enhanced in an effort to prevent the future occurrence of such issues and to reinforce, everywhere the company operates, a culture of compliance and commitment to the principles embodied in Diageo’s Code of Business Conduct,” it added.
Following the US investigation it is possible that a similar investigation may be undertaken within the UK, although UK legislation does not usually apply retrospectively and so any investigation would be concerned with potential offences committed since July 2011, said the legal advisor to the beverage sector.
However, he added that he was unable to comment on whether the SFO intend to investigate based on SEC’s findings.
Warning to companies
The legal advisor told this publication that he was not aware of a similar reported case involving a beverage company, but that the practice of making facilitation payments was likely to be in use throughout the food and drink industry.
Within the UK, “facilitation payments”, payments to government officials to assist in the product approval process, are regarded by the Serious Fraud Office as illegal, said the advisor.
He said the Bribery Act 2010 came into force in the UK in July of this year and contains similar provisions to the Foreign Corrupt Practices Act 1977 in the US.
“Organisations would be well advised to ensure that they fully comply with the requirements of the Bribery Act and the Foreign Corrupt Practices Act if they have representation within either the UK or US,” he said.
SEC said Diageo concealed payments to government officials by recording them as legitimate expenses for third-party vendors or private customers, categorising them in false or overly vague terms or, in some instances, failing to record them at all.
“As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments,” said Scott Friestad, associate director of the SEC’s Division of Enforcement.