The Securities and Exchange Commission Monday charged Tokyo-based conglomerate Hitachi, Ltd. with violating the Foreign Corrupt Practices Act when it inaccurately recorded improper payments to South Africa’s ruling political party in connection with contracts to build two multi-billion dollar power plants.
Hitachi agreed to pay $19 million to settle the SEC charges.
The SEC alleged that Hitachi sold a 25-percent stake in a South African subsidiary to a company serving as a front for the African National Congress (ANC). The arrangement allowed the front company and the ANC to share in profits from any power station contracts that Hitachi secured.
Hitachi was ultimately awarded two contracts to build power stations in South Africa. It paid the ANC’s front company $5 million in “dividends” based on profits derived from the contracts.
Through a separate, undisclosed arrangement, Hitachi paid the front company another $1 million in “success fees” and inaccurately booked them as consulting fees without proper documentation.
“Hitachi’s lax internal control environment enabled its subsidiary to pay millions of dollars to a politically-connected front company for the ANC to win contracts with the South African government,” Andrew Ceresney of the SEC’s enforcement division said.
“Hitachi then unlawfully mischaracterized those payments in its books and records as consulting fees and other legitimate payments,” Ceresney said.
Instead of settling the enforcement action in the usual way through an internal administrative action, the SEC filed a civil complaint in U.S. District Court for the District of Columbia. The complaint is here (pdf).
The complaint alleged that:
- Hitachi was aware that Chancellor House Holdings (Pty) Ltd. was a funding vehicle for the ANC during the bidding process.
- Hitachi nevertheless continued to partner with Chancellor and encourage the company to use its political influence to help obtain government contracts from Eskom Holdings SOC Ltd., a public utility owned and operated by the South African government.
- Hitachi paid “success fees” to Chancellor for its exertion of influence during the Eskom tender process pursuant to a separate, unsigned side-arrangement.
The SEC charged Hitachi with violating the books and records and internal accounting controls provisions of the federal securities laws, specifically Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.
Hitachi settled the charges without admitting or denying the SEC’s allegations. The settlement still needs court approval.
The SEC said it had help from the Integrity and Anti-Corruption Department of the African Development Bank, and the South African Financial Services Board.
Kara Brockmeyer, chief of the SEC enforcement division’s FCPA unit, said: “We particularly appreciate the assistance we received from the African Development Bank’s Integrity and Anti-Corruption Department and hope this is the first in a series of collaborations.”
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Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.
4 Comments
Does anyone know whether Hitachi is US stock market-listed…or what jurisdiction does SEC have over it?
Here's part of the jurisdictional statement from the SEC's complaint:
At the time of the violations, and from at least January 1, 2005 until April 26, 2012, Hitachi's American Depositary Shares ("ADSs") – representing shares of common stock – were registered with the Commission under Section 12(b) of the Exchange Act [15 U.S.C. § 781] and were listed and traded on the New York Stock Exchange. Hitachi was an issuer of securities in the United States and filed reports on Fonn 20-F with the Commission pursuant to Section 13(a) of the Exchange Act [15 U.S.C. § 78m]. On April 16, 2012, Hitachi filed a Form 25 with the Commission voluntarily withdrawing its ADSs from listing and registration. The delisting was effective ten days later, on April 26, 2012, and Hitachi's duty to file reports under Section 13(a) of the Exchange Act was automatically suspended at the same time as the delisting.
— rlc
Why would the SEC not pursue disgorgement? Could it be they had a weak case? Based on the amounts involved and the alleged issues at hand, Hitachi seems to have gotten a slap on the wrist.
Many thanks for that Richard. Seems however that the jurisdiction then apparently extends even after de-listing. The SEC 'charge' seems current, meaning they are charging a company that delisted almost 4 years ago and has no other US ties. Is there no statute of limitation?
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