The Securities and Exchange Commission said Tuesday that Qualcomm Incorporated agreed to pay $7.5 million to settle charges that it violated the Foreign Corrupt Practices Act by hiring relatives of Chinese government officials.
The officials were in positions to decide whether to select Qualcomm’s mobile technology products amid increasing competition in the international telecommunications market, the SEC said.
The SEC settled the case through an internal administrative order and didn’t go to court.
Qualcomm Inc. — based in San Diego, California — is the world’s biggest mobile chipmaker.
Two years ago, the SEC staff recommended an FCPA enforcement action against the company. Hiring a family member or friend of a government official isn’t always a violation of the FCPA. But a hiring decision intended to reward or induce an official to award work can be an offense.
The bribery allegations and subsequent SEC investigation started in 2012 after a whistleblower complaint.
The investigation found that Qualcomm also provided gifts, travel, and entertainment to try to influence officials at government-owned telecom companies in China.
Nearly half of Qualcomm’s 2012 revenue — 42% — came from Chinese handset manufacturers and other Qualcomm customers and licensees in China.
According to the SEC’s administrative order,
• Qualcomm offered and provided full-time employment and paid internships to foreign officials’ family members internally referred to as “must place” or “special” hires in order to try to obtain or retain business in China.
• One official asked Qualcomm employees to find an internship for her daughter studying in the U.S. and the company obliged, acknowledging in internal communications that her parents “gave us great help for Q.C. new business development.”
• Another intern was hired by Qualcomm at the request of the director general of a Chinese agency. Human resources department e-mails described the intern as “a MUST PLACE” and described the hiring as “quite important from a customer relationship perspective.”
• Qualcomm provided a $75,000 research grant to a U.S. university on behalf of the son of a foreign official so he could retain his position in its Ph.D. program and renew his student visa. Qualcomm also provided him an internship and later permanent employment, and sent him on a business trip to China (during which he visited his parents over the Chinese New Year) despite concerns expressed about his qualifications for the assignment.
• The son’s initial interview for permanent employment resulted in a “no hire” decision because he was not “a skills match” and did not “meet the minimum requirements for moving forward with an offer.”
• Besides the preferential job treatment, a Qualcomm executive personally provided the official’s son with a $70,000 loan to buy a home.
• Qualcomm also provided frequent meals, gifts, and entertainment with no valid business purpose to foreign officials to try to influence their decisions, such as airplane tickets for their children, event tickets and sightseeing for their spouses, and luxury goods.
The SEC’s order Tuesday said Qualcomm violated the anti-bribery, internal controls, and books-and-records provisions of the FCPA.
“With insufficient internal controls to detect improper payments, Qualcomm misrepresented in its books and records that the things of value provided to foreign officials were legitimate business expenses,” the SEC said.
Without admitting or denying the findings, Qualcomm agreed to pay the $7.5 million penalty and self-report to the SEC for the next two years with annual reports and certifications of its FCPA compliance.
Qualcomm Incorporated trades on Nasdaq under the symbol QCOM.
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The SEC’s Securities Exchange Act of 1934 Release No. 77261, Accounting and Auditing Enforcement Release No. 3751, and Administrative Proceeding File No. 3-17145 (all dated March 1, 2016) In the Matter of Qualcomm Incorporated are here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He can be contacted here.