Former CEO of Harris Corp China unit settles FCPA offenses with SEC

The former chief of Harris Corporation’s Carefx subsidiary in China agreed to pay the SEC a civil penalty for helping bribe officials with up to a million dollars in gifts and covering up the scheme in Harris’s books and records.

Jun Ping Zhang, 50, a United States resident and citizen, paid a civil penalty of $46,000.

He worked for Harris in 2011 and 2012, serving as both Harris’s vice president of technology and CareFx China’s chairman and CEO.

Ping directly authorized or indirectly allowed between $200,000 and $1 million in improper gifts to government officials at Chinese state-owned hospitals and regional Departments of Health, the SEC said.

CareFx China sales staff submitted bogus expense receipts labeled as “entertainment,” “office expenses,” or “transportation” to CareFx China’s accounting department for cash reimbursement.

The sales staff used the cash generated from the sham expense reimbursements to pay for gifts to government officials.

Ping and the supervisors he managed authorized the bogus expense claims knowing how the money was spent.

Ping submitted CareFx China’s books and records to Harris knowing the bogus expenses were improperly recorded in them.

During pre-acquisition due diligence process, Ping didn’t disclose the bribery and cover up to Harris’s attorneys, the SEC said.

In April 2012, Harris “relieved Ping of his duties as chairman and CEO of CareFx China and later terminated his services at Harris in July 2012,” the SEC said.

Florida-based Harris Corporation (NYSE: HRS) provides IT services. It bought CareFx in April 2011. CareFx’s revenues accounted for less than 1% of Harris’s gross revenues.

In December 2011, Harris dissolved CareFx as a separate business entity.

In 2012, Harris sold all of CareFx China’s “outward facing operations,” the SEC said. And in mid 2015, Harris terminated all employees in CareFx China and no longer has any active China-based business operations.

As an example of Ping’s practices, the SEC said in 2011 a CareFx China sales manager sent an email asking approval for $3,000 to $4,600 to buy the director of Zhongnan Hospital of Wuhan University a laptop, cell phone, and camera.

The sales manager said “if we don’t do this, sooner or later some other company will. This is how the business environment is in China.”

The sales manager also said some of the money would be used to cover the vacation travel of other high-level staff at Zhongnan Hospital.

Ping responded to the email that same day with the message: “You are doing a great job. This is very exciting. Thanks.”

The sales manager eventually submitted bogus expense claims for $5,600.

CareFx China signed contracts with Zhongnan hospital in 2010 and 2011 worth about $165,000.

In 2012, Harris disclosed that it “became aware that certain entertainment, travel and other expenses in connection with the Carefx China operations may have been incurred or recorded improperly.”

The company conducted an internal investigation and self disclosed the results to the SEC and DOJ.

The SEC said Tuesday in an administrative order that Ping caused Harris to violate the FCPA’s books and records provisions.

Ping also knowingly circumvented Harris’s system of internal controls, the SEC said.

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The SEC’s Securities Exchange Act of 1934 Release No. 78825, Accounting and Auditing Enforcement Release No. 3800, and Administrative Proceeding File No. 3-17535 (all dated September 13, 2016) In the Matter of Jun Ping Zhang are here (pdf).

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Richard L. Cassin is the publisher and editor of the FCPA Blog. He’ll be the keynote speaker at the FCPA Blog NYC Conference 2016.