September 22, 2018

SEC Charges Diageo with FCPA Violations

On the 27th of July the US Securities and Exchange Commission charged the UK based liquor distributor Diageo plc with violations of the Foreign Corrupt Practices Act (the FCPA). The investigation into the company revealed that in order to boost the sale of brands such as, Johnnie Walker and Windsor Scotch wiskies, Diageo, through its subsidiaries, repeatedly engaged in unlawful activities in India, Thailand, and South Korea.

According to the SEC report, Diageo India Ltd., an indirect subsidiary of Diageo, allegedly spent 1.7 million dollars in payments to Indian government officials who were responsible for the sale and distribution of alcoholic beverages. In Thailand, the subsidiary Diageo Moet Hennessy Thailand, allegedly paid over half a million dollars to retain the council of a Thai government official, who persuaded other officials to favor Diageo in numerous tax and sales issues that threatened to undermine the companies sales. Likewise, in 2003, Diageo Korea Ltd. was facing an uphill battle with the South Korean government due to intense custom and tax regulations.

These issues were resolved in 2004, however, with the S. Korean government giving Diageo Korea a 50 million dollar tax rebate. Several months later the company allegedly gifted a South Korean official 86 thousand dollars for consulting services.

According to their report, the SEC’s investigation uncovered widespread creative accounting, in which the financial managers of the various Diageo subsidiaries allegedly covered up the bribes by labeling them as “special rebates” or “trade incentives”, giving the illusion that the money was being spent on legitimate business expenses.

This illegal activity was allegedly carried out over a period of six years and as a result Diageo’s sales were boosted in the aforementioned countries by 11.3 million dollars. In failing to properly record and maintain their financial records Diageo violated the FCPA.

During the investigation Diageo cooperated fully and upon the final report agreed to settle the case for a total of 16 million dollars. The settlement did not include an admission of guilt but the company agreed to comply with the anti-bribery laws in the future and pay 13 million dollars in restitution, as well as a 3 million dollar fine.

Read more:
SEC slaps Diageo $16 mn fine for bribery in India, Thailand
Bribery: USA penalties for UK company Diageo
Foreign Corrupt Practices Act (FCPA)

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