After a lengthy investigation, Dun and Bradstreet (D&B) settled an FCPA enforcement action with the Securities and Exchange Commission for $9 million.  (Here).  At the same time, the Justice Department issued a declination letter, representing the first written declination under its new Corporate FCPA Enforcement Policy.  (Here).

D&B’s FCPA violations in China represent the perfect trifecta of risks and violations facing companies in China.  The D&B case provides important reminders on the risks of joint ventures in China; the dangers of third parties; and the importance of pre-acquisition due diligence.  In the end, D&B agreed to books and records and internal controls violations.

D&B operated two subsidiaries in China: Shanghai Huaxia Dun & Bradstreet Business Information Consulting Co. (“HDBC”); and Shanghai Roadway D&B Marketing Services (“Roadway”).  HDBC was a joint venture, owned 51 percent by D&B’s Chinese subsidiary and 49 percent by Huaxia International Credit Consulting Co.  HDBC and Roadway made improper payments to Chinese government officials.  These unlawful payments were inaccurately maintained in D&B’s books and records.

The HDBC joint venture was created in 2006.  D&B joined with Huaxia because of Huaxia’s “government connections.”  D&B’s due diligence review of Huaxia prior to the joint venture confirmed that Huaxia obtained critical business information from the Chinese government by directly bribing government officials.  Despite knowing this information, D&B failed to impose appropriate controls and mitigation strategies to prevent these illegal payments.

After the joint venture was created, D&B managers forced Huaxia to cease making direct payments to government officials for access to important information.  Eventually, D&B permitted the HDBC joint venture to make improper payments through third-party representatives.

In 2009, D&B acquired 90 percent of Roadway, a leading provider of direct marketing services.  Roadway’s operations raised significant risks of violating Chinese data privacy laws that restricted acquisition of personal information from government officials.  After the acquisition, Roadway violated this privacy law.

In pre-acquisition due diligence, D&B learned that Roadway awarded rebates/commissions to sales representatives that were partially shared with customers of Roadway’s services.  D&B made no attempt to confirm these arrangements and to learn whether some of the customers were state-owned entities.

After the acquisition, Roadway continued to rely on agents to acquire business data which was used to market its marketing of direct sales services.  D&B never audited these sources of information to determine whether bribes were paid to acquire this information.

In September 2012, the Chinese government charged Roadway and five individuals with data privacy criminal violations.  Roadway eventually paid a fine of $160,000 and five individuals were convicted of criminal violations.

D&B eventually learned that Roadway made illegal payments, directly and through third parties, to business decision makers, some of which were state-owned businesses, to purchase Roadway services.  These payments were inaccurately recorded in Roadway’s books and records as promotional expenses.

D&B’s initial disclosure to the SEC and DOJ occurred after Chinese authorities raided Roadway in 2012.

D&B’s remedial efforts were extensive, including closing the Roadway subsidiary and discontinuing HDBC’s illegal activities.  D&B terminated a number of employees and disciplined senior executives responsible for oversight of the Chinese operations.  D&B also doubled the size of its compliance and audit staffs; hired legal and compliance employees in China; and enhanced its anti-corruption policies and related procedures.