United Technologies SEC FCPA Enforcement Action: Gifts, Meals, Entertainment and Travel Abuse and Bribery (Part II of II)
When you read through the United Technologies SEC FCPA enforcement action, you cannot help but shake your head – the level of abuse and participation by senior managers in the UT companies – Pratt & Whitney and Otis Elevator is disturbing.
As outlined in the SEC settlement, from 2009 to 2015, Pratt & Whitney and Otis Elevator improperly provided trips and gifts to various foreign officials.
The Chinese agent at the center of the bribery scheme to secure confidential information and contracts from Chinese state-owned airlines also used luxury gifts and entertainment to advance his illegal operations.
The agent also requested advance payments for sponsorship of events for Chinese officials. The agent asked IAE, the Pratt & Whitney joint venture in China, to co-sponsor a golf event for senior Chinese state-owned airline executives. IAE’s GM/VP sought approval of a $30,000 contribution.
In requesting approval, the GM/VP misrepresented the nature of the event and deliberately characterized it as a “conference” to make it easier to get the request approved. Pratt also was seeking to contribute $40,000 separately as well.
The agenda they submitted showed two rounds of golf and nine hours of business meetings. IAE Legal approved the $30,000 contribution. The event was eventually postponed for a year. The sales agent asked for an additional $30,000 contribution for the following year. It was also approved.
The Pratt China President provided a false agenda for the two-day conference. The golf event eventually took place in 2011. The sales agent also gave the airline executives expensive gifts, such as iPads and luggage. No one ever informed Pratt Legal of the gifts.
UTC funded leisure travel and entertainment for foreign officials from various countries, including China, Kuwait, South Korea, Pakistan, Thailand and Indonesia. Employees circumvented a requirement that UTC Legal review all travel and entertainment expenses under its gifts policy by submitting travel for foreign officials without disclosing the leisure and entertainment portion.
For example, from 2009 to 2015, Pratt provided improper entertainment and leisure travel for up to five South Korean Air Force officials on seven occasions. The South Korean Air Force was purchasing aftermarket spare parts and repair services from Pratt, and Pratt was seeking to convert these into long-term contracts. The leisure travel was provided with little to no required review. On occasion when legal reviewed the contracts, legal failed to identify the sponsored travel issues and FCPA risks. Pratt supervisors failed to note that the destinations for travel were tourist locations, including Orlando, Florida, where Pratt did not have facilities. Most of the trips included a senior Air Force official who attended one meeting and then spent the remainder of the trip enjoying leisure activities. Pratt spent over $26,000 on entertainment and leisure travel for the officials.
Similarly, Otis Elevator also provided improper travel in connection with sales to China. In 2008, the Hangzhou branch of Otis China obtained a $27.6 million contract for a subway project. The Otis Elevator project manager approved a trip to Italy and Greece for seven foreign officials associated with the project, and claimed that the trip was to inspect Otis equipment in subways in use. No inspections occurred during the trip. The Shenzen branch of Otis China used a similar scheme to send seven government officials to New York City and Washington, D.C. Again, no elevator inspections were conducted at these locations.
UTC businesses provided “excessive” leisure and travel and entertainment in conjunction with legitimate business travel. From 2012 to 2014, Pratt paid for excessive, leisure hotel stays in Belgium and Amsterdam for Air Force officials from Pakistan, Thailand and Indonesia. The leisure component was four times as long as the legitimate business component (4 days of leisure for every one day of business). Similarly Otis Kuwait paid for leisure travel to Europe and China on seven trips for 27 foreign officials. These trips violated UTC’s corporate policies. The total amount spent on improper travel and entertainment was $134,000.