The liquor giant was found guilty of engaging in fraudulent activities.
Diageo, the London-based maker of Johnny Walker and Smirnoff brands, has agreed to pay $16 million to settle SEC charges for violating the Foreign Corrupt Practices Act.
The liquor giant was found guilty of engaging in fraudulent activities in India, Thailand and South Korea. Diageo's settlement includes a civil penalty of $11,306,081 in disgorgement, prejudgment interest of $2,067,739, and a further penalty of $3 million.
According to the SEC, the maker of top liquor brands, including Johnnie Walker and Windsor Scotch whiskies, paid $2.7 million in bribes through subsidiaries in exchange for sales and tax benefits. The SEC also found that from 2004 to mid-2008, Diageo paid approximately $12,000 per month – totaling nearly $600,000 – to retain the consulting services of a Thai government and political party official.
‘For years, Diageo’s subsidiaries made hundreds of illicit payments to foreign government officials,’ says Scott Friestad, Associate Director of the SEC’s Division of Enforcement. ‘As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments.’
Moreover, Diageo paid up to $100 million in Korean currency (more than $86,000 in US dollars) to a customs official in South Korea as a reward for his role in the government’s decision to grant Diageo significant tax rebates. Other payments were expended on travel and entertainment that related to the tax negotiations.
The regulator confirms Diageo fully cooperated with the investigation and took immediate corrective action, ‘including the termination of employees involved in the misconduct and significant enhancements to its FCPA compliance program.’ ‘It's unusual for the SEC to resolve FCPA violations with administrative action only,’ says Richard Cassin on his FCPA blog. ‘Usually it files a civil enforcement suit in federal court.’
