Insights Gleaned from Qualcomm's Venture
In a recent development, Qualcomm Inc. has been found guilty by the Securities and Exchange Commission (SEC) for violations of the Accounting Provisions of the Foreign Corrupt Practices Act (FCPA). The enforcement action highlights several important lessons for the compliance practitioner and serves as a reminder for both the compliance function and the human resources function to study the lessons that can help prevent a similar fate for their company.
The Order states that Qualcomm provided things of value and engaged in transactions that caused the company to fail to make and keep books, records, and accounts that accurately reflected the transactions and disposition of assets. The accounting provisions of the FCPA ensure that all public companies account for all of their assets and liabilities accurately and in reasonable detail. However, the question of what is 'reasonable detail' is not clearly addressed in this enforcement action.
One instance involved a son of an official receiving a $75,000 research grant, a Qualcomm internship, permanent employment despite not meeting hiring standards, a business trip to China, and a $70,000 loan from the EVP. Qualcomm varied from its standard hiring protocols to hire the son, which is a violation of internal controls. The hiring of the son was despite him receiving a "No Hire" rating and being considered a "drain" on teams he would join.
The recordation of transactions was done in a generic and nondescript manner that obscured their purpose. The Order mentions that meals, gifts, and entertainments were repeatedly missing from Qualcomm's gift logs. There was an instance where Qualcomm offered lavish hospitality packages worth approximately $95,000 per couple for the 2008 Beijing Olympics, but internal controls stopped this potential violation.
The FCPA Guidance requires companies to make and keep books, records, and accounts that accurately and fairly reflect their transactions and dispositions of assets. The enforcement action against Qualcomm presents an interesting mix of clear FCPA violations, a demonstration of the growing trend toward strict liability for violations of the Accounting Provisions, and one head-scratcher that would seem to point toward internal controls that did work.
The SEC Cease and Desist Order notes that FCPA compliance was not considered in Qualcomm's hiring process. The Qualcomm enforcement action reinforces the need for robust internal controls around the hiring process. The author advises consulting a qualified legal advisor before making any decision or taking any action that may affect your business.
The law firm involved in the negotiations with Qualcomm Inc. regarding FCPA violations related to accounting rules was Skadden, Arps, Slate, Meagher & Flom LLP. The author's publication allows for linking, posting, distributing, or referencing, provided attribution is made to the author.
In conclusion, the Qualcomm FCPA enforcement action serves as a warning to all companies to maintain strict internal controls and accurate record-keeping practices, especially in the hiring process. It underscores the importance of adhering to the FCPA Guidance and the Accounting Provisions of the FCPA to avoid potential legal and financial repercussions.
