SEC Charges 3M with Foreign Corrupt Practices Act Violations Relating to China Subsidiary

The Securities and Exchange Commission (SEC) has made public its announcement regarding 3M Company’s resolution to pay over $6.5 million to settle charges of violating the books and records as well as internal controls provisions of the Foreign Corrupt Practices Act (FCPA).

The SEC’s findings reveal that employees from a wholly owned 3M subsidiary located in China orchestrated arrangements for Chinese government officials employed by state-owned healthcare facilities to participate in international conferences, educational events, and healthcare facility visits. These arrangements were purportedly part of the Chinese subsidiary’s marketing efforts. However, the SEC’s order discloses that these events often served as a guise to provide Chinese government officials with overseas travel opportunities, including tourism activities, with the intention to encourage their purchase of 3M products.

Specifically, between 2014 and 2017, the Chinese subsidiary of 3M offered Chinese government officials overseas travel that encompassed guided tours, shopping trips, local sightseeing, and other leisure activities. In several instances, these tourism activities were scheduled concurrently with the events the officials were supposed to attend, leading to the officials either missing substantial portions of the events or not attending them at all. Furthermore, certain events were conducted in English, despite the presence of Chinese officials who lacked English proficiency or adequate translation services. The SEC’s order also discloses that the Chinese subsidiary of 3M disbursed nearly $1 million to facilitate around 24 trips for Chinese government officials that included tourism components.

According to the SEC’s order, the employees of 3M’s China-based subsidiary, in collusion with Chinese travel agencies, devised travel itineraries for Chinese government officials that ostensibly revolved around legitimate events. However, these itineraries also included alternate agendas consisting of tourism activities. These alternate agendas were provided to the Chinese officials who undertook these trips, while official compliance personnel were presented with the approved, legitimate itineraries. This duplicitous approach was accompanied by falsified internal compliance documents that either omitted or denied the existence of the tourism activities, which were planned as integral parts of the overseas trips.

Additionally, the SEC’s order reveals that between February 2016 and September 2018, employees of 3M’s Chinese subsidiary orchestrated direct transfers of $254,000 to a Chinese travel agency, with the intention of assisting in covering expenses related to inappropriate tourism activities.

Charles Cain, Chief of the SEC’s FCPA Unit, emphasized, “This matter highlights the dangers to companies with global operations posed by inadequate internal accounting controls.” Cain further noted that the involvement of complicit third-party vendors exacerbated these dangers.

3M, without admitting or denying the SEC’s findings, has consented to a cease and desist order against future violations of the provisions. The company has also agreed to pay a total of $4,581,618 in disgorgement along with prejudgment interest, and an additional $2 million as a civil penalty.