From the perspective of global anti-bribery compliance, the U.S. Securities and Exchange Commission’s (“SEC”) resolution with United Technologies Corp. (“UTC”) provides a host of examples of inadequate if not improper vetting.1 Based upon the cease-and-desist order, the failure does not appear to have been a product of the absence of policies and procedures. Rather, the failure to adequately implement and actively enforce the policies and procedures appears to have been the underlying cause.
For example, in UTC’s efforts to promote sales of elevators of its subsidiary in Russia and Azerbaijan, the level of scrutiny was remarkably relaxed for a part of the world where the likelihood of corruption is generally deemed to be high.
The transactions with the intermediaries did not follow normal procedures, yet between 2012 and 2014, Legal, Finance, and business employees all failed to prevent the improper transactions. Before the contracts were executed, Legal personnel merely confirmed that the contracts contained standard terms. No reviewer sought to confirm that the intermediaries had undergone due diligence as required by Otis policies or inquired about contractual terms that showed that the intermediaries were acting as distributors. Further, there was no review of the financing structure that would have identified the pricing differentials that generated excess funds intended for Liftremont officials.2
In China, officials of a division of UTC, Pratt & Whitney, were seconded to International Aero Engines (“IAE”), a joint venture where Pratt & Whitney had a majority interest.3 IAE entered into a success fee arrangement with a Chinese sales agent.4 In 2009, “the agent requested a commission advance of $2 million purportedly for an office expansion. The agent provided no documentation to support its need for the advance. Moreover, there was little basis to believe that the agent, who mainly arranged introductions and meetings, actually intended a $2 million office expansion.”5
The Pratt & Whitney officials agreed to advance the commissions to the agent.6 Subsequently, the agent provided propriety information that aided IAE in winning its bid.7 However, UTC’s Legal Department was not apprised of the receipt of the proprietary information as required by its policy.8 It was later learned that the airline official was paid over $160,000 to secure the confidential information from a state-owned Chinese airline.9
UTC was also found to have improperly funded leisure travel and entertainment for foreign officials. “UTC policies required the Legal Department to review and approve all leisure travel and entertainment as gifts to a foreign official. Nonetheless, employees frequently circumvented this requirement by submitting travel for foreign officials for approval without disclosing the leisure and entertainment component. On occasion, the travel was included as a cost component in the contract with the end customer and was therefore not submitted for appropriate approval.”10
Violations of the anti-bribery and accounting and record-keeping provisions were involved11 No suggestion is made in the cease-and-desist order that UTC failed to have any specific policies or procedures. What is consistently apparent is the failure to abide by its own policies and procedures. The question arises as to whether expanding the business or meeting sales goals took precedence over compliance considerations. But the cease-and-desist order creates an impression of a lack of emphasis on carefully following policies and procedures in settings where risks of corruption are generally perceived as being significant.
1Order Instituting Cease-and-Desist Proceedings, In the Matter of United Technologies Corporation, Admin. Proceeding No. 3-18745 (Sept. 12, 2018).
2Id. at ¶ 16.
3Id. at ¶ 6, 16.
4Id. at ¶ 24.
5Id. at ¶ 26.
6Id. at ¶ 26.
7Id. at ¶¶ 27-28.
8Id. at ¶ 29.
9Id. at ¶ 30.
10Id. at ¶ 39.
11Id. at ¶¶ 46-48.