Former SAP Director Settles FCPA Violation

A former regional director of SAP International Inc. pleaded guilty on August 12, 2015 to conspiracy to violate the Foreign Corrupt Practices Act by bribing Panamanian officials to win government technology contracts for SAP.

According to plea documents, in late 2009, SAP sought a multi-million dollar contract to provide a Panamanian state agency with a technology upgrade package.  In connection with his guilty plea, Garcia admitted that, to secure the contract, he conspired with others, including advisors and consultants to SAP, to pay bribes to two Panamanian government officials, as well as to the agent of a third government official (with the understanding that at least a portion of the money would be transmitted to the third official).  According to Garcia’s admissions, the conspirators used sham contracts and false invoices to disguise the true nature of the bribes.  Garcia further admitted that he believed paying such bribes was necessary to secure both the initial contract and additional Panamanian government contracts.

To fund the bribes, Garcia sold SAP software to a partner in Panama at discounts of up to 82 percent. The excessive discounts enabled the partner to create a slush fund from its excessive earnings on the other end of the sales and tap that money to pay the bribes to Panamanian government officials so SAP could sell the software. Garcia also received kickbacks of $85,965 from the slush fund.

Ultimately, SAP’s Panamanian channel partner secured the technology upgrade contract for $14.5 million, which included $2.1 million in SAP software licenses.  Soon thereafter, the Panamanian government awarded SAP’s channel partner additional contracts that included the provision of SAP products worth about $1.2 million.

The Securities and Exchange Commission (SEC) settled with Garcia through an administrative action and didn't go to court. Garcia violated the anti-bribery and internal controls provisions of the FCPA, according to the SEC's order.

To settle with the SEC, he agreed to disgorge the total amount of kickbacks he received -- plus prejudgment interest of $6,430 for a total of $92,395.

According to the SEC’s order instituting a settled administrative proceeding:

• Garcia circumvented SAP’s internal controls by submitting various approval forms to SAP that falsified the reasons for the excessive discounts to the local partner.
• Garcia used his SAP e-mail account and his personal e-mail account to communicate details of the bribery scheme and even identify the government officials and intended monetary amounts. 
• In an e-mail to one government official, Garcia attached a letter on SAP letterhead detailing fictional meetings in Mexico as requested by the official in order to justify a trip there on false pretenses.  The next day, Garcia sent a subsequent e-mail asking, “Any news …?  Was the document OK for him?  Can you ask him to finalize a deal for us in Feb-March, I need between $5 and $10 million.”

There are several interesting observations from this case.

• First, individuals continue to be held accountable for FCPA violations.
• Second, high discount schemes can be a cover for improper payments, which needs to be closely monitored by companies.
• Fourth, third parties continue to be the focus of compliance programs and the major facilitator of FCPA violations.
• Finally, so far there were no charges brought against SAP but there were no clear statement that the matter is being declined against employer either. Therefore, this will be a case to follow closely in the coming months.

Sources:

https://www.sec.gov/news/pressrelease/2015-165.html

https://www.justice.gov/opa/pr/former-executive-pleads-guilty-conspiring-bribe-panamanian-officials

Disclaimer: The opinions expressed in this Article are my own views and personal opinion and not those of my employer.