Panasonic Avionics Corporation, a subsidiary of Panasonic Corporation, will pay $137.4 million to settle allegations it illegally paid consultants and committed accounting fraud. The U.S. Department of Justice (DOJ) filed charges against Panasonic Avionics alleging violations of the Foreign Corrupt Practices Act (FCPA).
In a related proceeding, the U.S. Securities and Exchange Commission (SEC) filed a cease and desist order against Panasonic wherein the multinational electronics company agreed to pay $143 million in disgorgement to the agency, bringing the total criminal and regulatory penalties to over $280 million.
The Allegations That Brought the Panasonic Avionics FCPA Settlement
Lake Forest, California-based Panasonic Avionics Corporation makes and sells the in-flight entertainment and communication systems for various airlines and airplane manufacturers around the world. Although in some parts of the world airlines are commercially owned, in other parts they are owned by the state.
Among the DOJ’s allegations against Panasonic Avionics:
- The company paid hundreds of thousands of dollars to a foreign official who worked at a state-run airline;
- The company paid hundreds of thousands of dollars to a domestic airline employee for sensitive, confidential information about the airline; and
- The company paid millions of dollars to sales agents in Asia who did not meet the company’s own diligence requirements.
The Foreign Corrupt Practices Act
Under the Foreign Corrupt Practices Act of 1977 (FCPA), it is illegal for companies to give money or anything of value to foreign officials so those officials will direct business to a specific company or person. In other words, it is illegal for businesses to bribe foreign officials. Furthermore, accounting provisions within the FCPA require companies keep accurate records of the company’s assets and not falsify any books, records, or accounts.
Whistleblowers are vital to protecting the government from FCPA violations. If you have firsthand knowledge of FCPA violations within your company but do not know what to do, it would be a good idea to speak with a whistleblower attorney to walk you through your options. An experienced whistleblower attorney will be able to answer any questions you may have about filing a claim and can explain what you may expect by coming forward.
Department of Justice Charges Against Panasonic in Detail
From 2007 to 2013, various employees at Panasonic Avionics—including people in executive positions—were part of or knew about the company’s use of consultants who provided little or no actual consulting services, according to DOJ. These consultants were allegedly retained via a third-party service provider and paid through a budget controlled by a senior Panasonic Avionics executive who had “complete control and discretion” over the payments without oversight from anyone at either Panasonic or Panasonic Avionics.
According to the DOJ, in July of 2007, a foreign official who was involved with a Middle East airline was given a consulting contract with Panasonic Avionics worth $875,000 over six years. This official could reportedly exert influence in contract negotiations between Panasonic Avionics and the Middle East airline. During the period that Panasonic Avionics allegedly paid the official, the company received $92 million in business from the airline.
However, a 2010 audit report did not find any deliverables associated with the official’s work. When questioned about it, Panasonic Avionics employees said there were no deliverables because the consultant had not been required to do anything in the year before the audit. Despite no evidence of work being done or requested, the consultant still received payment.
In October of 2007, Panasonic Avionics allegedly contracted with another airline consultant who worked for a domestic airline. According to DOJ, Panasonic Avionics paid this consultant around $825,000 over five years, during which time the consultant supplied Panasonic Avionics with information about the airline that was not publicly available and exerted influence during business agreements between Panasonic Avionics and the domestic airline.
According to DOJ, both of the above consultants were paid through Panasonic Avionics’ Office of the President Budget. This budget was not reviewed and was not approved by anyone at Panasonic Avionics, despite having a value of more than several hundred thousand dollars per year.
The money was allegedly funneled from the Office of the President Budget through a third-party service provider to the consultants, who were not subjected to oversight from the service provider. Instead, the service provider only functioned to funnel payment to the consultants. The Panasonic Avionics executive responsible for the payments falsely reported that these payments that passed through the service provider to the consultants were legitimate.
Panasonic Avionics Allegedly Concealed Payments to Sales Agents
The Justice Department alleged that between 2007 and 2016, Panasonic Avionics illegally paid sales agents who did not pass the company’s own diligence requirements. Panasonic Avionics allegedly terminated its relationship with these sales agents per company compliance policies, but certain employees then secretly continued to use the sales agents by allowing them to be rehired as subagents that had passed the company’s due diligence checks.
Through this process, Panasonic Avionics employees allegedly hid more than $7 million in payments to at least 13 subagents, some of which did not pass due diligence checks, by improperly reporting the payments as legitimate commission payments to various other sales agents. Despite receiving warnings and red flags about this conduct, certain Panasonic Avionics employees took no action to prevent the continued use of illegal payments to sales agents that did not meet internal diligence requirements.
Panasonic Avionics was also charged with causing Panasonic to falsify its books and accounts related to the payment of consultants through the Office of the President Budget. For example, Panasonic listed the $875,000 in consulting fees to the foreign consultant as “selling and general administrative expenses” based on information from Panasonic Avionics’ general ledger.
