Last updated on October 2nd, 2019 at 12:00 pm
Sussex-based Quad/Graphics Inc. will pay nearly $10 million, including a $2 million civil penalty, to settle bribery charges from the SEC related to its Chinese and Peruvian subsidiaries.
The illegal actions included bribery payments to government and company officials in both countries to secure contracts, bribes to judges handling a tax case in Peru and concealing business dealings between the Peruvian subsidiary and Cuba.
The subsidiary was printing telephone books for a state-owned telecommunications company in Cuba. The company was barred from doing business in Cuba by U.S. sanctions.
A U.S.-based operations executive for Latin America at one point advised Quad Peru’s senior finance manager, general manager and several other employees to keep the word Cuba out of any reports because of concerns from the company’s legal department, according to an SEC order.
In a statement, Quad said the company is pleased to resolve the violations of the Foreign Corrupt Practices Act and trade compliance issues with the Securities and Exchange Commission and the U.S. Department of Justice.
“The conduct at issue — which the Company initially identified through our own internal financial controls and voluntarily self-reported to the authorities — was inconsistent with Quad’s values and policies, took place several years ago, and was limited to a few employees who are no longer with the Company,” the statement said.
Quad’s total payment of $9,895,334 includes disgorgement of $6.9 million in ill-gotten gains, $$959,150 in prejudgment interest and the $2 million civil penalty. The company is also required to report to the SEC periodically on its remedial efforts.
Those efforts include terminating those involved, enhancing the company’s compliance department, hiring an international trade compliance manager, recruiting and training compliance and internal audit personnel with anti-corruption expertise, implementing additional internal controls and updating several policies and procedures.
“Quad takes compliance very seriously, and we continuously enhance our policies and procedures in a manner that is consistent with the highest standards of ethics and integrity and our obligations under the law,” the company statement said.
The SEC order traces the issues in the case back to Quad’s 2010 acquisition of the Canadian firm World Color. The deal dramatically increased the size and international presence of the company while also taking it public.
“Despite becoming a publicly traded company with a large global workforce and operations in high risk areas, Quad’s compliance program was almost nonexistent in 2010,” the order said.
Quad did not have sufficient internal accounting controls or anti-corruption policies and appointed its first director of compliance, someone with an information technology background and no compliance experience, in 2011, according to the order.
Quad Peru was one of the subsidiaries acquired in the World Color deal.
In addition to the Cuban telephone books, the order says Quad Peru used fake invoices and sham vendors to pay out bribes to government officials.
The bribes were typically 13% of each work order and were used to secure contracts with the Peruvian National Institute of Statistics and Information. The company paid or promised more than $1 million in bribes from 2011 to 2016 that were often recorded as pre-press or related services.
Quad Peru also faced a potential $12 million tax charge – equal to two years of profits for Quad Peru – from Peruvian authorities. At the suggestion of its law firm in Peru, the company first paid out a $20,000 bribe to a judge in a lawsuit challenging the tax.
While the bribe was successful, the government appealed and a second bribe attempt failed and the appeals court ruled against Quad. The company made payments of nearly $210,000 related to the judicial bribery scheme.
The subsidiary ultimately won a favorable ruling the Peruvian Supreme Court in 2018.
In China, the company’s subsidiary – Quad/Tech China – used sham sales agents to make bribe payments Chinese officials and employees at two companies.
The payments were typically 2% of a sales order and were listed as “technical service fees.” From 2010 to 2015, the company paid out $182,000 and was unjustly enriched by a little more than $1 million.