Could Johnson Controls Have Prevented the Flagrant Circumvention of Its Revamped Compliance Program?

Johnson Controls (JCI) has agreed to pay $14 million to resolve SEC charges that employees of its subsidiary China Marine undermined the company’s revamped internal controls systems to make payments to sham vendors. Nicholas Berg, a partner at Ropes & Gray, said that “the Chinese subsidiary’s employees appear to have engaged in a carefully orchestrated effort to evade those controls in a way that was extremely difficult to detect.” Notably, China Marine was being supervised by a monitor in connection with a prior FCPA settlement both at the time it was acquired by JCI and when the illicit actions occurred. The DOJ announced its decision not to prosecute by publicly releasing a letter it sent to JCI, the third such letter since the implementation of the Pilot Program. The settlement highlights compliance issues, including the proper design of risk-based controls and internal reporting incentives. It also raises enforcement questions such as how long a company can wait to self-report under the Pilot Program and whether the DOJ had a case against JCI. See “Using the FCPA Pilot Program’s Remediation Requirements to Build a Best-in-Class Compliance Program” (May 18, 2016).

To read the full article

Continue reading your article with an ACR subscription.