US software biz fined $28 million for bribing Chinese buyers with free vacations, gifts

Goodies exchanged for deals

Massachusetts-based software maker PTC and two of its Chinese subsidiaries have been fined $28m for bribing buyers in the Middle Kingdom.

US regulator the SEC found that PTC, which builds design and process management software, broke the Foreign Corrupt Practices Act (FCPA) between 2006 and 2011. The American biz bunged vacations and gifts to buyers at state-owned companies in China, earning the firm $11.85m in revenues.

"PTC failed to stop illicit payments despite indications of potential corruption by agents working with its Chinese subsidiaries, and the misconduct continued unabated for several years," said Kara Brockmeyer, chief of the SEC Enforcement Division's FCPA Unit, on Tuesday.

The SEC, which levied the fine, said [PDF] PTC's Chinese operations made a habit of hiring third-party agencies, or "business partners," whose job was to find opportunities to sell the firm's software. The commission paid to these third-party companies wasn't fixed, but was awarded on a case-by-case basis and this allowed bribery payments to be concealed.

Further investigations showed that these partners spent nearly $1.5m in improper travel, gifts, and entertainment. Typically, Chinese officials would be invited to the Massachusetts head office for a day's training with the software, and would then spend another 10 days sightseeing at the company's expense.

For example, in May 2010 a PTC salesperson brought over a Chinese official for a day-long visit, followed by trips to the Grand Canyon, Las Vegas, and Universal Studios in Los Angeles, plus sightseeing in New York, Boston and Atlanta.

In July of that year, another salesperson brought seven officials over to the head office, and followed it up with trips to Niagara Falls, the Statue of Liberty and the Empire State Building in New York, the Grand Canyon, Las Vegas, and Universal Studios in Los Angeles, plus sundry shopping excursions.

Those two visits netted the firm about $9m in sales to China, but the money spent on the "training" trips was concealed by the firm's business partners to give the impression everything was above board and legitimate.

The SEC also established that between 2009 and 2011, PTC-China staff gave $274,313 in improper gifts and entertainment directly to local officials. These gifts typically cost $50 to $600 and included gift cards, iPods, smartphones and meals.

PTC head office audited its Chinese subsidiaries in 2006, 2008, and 2010 but failed to notice anything was amiss. It was only in 2011, when it was investigating misconduct by one of the PTC-China staff, that the head office called in independent auditors who spotted the corrupt payments.

The SEC said that PTC got in touch and self-reported the issues, and so it was taking a more lenient approach to fines. The parent company will pay $11.858m in disgorgement and $1.764m in prejudgment interest, with the Chinese subsidiary ponying up $14.54m to avoid prosecution.

"The company is pleased to have resolved this matter," a spokesperson told El Reg in an email.

"PTC has implemented extensive remedial measures related to these matters, including the termination of the responsible employees and business partners, the establishment of an entirely new leadership team in China, the establishment of a dedicated compliance function, and other enhancements to compliance programs." ®

Biting the hand that feeds IT © 1998–2018