Johnson Controls (JCI.N), a Milwaukee-based company, agreed on Monday to pay $14 million to settle Foreign Corrupt Practices Act charges with the Securities and Exchange Commission over conduct in China. The Justice Department closed its investigation into the matter partly because of extensive cooperation by the company and partly because it was a difficult to investigate foreign bribery case.
SEC said that Johnson Controls acquired China Marine in 2005 and it tried and failed to fix the misconduct it detected. China Marine used “phantom” venders to pay $4.9 million to employees of Chinese government-owned shipyards. The managing director and 18 employees of the subsidiary were involved.
Johnson Controls publicly settled with the Justice Department, under that agency’s pilot program to encourage companies to report bribery violations, in return for reduced penalties.
Johnson Controls terminated “all 16” employees involved in the misconduct, including high-level executives, the government said.
SEC in its statement said, “Johnson Controls’ internal controls over vendor payments were less rigorous, and China Marine operated with very little oversight by JCI’s Denmark office, which oversaw the Global Marine business. Even in the instances where managers in Denmark did a review, they did not understand some of the highly customized transactions at China Marine or the projects involving the sham vendors”.
The statement added, “Johnson Controls self-reported this misconduct to the SEC and cooperated with the investigation.”
Johnson Controls is preparing to merge with Dublin-based Tyco International Plc (TYC.N). This settlement removes a legal overhang for Johnson Controls in the proposed merger. Johnson Controls is buying Tyco International for $16.5 billion in a bid to lower its tax bill.
Johnson Controls Chief Executive Alex Molinaroli said, “At Johnson Controls, integrity is at the center of everything we do. The ability to identify and address issues when they do occur, reflects the company’s commitment to ethics, responsible management practices and the good governance systems that uphold them.”