3M Company: One Itinerary for Compliance, Another for the Customer

In the 3M Company FCPA case, the company agreed to a FCPA settlement requiring a $2 million civil penalty and repayment of profits over alleged tourism disguised as educational travel for Chinese healthcare officials. The Securities and Exchange Commission alleged that employees prepared one itinerary for compliance approval and another for the customers taking the trip. If you arranged those trips, approved the invoices or tracked the sales afterward, we can help you turn that knowledge into a case.

The agency’s August 25, 2023 order accused 3M of keeping false books and failing to control how its money moved, in violation of the Foreign Corrupt Practices Act. It described alleged conduct at 3M-China, a China-based subsidiary of the global manufacturer headquartered in St. Paul, Minnesota, from at least 2014 to 2018. The agency’s account ran from the travel agenda to the vendor payment and into the parent’s accounts.

The Customers Could Influence Healthcare Purchases

The officials in the order’s account worked for 3M-China’s state-owned healthcare customers. Employees allegedly targeted influential officials for overseas conferences, educational events and healthcare-facility visits, using the trips to induce purchases of 3M products. A former marketing manager allegedly coordinated with two China-based travel agencies, with help from employees in sales, marketing and professional services.

That setting matters to anyone selling into public health care. In 2015 remarks on pharmaceutical sales and internal controls, the Securities and Exchange Commission’s enforcement director explained that doctors, pharmacists and administrators at foreign public hospitals often decide which products those institutions purchase. The customer relationship can therefore put a sales team directly in contact with public purchasing power.

The alleged benefit here was overseas travel and hospitality offered to people whose institutions bought the company’s products. The order said the educational events often served as a pretext for sightseeing and entertainment intended to obtain or retain that business. We see the commercial problem plainly: the person influencing the hospital’s purchases gets a holiday from the seller.

The Conference on Paper and the Trip in Practice

The SEC alleged that compliance staff received itineraries showing legitimate business, training and marketing activities, while customers received alternate agendas filled with tourism. Employees allegedly handed those agendas to participants or circulated them through personal WeChat accounts, asked participants to keep them hidden, and falsified compliance documents that denied or omitted the planned tourism. The company had an approval process. The allegation is that the people arranging the trips fed it a different trip.

The order’s trip examples make that difference concrete. A nine-day trip through St. Paul, Nashville and Los Angeles in 2017 had educational activities scheduled every day on the official agenda. The alternate itinerary had only one day of those activities, with most of the remaining days devoted to tourism. At least some officials did not understand English and had no interpreters.

The order also described a 2016 Chicago trip where two officials brought their spouses. One official and his spouse left the city the evening the educational event started and returned after it ended for tourism. Another official attended one day, left Chicago and never returned. The allegation goes beyond a sightseeing detour: the guests skipped the event that justified the invitation.

How the Travel Agencies Allegedly Covered the Spending

The SEC alleged that employees used the travel agencies to cover their own tourism expenses that company policy would not reimburse. Sometimes they inflated otherwise legitimate invoice items, such as travel costs. Sometimes they submitted unpermitted invoices directly to the travel agencies for reimbursement, and sometimes the agencies, supported by employees, directed distributors to pay portions of those expenses.

That puts the distributor and the travel vendor inside the alleged accounting disguise. A distributor asked to absorb a side-trip expense would see a different part of the transaction from a compliance reviewer approving an educational agenda. A finance employee reviewing an inflated travel line could see the payment without seeing the leisure activity it funded.

The order also described a separate funding arrangement: between February 2016 and September 2018, 3M made 15 transfers totaling $254,000 directly to a China travel agency for vaguely described marketing efforts. According to the order, the funds were not assigned to particular projects. The agency and 3M-China employees could distribute them at their discretion, and some went toward tourism costs.

The books-and-records allegation concerned what the accounts said: tourism was recorded as legitimate business expense, and the subsidiary’s accounts were consolidated into 3M’s books. The internal-controls allegation concerned how the money moved: 3M lacked adequate oversight of cross-border vendor transfers and their purposes.

Sales After the Trip Supplied the Business Reason

The order alleged that 3M-China employees measured sales after the educational trips and that management asked for the “return on investment.” One employee tracked purchases by a state-owned customer after its officials traveled, checking them against sales goals. Management also sought comparisons of sales before and after an event.

The order puts the spending beside the benefit: from at least 2014 through 2017, nearly $1 million funded at least 24 trips that included tourism, and the SEC attributed at least $3.5 million in improper benefit to increased sales. We would put those sales comparisons beside the alternate agendas. They connect what the customer received to what the business expected back.

What the SEC Required

The settlement required 3M to surrender $3,538,897 in profits, alongside the civil penalty. The payment terms directed payment to the Securities and Exchange Commission for transfer to the U.S. Treasury. The order also said 3M ended its relationships with the travel agencies and added controls over cross-border transfers.

What an Insider Can See in the Records

The distinctive whistleblower evidence in this case connects a trip approved on paper to the benefit delivered and the expense recorded. A sales or marketing employee may know why a particular customer was invited and which agenda the customer received. Someone arranging travel may know which event was skipped, who requested sightseeing, or why the invoice changed.

A distributor may know why it was asked to cover expenses outside the company’s reimbursement rules. A finance employee may understand a payment described only as marketing, while a manager may know why sales to the guest’s institution were reviewed after the trip.

We work with the insider to connect those views. The approved agenda, the actual itinerary, the vendor’s bill and the sales comparison each answer a different question about what the company was buying. Your knowledge of how the business used those records can explain a discrepancy the accounting entry alone would hide.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For Foreign Corrupt Practices Act accounting matters, the SEC whistleblower program offers awards totaling 10% to 30% of the money collected in qualifying cases. We assess the reporting and reward questions with you alongside the evidence.

The Same Disguise in Other Companies

In the BHP Billiton matter, the SEC alleged that Olympic hospitality applications identified some state-enterprise employees as customers but left out their government roles. The 2015 order also described an invitation to Burundi’s mining minister that employees failed to revisit after negotiations began over a nickel exploration permit. The form stayed put while the business relationship changed, leaving the people reviewing hospitality without the facts that made the invitation consequential.

In the Deere matter, the SEC alleged that Wirtgen Thailand, part of Deere’s road-equipment business, funded sightseeing for Thai highway officials under the label of a factory visit. The order described the contradiction between the invoice and the itinerary:

The Fresenius Medical Care case ties healthcare purchasing to another misleading marketing label. The 2022 Journal of Forensic and Investigative Accounting paper Fresenius Medical Care: A Case Study on the FCPA describes bonuses to publicly employed Chinese doctors who influenced clinic purchasing, recorded as “center marketing fees.” The timing tied the benefit to the customer’s purchases:

The paper also reports that an internal audit identified payments to a third-party agent without corresponding proof of service. That is the recurring question behind these different expense labels: what did the company actually buy, and who received the benefit? In the 3M allegations, the alternate itinerary and the post-trip sales review supplied unusually direct answers.

You Know Which Itinerary Was Real

If you saw customer sightseeing dressed up as education, talk with our whistleblower experts about the trip and the spending behind it. We work with you to build your strongest FCPA whistleblower case around the customer decisions, vendor payments and false records, and bring in FCPA whistleblower lawyers who understand healthcare sales and company accounting. We stay beside you as your knowledge of the business becomes the foundation of the case.