NCH Corporation: The Corporate Declination
The NCH Corporation FCPA case concerned approximately $44,545 in cash, gifts, meals and entertainment provided to Chinese government officials to influence purchasing decisions. The Justice Department’s Criminal Division, Fraud Section described that conduct in its September 29, 2016 declination letter, whose facts and conditions NCH agreed to. NCH was an industrial supply and maintenance company based in Irving, Texas. The letter described employees of its Chinese subsidiary paying people who worked for its state-owned and state-controlled customers, then recording the bribes as customer expenses.
Bribes Recorded as Customer Expenses
According to the letter, employees of NCH China provided those benefits from about February 2011 until mid-2013. The recipients worked for customers whose purchasing decisions the employees sought to influence. This put the bribery inside the relationship between a supplier and the people buying its products for government-owned or government-controlled businesses. The customer connection is what makes the accounting language worth examining: the spending went to people with influence over purchases from NCH China.
The letter identifies entries described as “customer maintenance fees,” “customer cooperation fees,” and “cash to customer.” Those were the labels NCH China used in its internal accounting records for the bribes. A finance employee reading those entries and a sales employee dealing with the recipient would see different parts of the same transaction. We connect the expense description to the person who benefited and the purchasing decision the company wanted to influence.
The letter also says an NCH executive in the United States, responsible for overseeing the company’s business in China, reviewed the expenditures. That connects the local payments to oversight at the parent company. For an insider who knows how customer spending reached management, the review history matters alongside the ledger entry: who saw the expense, what the description said and which customer relationship it concerned. The company’s own account labels and management review belong in the same account of how the spending worked.
A Customer Trip With Half a Day of Business
The letter describes another expense that brought the customer relationship into view. In June 2012, NCH paid for several employees of an NCH China government customer to take a 10-day trip to cities in the United States and Canada. Only one half-day involved business activities. The rest involved sightseeing and other non-business activities, for which NCH paid approximately $12,000. We see the mismatch in the itinerary: a customer trip with business confined to half a day.
The letter says NCH knew the travelers worked for a government entity and that various expenses were not for business activities. NCH also knew its Chinese subsidiary had a sales bid pending with that entity while the trip details were being discussed. The subsidiary lost the bid before the travelers took the trip. That distinction matters to the account: the customer discussions took place while a purchasing decision was pending, even though the eventual trip followed the lost bid.
NCH had also been advised that the proposed trip might violate the Foreign Corrupt Practices Act, according to the letter. For someone who handled customer travel, the useful connections are between the invitation, the customer’s employer, the pending bid and the activities the company paid for. The itinerary tells one part of that story; the sales discussion and the advice reaching the company tell another. An employee who understood why the trip was arranged could connect the spending to the business the company was pursuing.
Why the Justice Department Closed the Investigation
The Justice Department’s letter announced a corporate declination, a decision not to prosecute the company, under its FCPA Pilot Program. Among the reasons it gave were NCH’s voluntary disclosure, its thorough internal investigation of the payments and customer travel, and its full cooperation. The cooperation included providing all known relevant facts about the people involved in or responsible for the misconduct. These were the company’s actions that the agency credited in explaining its decision to close the investigation.
The letter also credited NCH’s work to strengthen its compliance program and internal accounting controls. It described remediation that included terminating or disciplining employees involved in the misconduct, reaching senior managers, lower-level employees and executives at the United States headquarters who oversaw the Chinese subsidiary. That breadth connects the response to the same oversight relationship described in the expenditure account. The letter’s explanation reaches both the people handling the local business and the executives supervising it from the parent company.
What an Insider Can Connect
The NCH account connects records kept for different business purposes. A customer file can identify the government-owned business buying the products; an expense entry can show how the company described a payment; and a review record can connect that spending to management. For the customer trip, the sales discussions and travel arrangements connect the proposed benefit to the pending purchase. We examine the contracting company and the recipient together, so a payment described as customer spending can be understood in the relationship where it occurred. Someone who recognizes that relationship can explain why a particular expense reached a particular person, and what business decision was in play.
A finance employee may understand an accounting entry and its approval history, while someone handling the customer relationship may know what decision the payment was meant to influence. We connect an insider’s knowledge of the transaction to the contracting company, the service actually provided, the bank beneficiary and the customer.
The Company’s Outcome and the Whistleblower’s Interest
The company’s resolution and a whistleblower reward concern different people and different decisions. We assess the information you can explain and the whistleblower program that fits it.
A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Foreign bribery whistleblower matters use separate award programs, which we work through with you based on the conduct you know.
Your Knowledge of the Payment Matters
If you know why a payment was approved or what an invoice left out, speak to one of our Whistleblower Experts about the payment you saw. We shape your strongest foreign bribery whistleblower case and bring in FCPA whistleblower lawyers who understand cross-border payments and company records. We stay beside you as the facts become a case, with the business you know at the center of the work.
