We’re already hip deep into the US primary season. For those living in polling states, it may seem like political ads have taken over your television and the media is all over the size of Former Governor Jeb Bush’s SuperPAC (illustrated here).

Are you following the money?

It’s always fun to follow the money trail, but in the financial services world, all that really matters is can you follow the money coming from your firm, your broker-dealers, your representatives, etc.

Worried about tracking political contributions? You should be. In every geography, because…

…The SEC is…

Earlier this month the Securities and Exchange Commission (SEC) announced that a Massachusetts-based technology company, PTC Inc., and its Chinese subsidiaries agreed to pay more than $28 million to settle parallel civil and criminal actions involving violations of the Foreign Corrupt Practices Act (FCPA). Ouch!

The SEC investigation found that two Chinese subsidiaries of PTC provided non-business related travel and other improper payments to various Chinese government officials in an effort to win business. PTC agreed to pay $11.858 million in disgorgement and $1.764 million in prejudgment interest to settle the SEC’s charges and its two China subsidiaries agreed to pay a $14.54 million fine in a non-prosecution agreement announced today by the U.S. Department of Justice.

“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,” says Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.

The SEC also announced its first deferred prosecution agreement (DPA) with an individual in an FCPA case.  DPAs facilitate and reward cooperation in SEC investigations by foregoing an enforcement action against an individual who agrees to cooperate fully and truthfully throughout the period of deferred prosecution.  FCPA charges will be deferred for three years against Yu Kai Yuan, a former employee at one of PTC’s Chinese subsidiaries, as a result of significant cooperation he has provided during the SEC’s investigation.

If it happened in China, it could happen here

According to the SEC’s order instituting a settled administrative proceeding against PTC:

• From at least 2006 to 2011, two PTC China-based subsidiaries provided improper travel, gifts, and entertainment totaling nearly $1.5 million to Chinese government officials who were employed by state-owned entities that were PTC customers.
• PTC gained approximately $11.8 million in profits from sales contracts with state-owned entities whose officials received the improper payments.
• Chinese officials were compensated directly and through third-party agents for sightseeing and tourist activities. The third-party agents typically arranged overseas sightseeing trips in conjunction with a visit to a PTC facility, typically the corporate headquarters in Massachusetts.  After one day of business activities, the additional days of sightseeing visits lacked any business purpose.
• Most popular PTC-paid travel destinations for Chinese officials included New York, Las Vegas, San Diego, Los Angeles, and Honolulu.  Officials enjoyed guided tours, golfing, and other leisure activities. Employees of PTC’s Chinese subsidiaries also provided improper gifts and entertainment to Chinese government officials, including small electronics such as cell phones, iPods, and GPS systems as well as gift cards, wine, and clothing.
• The improper payments were disguised as legitimate commissions or business expenses in company books and records.

The SEC’s order finds that PTC violated the anti-bribery, internal controls, and books and records provisions of the Securities Exchange Act of 1934.  In the settlement, the SEC considered PTC’s self-reporting of its misconduct as well as the significant remedial acts the company has since undertaken. 

If only PTC Inc. had made a small investment in proper oversight first

It’s no secret that weak “pay-to-play” policies = Big “pay-a-fine” exposures.

The media is full of stories about pay-to-play rule violations committed by broker-dealers, private equity firms, and others. Contribute to the campaign for a governor, or state senator, or mayor, for example, while receiving advisory fees from city and state pension funds and you may find yourself in really BIG trouble, to the tune of hundreds of thousands of dollars in fines and penalties. And that’s if the Securities and Exchange Commission is willing to settle.

Why be that firm, when Patrina makes compliance so easy and cost-effective

Patrina’s Political Contributions Module is one of the powerful Patrina Compliance Suite built on the industry’s easiest-to-use interface to seamlessly integrate political contribution disclosure, approval, and tracking from a single Patrina dashboard — regardless of whether you are a one-branch shop or a multinational.

While PTC’s actions may have been deliberate, every well-intentioned firm must still have the right controls to:

• Disclose, approve (or deny), and track planned and unapproved contributions;
• Divulge “Monetary” or “In-Kind” contributions;
• Deliver contributions to appropriate parties for review; and
• Produce complete audit trails of your review/approval processes; and
• Generate customizable reports on demand.

Are you ready for Election 2016?

No one is immune from the regulators. No one. And compliance requirements continue to be more all-consuming. Don’t be that company. Let’s talk. Ask about Patrina’s comprehensive compliance solutions specifically designed for the financial services community.

Let’s talk (212- 233-1155).