It has been one month since the DOJ announced a non-prosecution agreement with PTC Inc., a Massachusetts-based software company. PTC and its Chinese subsidiaries were accused of bribing government employees of various state-owned enterprises (SOEs) by paying for travel to the United States for training. The training was supposed to be at PTC’s headquarters in Massachusetts, but the travel included trips to New York, Los Angles, Las Vegas and Hawaii, which had nothing to do with the training on the software. The total cost of these trips was about $1 million, and the total cost of the orders received was about $13 million. The combined DOJ and SEC penalty imposed on PTC was $28.1 million, more than twice the amount of money PTC received from the SOEs. While not “routine,” what makes PTC’s agreement notable is the following announcement in the DOJ’s press release:
"As part of the non-prosecution agreement, PTC China agreed to pay the criminal penalty, to continue to cooperate with the department, to enhance its compliance program and to periodically report to the department on the implementation of its enhanced compliance program. The department reached this resolution based on a number of factors. Among other factors, PTC China did not receive voluntary disclosure credit or full cooperation credit because, at the time of its initial disclosure, it failed to disclose relevant facts that it had learned in connection with a prior internal investigation and did not disclose those facts until the department uncovered additional information independently and brought them to PTC China’s attention. By the conclusion of the investigation, however, the companies had provided to the department all relevant facts known to them, including information about individuals involved in the FCPA misconduct."
PTC is one of the first actions resolved after publication of the Yates Memo in September 2015. As we highlighted in our briefing at the time, the Yates Memo requires that in order to receive cooperation credit, the company must fully cooperate in any investigation and disclose relevant facts about individuals involved in the corporate misconduct. Here, PTC did not fully cooperate initially and thus did not receive the full benefit of the cooperation credit.
The second part of the Yates Memo (and the one that has received the most attention) is a heightened focus on pursuing individuals involved in the wrongdoing. In that regard, PTC may be instructive as well. On the same day that the DOJ and SEC announced their penalties against PTC, the SEC announced a settlement with Yu Kai Yuan. This was the SEC’s first settlement of a FCPA-related violation via a deferred prosecution agreement (DPA) with an individual. Yu Kai Yuan was a sales representative for PTC’s Chinese subsidiaries. In exchange for fully and truthfully cooperating in the investigation against PTC for three years (including admitting to the facts giving rise to the claims against PTC), the SEC agreed not to charge Mr. Yuan with any criminal violations. It is interesting to note the timing of Mr. Yuan’s investigation. Mr. Yuan signed his DPA in November 2015 (two months after publication of the Yates Memo), but it was not effective and published until February 2016, the same day as the announced resolution of the PTC case.
One key takeaway from PTC is that the government takes the “cooperation” requirements of the Yates Memo seriously. Cooperation should be full and complete from the beginning, or as soon as the company becomes aware of the relevant facts, and must include naming the individuals involved in the wrongdoing. Another key takeaway is that the government is using the Yates Memo (and the heightened publicity surrounding it) to get individuals, including executives, to testify against their employers. One new avenue may be the use of non-prosecution and deferred prosecution agreements. Although not addressed in PTC or in the Yates Memo, attorney-client privilege still applies to corporate internal investigations when conducted appropriately. In those circumstances, the company must balance between disclosures for cooperation credit and possibly waiving the attorney-client privilege.