Recent SEC Action Warns Companies with Overseas Subsidiaries to Reconsider the Adequacy of Their Internal Controls

On August 25, 2023, the Securities and Exchange Commission (“SEC”) announced that it had charged the 3M Company (“3M”) with violations of the books and records and internal control provisions of the Foreign Corrupt Practices Act (“FCPA”). 3M agreed to pay the SEC $6.5 million to resolve the charges.

The SEC’s Order (“Order”) is based on conduct from at least 2014, alleging that 3M’s Chinese subsidiary orchestrated plush overseas trips for Chinese government officials and hid the true purpose of those trips through fake travel itineraries and falsified internal compliance documents. Specifically, the SEC found that the marketing manager of 3M’s Chinese subsidiary colluded with two China-based travel agencies to secretly provide tourism activities to Chinese government officials under the guise that the officials would be traveling for overseas educational training sessions and legitimate 3M business activities. In reality, many of the officials who traveled to these English-language training sessions did not speak English, did not have a translator, and were instead given an alternate activity itinerary, which they were told to keep confidential.

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