SEC ALLEGES DIAGEO PLC VIOLATED FOREIGN CORRUPT PRACTICES ACT

The following is an excerpt from the SEC website: Washington, D.C., July 27, 2011 — The Securities and Exchange Commission today charged one of the world’s largest producers of premium alcoholic beverages with widespread violations of the Foreign Corrupt Practices Act (FCPA) stemming from more than six years of improper payments to government officials in India, Thailand, and South Korea. The SEC found that London-based Diageo plc paid more than $2.7 million through its subsidiaries to obtain lucrative sales and tax benefits relating to its Johnnie Walker and Windsor Scotch whiskeys, among other brands. Diageo agreed to pay more than $16 million to settle the SEC’s charges. The company also agreed to cease and desist from further violations of the FCPA’s books and records and internal controls provisions. “For years, Diageo’s subsidiaries made hundreds of illicit payments to foreign government officials,” said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement. “As a result of Diageo’s lax oversight and deficient controls, the subsidiaries routinely used third parties, inflated invoices, and other deceptive devices to disguise the true nature of the payments.” According to the SEC’s order instituting settled administrative proceedings against Diageo, the company made more than $1.7 million in illicit payments to hundreds of government officials in India from 2003 to mid-2009. The officials were responsible for purchasing or authorizing the sale of its beverages in India, and increased sales from these payments yielded more than $11 million in profit for the company. The SEC found that from 2004 to mid-2008, Diageo paid approximately $12,000 per month – totaling nearly $600,000 – to retain the consulting services of a Thai government and political party official. This official lobbied other high-ranking Thai government officials extensively on Diageo’s behalf in connection with pending multi-million dollar tax and customs disputes, contributing to Diageo’s receipt of certain favorable decisions by the Thai government. According to the SEC’s order, Diageo paid 100 million in Korean currency (more than $86,000 in U.S. dollars) to a customs official in South Korea as a reward for his role in the government’s decision to grant Diageo significant tax rebates. Diageo also improperly paid travel and entertainment expenses for South Korean customs and other government officials involved in these tax negotiations. Separately, Diageo routinely made hundreds of gift payments to South Korean military officials in order to obtain and retain liquor business. The SEC’s order found that Diageo and its subsidiaries failed properly to account for these illicit payments in their books and records. Instead, they concealed the payments to government officials by recording them as legitimate expenses for third-party vendors or private customers, or categorizing them in false or overly vague terms or, in some instances, failing to record them at all. Diageo lacked sufficient internal controls to detect and prevent the wrongful payments and improper accounting. The SEC’s order found that Diageo violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting or denying the findings, Diageo agreed to cease and desist from further violations and pay $11,306,081 in disgorgement, prejudgment interest of $2,067,739, and a financial penalty of $3 million. Diageo cooperated with the SEC’s investigation and implemented certain remedial measures, including the termination of employees involved in the misconduct and significant enhancements to its FCPA compliance program.”