In the Matter of Diageo plc (2011)

• Case Name
• In the Matter of Diageo plc (2011)

• Date Filed
• 07/27/2011

• Enforcement Agency
• SEC

• Countries
• India, Thailand, Korea, South

• Foreign Official
• Employees of Indian Government Liquor Stores; employees of the Indian Military Canteen Stores Department; Indian government officials (North Region of India, State of Assam); Thai commerce, finance, and customs officials; members of the Thai Parliament; South Korean Customs Service officials; South Korean government officials; South Korean military officers.

• Date of Conduct
• 2002 to 2009

• Nature of Business
• Diageo plc (“Diageo”) is a U.K. company that produces and distributes a wide variety of alcoholic beverages.  Through its various direct and indirect subsidiaries, Diageo maintains operations in more than 180 countries.

• Influence to be Obtained
• The SEC found that from 2003 to 2009, Diageo India Pvt. Ltd. (Diageo’s wholly‑owned indirect subsidiary based in India, “DI”) paid $792,310 through third‑party distributors to employees of Indian government liquor stores to increase sales and improve product placement, as well as $186,299 in “cash service fees” to reimburse these distributors.  The SEC also found that DI reimbursed $530,955 and made plans to reimburse an additional $79,364, to third‑party sales promoters.  The promoters made improper cash payments to Indian government employees of the military Canteen Stores Department to promote DI’s products, obtain listings and registration for Diageo’s brands and secure the release of seized shipments.  The SEC found that DI also paid $78,622 in commissions to reimburse distributors for payments to Indian excise officials to secure import permits and administrative approvals.  DI allegedly failed to properly account for these payments and fees. 
  
  In Thailand, the SEC found that from April 2004 to July 2008, Diageo Moet Hennessy Thailand (a joint venture of Diageo based in Thailand, “DT”) paid $599,322 to a consulting firm, knowing this money was for the benefit an active Thai government official.  The official lobbied on behalf of DT on customs and tax disputes between Diageo and the government, meeting with senior commerce, finance, and customs authorities, as well as the Prime Minister, and members of the Thai parliament.  DT allegedly improperly accounted for the monthly retainer paid to the Thai official.
  
  According to the SEC, Diageo also faced significant tax and customs issues in South Korea.  During negotiations on a difficult tax dispute, Diageo Korea Co. Ltd. (Diageo’s wholly‑owned indirect subsidiary based in South Korea, “DK”) paid $109,253 in travel and entertainment costs to Korean customs and other government officials.  After negotiations with South Korean officials on tax issues, a DK manager allegedly paid the equivalent of $86,339 to a Korean Customs Service official by means of a kickback to a third‑party customs broker.  The SEC found that DK improperly and falsely accounted for this cash reward payment and for the travel and entertainment expenses to other officials.  The SEC also found that from 2002 to 2006, DK made payments in the form of holiday or business development gifts to South Korean military officers to obtain or maintain business and secure a competitive business advantage.  DK allegedly failed to properly account for these gifts.

• Enforcement
• On July 27, 2011, the SEC issued a cease‑and‑desist order, alleging that Diageo and its subsidiaries failed to account for the various illicit payments in their books and records, and failed to devise and maintain internal account controls sufficient to detect and prevent such payments.  Without admitting to any of the allegations, Diageo agreed to cease and desist from committing or causing any further violations, and agreed to pay disgorgement of $11,306,081, prejudgment interest of $2,067,739 and a civil penalty of $3,000,000 based on Diageo’s cooperation with the SEC investigation.

• Amount of the Value
• Over $2.7 million.

• Amount of Business Related to Payment
• Over $11 million in increased sales in India; approximately $50 million in tax rebates in South Korea; amount in Thailand unknown.

• Intermediary
• Third‑party distributors, third‑party sales promoters.

• Citizenship of Parent Entity
• United Kingdom

• Total Sanction
• $ 16,373,820

• Compliance Monitor
• No

• Reporting Requirements
• No

• Case is Pending?
• No

• Total Combined Monetary Sanction
• $ 16,373,820

Diageo plc

• Citation
• In the Matter of Diageo plc, Admin Proc. File No. 3-14490 (July 27, 2011).

• Date Filed
• 07/27/2011

• Filed Under Seal
• No

• FCPA Statutory Provision
• • Books-and-Records
  • Internal Controls

• Other Statutory Provision
• None

• Disposition
• Cease-and-Desist Order

• Defendant Jurisdictional Basis
• Issuer

• Defendant's Citizenship
• United Kingdom