A&O Shearman FCPA Digest | SEC v. Hitachi, Ltd. (2015)

Source Documents

Nature of Business
Hitachi, Ltd. is a multinational conglomerate headquartered in Tokyo, Japan. Among its lines of business, Hitachi designs and constructs power stations. From January 2005 until April 2012, Hitachi maintained a class of American Depository Shares on the New York Stock Exchange that were registered with the SEC under Section 12(b) of the Exchange Act.

Influence to be Obtained
According to the SEC, beginning in 2005, Hitachi established a subsidiary in South Africa (“HPA”) to pursue public and private infrastructure contracts in South Africa. Hitachi then sold 25% of its shares in HPA to a local South African company called Chancellor House Holdings (Pty) Ltd. which, according to the SEC, was a front for the African National Congress (“ANC”)—South Africa’s ruling political party.

The SEC claims that as part of the arrangement, Chancellor House agreed to use its political connections to steer procurement contracts to HPA in exchange for a success fee (in addition to its 25% equity stake in HPA). The SEC’s Complaint explains that over the course of several years, HPA was able to secure two lucrative power station contracts in South Africa worth a total of $5 billion as a result of Chancellor House’s efforts. According to the SEC, HPA paid a $1.1 million success fee to Chancellor House for the award of the two contracts. Further, in 2012, HPA issued a dividend worth approximately $5 million and later repurchased Chancellor’s 25% equity stake for $4.4 million. In total, the SEC claims that HPA paid Chancellor House $10.5 million for its association with HPA.

Enforcement
In September 2015, the SEC announced that it settled charges against Hitachi for violations of the books-and-records and internal controls provisions of the FCPA. Specifically, the SEC accused Hitachi of inaccurately recording the “success fee” in its books and records as consulting fees. Further, the SEC concluded that Hitachi violated the internal controls provisions of the FCPA, alleging that Hitachi executives were able to knowingly circumvent internal company policies in favor of the HPA-Chancellor House arrangement. In exchange for settling the SEC’s charges, Hitachi agreed to pay a $19 million civil penalty.