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Mondelēz Agrees To Pay $13 Million To Resolve SEC’s FCPA Claims
01/16/2017On January 7, 2016, Mondelēz International, Inc. (“Mondelēz”), formerly known as Kraft Foods, Inc., settled claims brought by the United States Securities and Exchange Commission (“SEC”) against Mondelēz and Cadbury Limited (“Cadbury”) for violations of the books and records and internal control provisions of the Foreign Corrupt Practices Act (“FCPA”) by a Cadbury subsidiary in India (“Cadbury India”). Mondelēz, which neither admitted nor denied the SEC’s findings, agreed to pay a $13 million civil monetary penalty to settle the SEC’s claims. In the Matter of Cadbury Limited and Mondelēz International, Inc., Admin. Proc. No. 3-17759 (Jan. 6, 2017). The settlement highlights the importance of thorough post-acquisition diligence, as Mondelēz’s failure to identify potential FCPA violations in the diligence it conducted after its $19 billion acquisition of Cadbury appeared to contribute to the SEC’s decision to bring an enforcement action.
According to the SEC, in January 2010, Cadbury India retained an agent to help it obtain licenses and approvals to expand the company’s operations at a chocolate factory in India. The SEC alleged that Cadbury India retained the agent after a single meeting to negotiate the price of the agent’s services, without performing any other diligence on the agent. Between February and July 2010, the agent allegedly submitted five invoices totaling $110,446 to Cadbury India in connection with preparing license applications, but did not provide adequate documentary support for the work performed. For example, the SEC claimed that the applications referenced in the invoices were actually prepared by Cadbury India, and that Cadbury India did not have a written contract in place when it paid the agent documenting the services to be received. As a result, Cadbury’s books allegedly did not fairly reflect the agent’s services and the company’s internal controls created a risk that funds paid to the agent might be used for improper purposes. Notably, the SEC order did not state that the funds were actually used for any such improper purpose.
Mondelēz, a Virginia company, acquired Cadbury India as part of its acquisition of Cadbury on February 2, 2010. According to the SEC, Mondelēz was unable to conduct pre-acquisition anti-corruption diligence, and instead conducted extensive post-acquisition diligence between April and December 2010. This diligence, however, allegedly failed to identify the relationship between Cadbury India and the agent. Instead, Mondelēz allegedly discovered the relationship in October 2010 during an internal investigation. It then required Cadbury India to terminate its relationship with the agent, cooperated with the SEC’s investigation, and undertook extensive remedial actions, including implementing its global compliance program and reviewing Cadbury India’s use of third parties.
The SEC’s enforcement action against Mondelēz highlights the risk of successor liability in corporate acquisitions, especially where an acquirer waits until after the acquisition to conduct diligence. Here, even though Mondelēz identified an FCPA issue in an internal investigation that it was conducting while it was conducting post-acquisition diligence, the SEC still required Mondelēz to pay a $13 million fine, seemingly in part because the allegedly wrongful conduct was missed during the post-acquisition diligence. Indeed, such a penalty appears high where there are no specific allegations of a bribe and given the limited scope of the lone agent relationship that was cited, but one can only presume that the SEC believes (even if it could not prove) that the payments were tied to an illicit benefit that the SEC believes should have been uncovered even earlier by Mondelēz.
