Quad Pays $10M to Settle Claims It Bribed Peruvian, Chinese Officials; Did Printing for Cuba
The year 2019 will surely go down as a time period that Quad Chairman, President and CEO Joel Quadracci and his senior leadership team will want to forget. Following on the heels of its failed acquisition of Chicago-based LSC Communications due to legal opposition of the merger by the U.S. Department of Justice based on antitrust grounds—and the subsequent $45 million reverse termination fee it had to pay LSC as part of their original M&A agreement—the Sussex, Wis., mega-commercial printer finds itself facing negative publicity on Wall Street and in the mainstream and financial press again, coupled with the payout of a large fine as the result of a Securities and Exchange Commission (SEC) investigation.
The SEC announced Sept. 26 that Quad has agreed to pay nearly $10 million ($6,936,174 in disgorgement, $959,160 in prejudgment interest, and a $2 million civil penalty) to resolve charges that it violated the Foreign Corrupt Practice Act (FCPA) by engaging in multiple bribery schemes in Peru and China. As part of the settlement, Quad also agreed to self-report on its compliance program for a one-year period.
The SEC's order determined that Quad violated the anti-bribery, books and records, and internal controls provisions of the Securities Exchange Act of 1934. It found that from at least 2011 to January 2016, Quad's Peruvian subsidiary, Quad/Graphics Peru S.A.—in violation of the FCPA—repeatedly paid or promised bribes to Peruvian government officials to win sales contracts and avoid penalties, and improperly attempted to influence the judicial outcome of a dispute with the Peruvian tax authority. Quad/Graphics Peru S.A. also created false records, according to the SEC, to conceal transactions to print telephone directories for a state-controlled Cuban telecommunications company, which were subject to U.S. sanctions and export controls laws.
In addition, the SEC order found that from 2010 to 2015, Quad's China-based subsidiary, Quad/Tech Shanghai Trading Company, Ltd., used sham sales agents to make and promise improper payments to employees of private and governmental customers to secure business. (Click here for a PDF of the SEC order that provides more specific details of the violations.)
"As a U.S.-listed company expanding abroad, Quad/Graphics failed to ensure that its internal accounting controls were sufficient to prevent the type of widespread bribery in Peru and China and the concealment of commercial sales in Cuba," said Tracy L. Price, deputy chief of the SEC's FCPA Unit.
Quad Points Out It Self-Reported the Crimes
Once the investigation and settlement became public on Sept. 26, Quad issued the following statement the same day:
"We are pleased to have reached resolution with the SEC and DOJ on previously disclosed Foreign Corrupt Practices Act (FCPA) and trade compliance matters arising from our operations managed from Peru, including transactions involving Cuba, and from China. The conduct at issue—which the company initially identified through our own internal financial controls and voluntarily self-reported to the authorities—was inconsistent with Quad’s values and policies, took place several years ago, and was limited to a few employees who are no longer with the company.
"Quad takes compliance very seriously, and we continuously enhance our policies and procedures in a manner that is consistent with the highest standards of ethics and integrity and our obligations under the law. The DOJ has declined to bring any action against the company, citing our voluntary and prompt self-reporting, our thorough and comprehensive internal investigation, our full remediation, including enhancements to our compliance program, and our full and proactive cooperation with the government."
Quad also pointed out that the investigation has concluded without any material adverse effect on its business or financial condition. Unfortunately, though, it's another black eye for what many—myself included—have long considered to be the most admired large printing company in America. For Quad, 2020 can't come fast enough.