WASHINGTON (CN) – A Panasonic subsidiary received a $280 million slap from the U.S. government on Monday for hiding payments to consultants and foreign sales agents who performed dubious work for the company.
Panasonic Avionics Corporation (PAC), which is based in Lake Forest, Calif., makes entertainment systems for airplanes and is a subsidiary of the Japanese tech company Panasonic. While the Justice Department handed PAC a criminal fine Monday of more than $137 million, PAC must also pay $143 million in disgorgement to the Securities and Exchange Commission.
The information and deferred prosecution agreement filed this afternoon in U.S. District Court for the District of Columbia explain that an unnamed airline owned by a country in the Middle East was negotiating contract terms when PAC hired an employee of the airline as a consultant.
This consultant earned $875,000 from PAC over six years though PAC’s contract with the airline forbade PAC from hiring any of the airline’s employees.
Even after the consultant stopped doing any work for the company, PAC earned more than $92 million from the altered contract and PAC continued making payments to the former airline employee from a special, little-supervised account. PAC labeled the payments as “consultant payments,” leading Panasonic to incorrectly record them in its books.
Regulators said PAC pulled a similar bookkeeping trick with a consultant to an unnamed domestic airline, using the consultant’s access to get hold of confidential information about a competitor.
Beyond the improperly labeled consultants, PAC also admitted to evading its own internal controls for hiring sales agents in Asia. Having been burned in the past by sales agents who misrepresented themselves to the company, PAC adopted new controls in 2009 to better vet the managers of its foreign contracts with state-owned airlines.
But when the company parted ways with its old foreign agents for their failure to comply with the new internal controls, some PAC employees hired them back as secret “sub-agents” of another company PAC had already cleared. This resulted in $7 million in payments to 13 people who did not pass PAC’s internal controls.
All told, the consultants and sub-agents meant Panasonic filed “false or incomplete” disclosures to the federal government, hiding valuable information from investors, the Justice Department reported Monday.
“When Panasonic Avionics Corporation caused its publicly-traded parent company to falsify its books and records, it distorted the information available to legitimate investors,” Acting Assistant Attorney General John Cronan said in a statement. “The Criminal Division will take all appropriate action to ensure that the investing public is able to trust the accuracy of the financial statements of companies that avail themselves of American securities exchanges.”
In a statement Monday, Panasonic Avionics said it is also taking remedial steps, including hiring new executives, putting in place better financial controls and hiring compliance experts.
“We are pleased to have resolved these investigations,” Panasonic Avionics CEO Hideo Nakano said in a statement. “We have taken extensive steps over the past few years to strengthen Panasonic Avionics’ compliance programs and internal controls and we welcome an independent compliance monitor to assess our progress.”