Companies battle tooth and nail with one another to win customers’ business, and that’s true across many industries, including software.
While most of this battling is over features, price, and service, sometimes, companies are accused of more nefarious dealings to gain an advantage, putting them in regulators’ cross-hairs.
When that happens, the fines associated with settling with regulators can be big, totaling tens or even hundreds of millions of dollars. The hit to the balance sheet isn’t the only cost, though. The reputational damage also takes a toll, putting companies at a disadvantage when it comes to negotiating or renegotiating contracts.
As a result, investors will want to keep a close eye on SAP, the latest company to draw the ire of the U.S. Justice Department.
The U.S. Department of Justice is tasked with investigating allegations of violations of the Foreign Corrupt Practices Act (FCPA).
Software Goliath lands in regulators’ cross-hairs
Software giant SAP (SAP) – Get Free Report agreed to hand over $220 million to settle charges that the German company paid bribes to government officials in South Africa, Indonesia, and other countries, federal regulators said.
SAP is a global enterprise software powerhouse, providing solutions that allow customers and governments to manage business operations and analyze data. The company’s sales totaled 7.7 billion euros in Q3 2023, 3.5 billion of which came from cloud software sales.
The settlement will resolve investigations by the U.S. Justice Department and the Securities and Exchange Commission into violations of the Foreign Corrupt Practices Act (FCPA).
This is the second time SAP has settled bribery charges with U.S. regulators.
According to court documents, the case involved bribery schemes in South Africa, Malawi, Kenya, Tanzania, Ghana, Indonesia and Azerbaijan.
“SAP failed to make and keep accurate books and records and failed to devise and maintain a sufficient system of internal accounting controls necessary to detect and prevent the improper payments,” The SEC said in its complaint. “The bribes were inaccurately recorded as legitimate business expenses in SAP’s books and records.”
The company said it had cooperated with investigators and overhauled policies.
SAP and its co-conspirators paid bribes and provided other things of value intended for the benefit of South African and Indonesian foreign officials, delivering money in the form of cash payments, political contributions, and wire and other electronic transfers, along with luxury goods purchased during shopping trips, the Justice Department said.
Roughly between 2013 and 2017, SAP, through certain of its agents, engaged in a scheme to bribe South African officials and to falsify SAP’s books, records, and accounts, all to obtain improper advantages for SAP in connection with various contracts with South African departments and agencies.
WhatsApp message: ‘Bring empty envelope’
This included the City of Johannesburg, the City of Tshwane, the Department of Water and Sanitation, and Eskom Holdings Limited, a South African state-owned and state-controlled energy company.
In addition to cash payments, SAP South Africa paid for trips to New York for government officials, including meals and golf outings.
In Indonesia, SAP paid for shopping excursions and dining and made more explicit payments.
The SEC order notes WhatsApp discussions, including the instructions: “Seventy million, in fifty thousand bills…Bring empty envelope”.
WhatsApp chat transcripts show a SAP Indonesia account executive messaging an employee at an Indonesian intermediary, saying, “Hehehe…This is government bro, to catch a big fish we need to use a large bait (sic).”
“SAP paid bribes to officials at state-owned enterprises in South Africa and Indonesia to obtain valuable government business,” Acting Assistant Attorney General Nicole Argentieri of the Justice Department’s Criminal Division said in a statement. “Today’s resolution—our second coordinated resolution with South African authorities in just over a year—marks an important moment in our ongoing fight against foreign bribery and corruption.”
U.S. Attorney Jessica Aber, for the Eastern District of Virginia, said, “SAP has accepted responsibility for corrupt practices that hurt honest businesses engaging in global commerce.”
Penalties were reduced from the maximum possible after SAP cooperated with investigators and moved to punish and fire employees involved in the payments.
Earlier bribery case
The company will enter into a three-year deferred prosecution agreement with federal prosecutors.
“SAP remains vigilant in maintaining the highest standards of ethics and compliance,” the company said.
In 2016, SAP agreed to give up $3.7 million in sales profits to settle charges that it violated the FCPA when procuring business in Panama.
The SEC said SAP’s deficient internal controls allowed a former SAP executive to pay $145,000 in bribes to a senior Panamanian government official and offer bribes to two others in exchange for lucrative sales contracts.
The SEC charged the SAP executive, Vicente E. Garcia, separately. Garcia was sentenced to 22 months in prison.
The bribery scheme involved providing large discounts of up to 82% to SAP’s Panamanian partner, who used the excessive discounts to create a slush fund out of which to pay bribes to Panamanian officials on Garcia’s behalf so SAP could sell software.
The Foreign Corrupt Practices Act of 1977 bars people and entities from paying foreign government officials to obtain or retain business.
Last year, the DOJ and SEC brought FCPA enforcement actions against thirteen companies and imposed financial penalties totaling $776 million, according to The FCPA Blog. In 2022, eight companies paid $1.5 billion to resolve FCPA cases; in 2021, four companies paid $282 million.