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In the Matter of Diageo plc

United States Securities and Exchange Commission

Exchange Act Release No. 64978, AAER Release No. 3307 (2011)

Facts

The Securities and Exchange Commission (SEC) (plaintiff) ordered a cease and desist against Diageo plc (Diageo) (defendant), a beverage maker and distributor. The SEC alleged that Diageo committed multiple violations of the Foreign Corrupt Practices Act (FCPA). For example, from 2002 to 2006, Diageo’s subsidiary, Diageo Korea Co. Ltd. (DK), spent over $220,000 on gifts for South Korean military officers. DK spent over $64,000 on about 400 “rice cake” payments, which were $100 to $300 cash or gift certificate payments for holidays and vacations. DK spent over $165,000 on hundreds of nontraditional and nonseasonal gifts referred to as Mokjuksaupbi payments, or payments for entertainment made to influence customer relationships. Instead of accurately reporting the gifts, DK either used fake vendor invoices or incorrectly recorded these gift payments under its general ledger accounts for expenses. Diageo expanded rapidly, acquiring several international subsidiaries and did not make sufficient efforts to improve its subsidiaries’ compliance with securities regulations until 2008, when it discovered DK’s illicit payments.

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Holding and Reasoning

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