SEC: Qualcomm hired relatives of Chinese officials to seal biz deals

Coughs up $7.5m to make this episode go away – and emits best corporate-speak of 2016

Qualcomm has coughed up some cash after it was accused of bribing Chinese officials by giving their relatives plum jobs.

The California chip designer today settled out of court with US financial watchdog the SEC for $7.5m. The deal ends an embarrassing investigation into claims the company broke the Foreign Corrupt Practices Act. To put that payout into context, Qualcomm banked $1.5bn in profit from sales of $5.8bn in the three months to January 28.

Qualy allegedly offered jobs to the families of Chinese government officials to grease the wheels of commerce in the Middle Kingdom. Qualcomm ultimately wanted state-owned telecom companies to use its technology, and thus showered gifts, nights out, jobs and vacations on mandarins and their families, said the SEC. This apparently went on for more than 10 years.

After an official's son was put forward for an interview at Qualcomm and rejected by staffers for being totally unqualified, a HR director pushed for the young man's hiring with the following delicious line of corporatese. According to the SEC, the exec wrote:

I know this is a pain, but I think we’re operating under a different paradigm here than a normal ‘hire’/‘no hire’ decision tree.

We’re operating under a different paradigm here than a normal decision tree. I urge you, I beg you, to use that in a workplace situation. Did you throw the office backup tapes in a skip last night because you wanted to make room for more Games Workshop miniatures? Or maybe at home – did you run over the neighbor's dog, repeatedly, because the liquor store closed before you could buy more Four Loko?

You were operating under a different paradigm than a normal yes/no decision tree.

Here's the SEC's rundown of Qualcomm's alleged bungs:

  • Qualcomm offered and provided full-time employment and paid internships to foreign officials’ family members internally referred to as “must place” or “special” hires in order to try to obtain or retain business in China.
  • One official asked Qualcomm employees to find an internship for her daughter studying in the US and the company obliged, acknowledging in internal communications that her parents “gave us great help for Q.C. new business development.”
  • Another intern was hired by Qualcomm at the request of a director general of a Chinese agency. Human resources department emails described the intern as “a MUST PLACE” and described the hiring as “quite important from a customer relationship perspective.”
  • Qualcomm provided a $75,000 research grant to a US university on behalf of the son of a foreign official so he could retain his position in its PhD program and renew his student visa. Qualcomm also provided him an internship and later permanent employment, and sent him on a business trip to China (during which he visited his parents over the Chinese New Year) despite concerns expressed about his qualifications for the assignment.
  • The son’s initial interview for permanent employment resulted in a “no hire” decision because he was not “a skills match” and did not “meet the minimum requirements for moving forward with an offer.” Those who interviewed him agreed “he would be a drain on teams he would join.” A human resources director still advocated for the hire, writing, “I know this is a pain, but I think we’re operating under a different paradigm here than a normal ‘hire’/‘no hire’ decision tree. We’re telling this kid … we don’t want to waste time or extend any extra effort in this favor [the telecom company] has asked of Qualcomm, and then turn around and ask the same person we just rejected to do us a special favor.”
  • Besides the preferential job treatment, a Qualcomm executive personally provided the official’s son with a $70,000 loan to buy a home.
  • Qualcomm also provided frequent meals, gifts, and entertainment with no valid business purpose to foreign officials to try to influence their decisions, such as airplane tickets for their children, event tickets and sightseeing for their spouses, and luxury goods.

San Diego-based Qualcomm said it now scrutinizes job candidates to find out if they have a relationship with a state-run organization.

“Companies must effectively design and implement internal controls across all business operations to prevent Foreign Corrupt Practices Act violations, including its hiring practices,” said Michele Wein Layne, director of the SEC’s Los Angeles regional office.

“For more than a decade, Qualcomm went to extraordinary lengths to gain a business advantage with foreign officials deciding between Qualcomm’s technology and its competitors.”

The Snapdragon and LTE modem designer has not admitted any wrongdoing as part of the settlement. As well as coughing up some cash, Qualcomm will also submit to the SEC annual reports of its compliance with the Foreign Corrupt Practices Act for the next two years.

"Qualcomm is pleased to have put this matter behind us. We remain committed to ethical conduct and compliance with all laws and regulations, and will continue to be vigilant about FCPA compliance," said Don Rosenberg, the company's general counsel.

Car crash

Last year, Qualcomm paid out about $1bn to end an antitrust probe in China after a long row over chip royalty payments. With regulators similarly upset in the US, Europe and Taiwan over its business practices, amid the announcement of a joint-venture with the government of China's Guizhou Province, these days Qualcomm is looking less like a semiconductor company and more like a US state department negotiator. ®

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