## Facts

- Quad/Graphics, Inc. was a U.S.-listed marketing and printing services provider headquartered in Wisconsin.
- Two wholly owned subsidiaries were involved: Quad/Graphics Peru S.A. (Peru) and Quad/Tech Shanghai Trading Company, Ltd. (China).
- From at least 2011 to January 2016, the Peruvian subsidiary paid or promised bribes to Peruvian government officials to win public contracts and to avoid penalties on existing contracts.
- In 2012–2013, the Peruvian subsidiary paid more than $200,000 through local counsel to judges to influence litigation over a tax dispute involving more than $12 million in claimed VAT, interest, and penalties.
- From 2010 to 2015, the Chinese subsidiary used sham sales agents to route about $182,000 in improper payments to employees of private and government customers to obtain business.
- The Peruvian subsidiary created false records to conceal transactions involving a Cuban state-controlled telecommunications company that were subject to U.S. sanctions and export controls.
- The improper payments and the Cuba-related transactions were not accurately recorded in the issuer’s books and records.
- The SEC instituted a settled administrative cease-and-desist proceeding under Exchange Act § 21C; Quad consented to the order without admitting or denying the findings (except jurisdiction).

## Issues

1. Whether Quad, through its subsidiaries, violated the FCPA anti-bribery provisions by paying or promising things of value to obtain or retain business.
2. Whether Quad violated Exchange Act § 13(b)(2)(A) by failing to keep books and records that accurately and fairly reflected transactions and dispositions of assets.
3. Whether Quad violated Exchange Act § 13(b)(2)(B) by failing to devise and maintain sufficient internal accounting controls to prevent and detect improper payments and concealed transactions.

## Decision

- The SEC found Quad violated the FCPA anti-bribery provisions and Exchange Act §§ 13(b)(2)(A) and 13(b)(2)(B).
- The SEC ordered Quad to cease and desist from future violations of the cited provisions.
- The SEC ordered monetary relief totaling nearly $10 million: $6,936,174 disgorgement, $959,160 prejudgment interest, and a $2,000,000 civil penalty.
- The SEC required Quad to provide compliance-related reporting to the SEC for a one-year period.

## Legal Principles

- An issuer may be held liable under the FCPA anti-bribery provisions for bribes paid or promised by controlled subsidiaries when used to obtain or retain business or secure improper advantages.
- Exchange Act § 13(b)(2)(A) requires issuers to keep books and records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; false invoices, sham agents, and mischaracterized expenses can violate this duty.
- Exchange Act § 13(b)(2)(B) requires issuers to maintain internal accounting controls reasonably designed to prevent and detect improper payments and to ensure transactions are properly authorized and recorded.
- Concealment of transactions involving sanctioned counterparties through intermediaries and false documentation can support findings that books and records are inaccurate and internal controls are insufficient.

## Conclusion

The SEC concluded that Quad’s multi-year bribery schemes in Peru and China and its concealment of Cuba-related transactions reflected violations of the FCPA anti-bribery provisions and the Exchange Act’s books-and-records and internal-controls requirements, warranting a cease-and-desist order, nearly $10 million in financial remedies, and compliance reporting undertakings.


In re Quad/Graphics, Inc., Exchange Act Release No. 87128 (Sept. 26, 2019)