In re PANASONIC

 
 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 83128 / April 30, 2018 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 3938 / April 30, 2018 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-18459 
 
In the Matter of 
 
PANASONIC 
CORPORATION  
 
Respondent. 
 
 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER 
  
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”), against Panasonic Corporation (“Panasonic” or 
“Respondent”). 
II. 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 
these proceedings and any other proceedings brought by or on behalf of the Commission, or to 
which the Commission is a party, Respondent admits the Commission’s jurisdiction over it and the 
subject matter of these proceedings, and consents to the entry of this Order Instituting Cease-and-
Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.  
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
                                                 
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   The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on 
any other person or entity in this or any other proceeding. 

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Summary 
1. This matter concerns violations of the anti-bribery, anti-fraud, books and records, 
and internal accounting controls provisions of the federal securities laws by Panasonic, a global 
electronics corporation headquartered in Osaka, Japan.   
2. The anti-bribery violation is the result of a 2007 bribery scheme involving senior 
management of one of Panasonic’s U.S. subsidiaries, Panasonic Avionics Corporation (“PAC”), 
whereby a lucrative consulting position was provided to a government official (“Government 
Official”) who assisted PAC in obtaining and retaining business from a state-owned airline 
(“Government Airline”).  While PAC was negotiating two agreements valued at over $700 million 
with the Government Airline, PAC offered the Government Official a $200,000 a year post-
retirement consulting position in order to induce him to assist PAC.  Ultimately, PAC retained the 
Government Official and paid approximately $875,000 for his purported consulting position, 
which required little to no work.  The payments to the Government Official were made through a 
third-party vendor that provided unrelated services to PAC.  In addition, the engagement of the 
Government Official violated Panasonic’s policies and procedures, and the payments were not 
accurately reflected in its books and records. 
3. The anti-fraud violation is a result of Panasonic materially overstating its pre-tax 
income by at least $38.5 million or 9%, and net income by at least $22.4 million or 16%, for the 
quarter ending June 30, 2012.  PAC backdated an agreement with the Government Airline and 
provided misleading information about the agreement to PAC’s auditor in order to include the 
revenue in that quarter.  Thereafter, Panasonic knowingly and intentionally prematurely recognized 
this revenue in violation of generally accepted accounting principles. 
4. In addition, Panasonic lacked appropriate internal accounting controls with respect 
to the use of consultants and sales agents at PAC.  PAC paid over $1.76 million to purported 
consultants, including the Government Official, who provided few if any legitimate consulting 
services.  As with the payments to the Government Official, these payments were made through a 
third-party vendor and Panasonic’s books and records did not accurately reflect the true nature of 
the payments.  Additionally, because certain sales agents could not meet PAC’s internal due 
diligence requirements, PAC devised a scheme to retain those sales agents in the Asia, and China 
regions by paying them through a separate sales agent. 
Respondent 
5. Panasonic Corporation is a multinational corporation, headquartered in Osaka, 
Japan.  During the relevant period, Panasonic’s global business was organized into eight business 
segments, including the AVC Networks business segment that included PAC.  Panasonic’s 
securities were registered with the Commission pursuant to Section 12(b) of the Exchange Act until 
April 22, 2013, and its American Depositary Shares traded on the New York Stock Exchange under 
the ticker “PC.”  From May 1, 2015 through June 20, 2016, Panasonic’s securities were registered 
with the Commission pursuant to Section 12(g) of the Exchange Act.  During the periods when 
Panasonic securities were registered with the Commission, Panasonic was required to file or furnish 
periodic reports with the Commission pursuant to Section 15 of the Exchange Act. 

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Other Relevant Entities and Individuals 
6. Panasonic Avionics Corporation (f/k/a Matsushita Avionics Systems 
Corporation), is a wholly-owned subsidiary of Panasonic’s North American subsidiary and is a 
Delaware corporation headquartered in Lake Forest, California.  PAC designs, engineers, 
manufactures, sells and installs in-flight entertainment systems (“IFE”) and global communication 
services (“GCS”) to airlines, aircraft leasing companies, and airplane manufacturers worldwide, 
including to state-owned airlines.  Panasonic managed PAC via its AVC Networks Company 
business segment, and certain PAC officers also held concurrent titles at Panasonic.  During the 
relevant period, PAC’s books and records and financial accounts were consolidated into 
Panasonic’s books and records and reported on Panasonic’s consolidated financial statements, 
which were filed or furnished with the Commission and reported to investors.   
FACTS 
Bribery in the Middle East Region 
7. In 1986, PAC retained a sales representative (“Sales Representative” or” Sales 
Rep”) to assist PAC in contract negotiations for the sale of IFE products to several airlines in the 
Middle East.  Over the years, through agreements between PAC and the company owned by the 
Sales Rep, his responsibilities grew, and he ultimately served as the exclusive representative for all 
PAC sales to over fifty airlines in the Middle East, Africa, and Central and South Asia region, 
many of which were state-owned.  The Sales Rep was engaged with the knowledge of Panasonic 
executives, although the Sales Rep lacked an education or background in avionics.  Additionally, 
the company knew that the Sales Rep employed his sons to assist him, even though they had no 
relevant qualifications to sell IFE and GCS products.  Between 2007 and 2016, PAC paid the Sales 
Representative more than $184 million in sales commissions through his British Virgin Islands 
entity. 
8. Beginning in at least 2004, PAC maintained a separate, regional office in the 
Middle East.  The office, based in Dubai, was staffed by sales and marketing professionals and had 
a repair shop, field engineers, and its own finance staff.  Nevertheless, PAC continued to use the 
Sales Rep despite concerns raised by PAC employees that the Sales Rep lacked the qualifications 
to negotiate technical contracts related to IFE and GCS products and other red flags regarding his 
conduct, such as his possession of confidential and proprietary materials of PAC’s competitors and 
customers.  Significantly, PAC also failed to adequately address allegations from its regional 
employees that the Sales Rep was paying bribes to win business on PAC’s behalf.  
9. While PAC engaged the Sales Rep as a sales agent through the entity that he 
owned, he operated as a PAC employee.  The Sales Representative had:  PAC business cards 
identifying him as PAC’s General Manager of Sales and Marketing in the Middle East, Africa and 
South Asia; his own office space in PAC’s Dubai office; a PAC phone number and email address; 
a PAC title; and numerous electronic devices.  Throughout the relevant period, the Sales Rep 
reported directly to senior PAC executives, including a senior executive (“PAC Executive One”) to 
whom the Sales Rep gave cash and luxury items valued at more than $60,000. 
10. The Government Airline was one of PAC’s most significant customers.  In 2004, 
PAC and the Government Airline signed a ten-year Master Product Supply Agreement (“MPSA”), 
which ultimately grossed well over a billion dollars, for PAC to provide IFE products and services 
for certain planes within the Government Airline’s fleet.  The Sales Rep helped to negotiate the 

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MPSA on behalf of PAC, and the MPSA prohibited PAC from providing any consideration to 
employees of the Government Airline. 
11. The Government Airline appointed its own executive, the Government Official, to 
serve as the primary point of contact for contract negotiations with PAC, including the MPSA.  
During the relevant period, the Government Official reported directly to the Government Airline’s 
President.  The Government Official held substantial authority and had influence over the 
Government Airline’s contracting decisions, including influence over the airline’s decisions to 
award business to PAC as well as interpretations of specific terms in the MPSA and amendments 
thereto.  The Government Official negotiated significant terms with PAC, including credits, 
concessions, and system/component price lists, and was involved in approving payments to PAC.  
PAC identified the Government Official internally as a key executive at the Government Airline. 
12. In 2006, the Sales Rep and the Government Official began negotiating an 
amendment to the MPSA (“Amendment One”) for the purchase of additional IFE products by the 
Government Airline.  During the course of these negotiations the Government Official sought, and 
the Sales Rep provided, assistance in obtaining clients for a private consulting firm recently 
established by the Government Official.  Negotiations for Amendment One, which was worth 
nearly $360 million in additional business to PAC, continued through at least July 2007. 
13. Over the course of 2007, PAC and the Government Airline also negotiated and 
entered into a second amendment to the MPSA (“Amendment Two”) for the purchase of additional 
IFE products.  Due to the delay in the receipt of new aircraft by Government Airline, certain IFE 
products that PAC and the Government Airline had contemplated being included in Amendment 
One were instead included in Amendment Two.  Amendment Two was signed in November 2007, 
and was worth over $353 million in additional business to PAC. 
14. During the course of negotiations over Amendments One and Two, the 
Government Official solicited the Sales Rep for personal benefits.  Beginning in at least April 
2007, the Government Official sent numerous emails to the Sales Representative about obtaining a 
position with PAC.  For example, on June 17, 2007, the Government Official informed the Sales 
Representative what he wanted in a position, including an annual salary of £150,000 and other 
benefits.  The Sales Rep immediately informed PAC Executive One of the specific request.  The 
following week, PAC emailed the Government Official asking about the status of the execution of 
Amendment One. 
15. Senior PAC executives were aware of the negotiations.  In September 2007, a PAC 
executive who concurrently served as a director in Panasonic’s Avionics Business Unit told PAC 
Executive One and other PAC executives that “We should be very sensitive to [Government 
Official’s] current position . . . . I will get in trouble if we act like a small company.  What we are 
doing for [the Government Official] is a large risk for a corporation like Panasonic.  I think we still 
should for good reasons, but we must get this done above the table with complete transparency.”   
16. However, PAC and the Government Official concealed their negotiations for the 
consulting position from the Government Airline.  With the knowledge of PAC Executive One, in 
or around September 2007, the Government Official was offered a position as a PAC consultant 
for $200,000 per year plus travel expenses, which would be effective after his retirement from the 
Government Airline.  In addition, PAC Executive One arranged for the Government Official to be 
retained and paid through an unrelated third-party vendor that prepared product manuals for PAC 
(“Vendor”). 

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17. During the course of the negotiations of Amendments One and Two, and while 
seeking these payments from PAC, the Government Official provided valuable information to help 
PAC gain an improper advantage in obtaining and retaining business from the Government Airline.  
This included confidential internal information, and advice on negotiating additional business and 
maintaining the relationship with the Government Airline.  For example, in April 2007, the 
Government Official advised the Sales Rep how to break up the cost of a particular item into 
several components, so the true cost would be hidden from the Government Airline and not raise 
any red flags. 
18. As a result of the Government Official’s actions, PAC was able to obtain a profit 
margin on Amendments One and Two that was significantly higher than what it obtained from 
other customers purchasing comparable products in the same time period.   
19. Ultimately, between April 2008 and January 2014, the Government Official 
provided little to no services and PAC paid over $875,000 to the Vendor for the Government 
Official’s position.  To effectuate the payments, PAC Executive One regularly authorized monthly 
payments to the Vendor in the amount of $12,500 and the Vendor then transferred $10,000 from 
each payment to the Government Official while retaining $2,500 as a fee. 
20. PAC’s internal audit group ultimately identified the payments to the Government 
Official as high risk, but nevertheless PAC continued to pay him.  In or about December 2010, 
senior PAC executives received a report from the Internal Audit group, which stated that no 
services were requested from the Government Official and that no deliverables were provided to 
PAC by the Government Official, but that invoices continued to be paid through the Vendor.  The 
report identified such payments as high risk, stating:  “Based on the information provided, 
[Vendor] consultant payment should be carefully reviewed in light of FCPA regulation due to lack 
of clarity in deliverables.”  Notwithstanding this report, PAC continued to make payments to the 
Government Official through the Vendor.     
21. Similarly, PAC continued to engage and pay the Sales Rep until 2016, despite 
learning in 2015 that he had destroyed electronic data on devices provided to him by PAC, 
including devices used for internal PAC communications and negotiations with the Government 
Airline and the Government Official, after he learned of an investigative subpoena issued by SEC 
staff. 
Retention of Consultants Through the Office of the President Budget  
22. From at least 2007 through at least January 2014, various purported consultants 
were engaged and paid through an Office of the President budget controlled by PAC Executive 
One, in circumstances in which little or no legitimate services were provided.  For example, both 
the Vendor and the Government Official were paid through this budget.   
23. In October 2007, PAC Executive One used the Vendor as a conduit to pay a former 
PAC employee (“Consultant One”), who was also working as a consultant for one of PAC’s largest 
domestic airline customers.  Between October 2007 and December 2013, PAC paid $825,000 for 
Consultant One from the Office of the President budget via the Vendor.  During that time, 
Consultant One was not supervised by anyone at PAC or Panasonic, and provided few, if any, 
legitimate services to PAC or Panasonic.  Instead, Consultant One provided PAC Executive One 
and others at PAC with non-public information regarding the customer, other airlines, and PAC 
competitors.  Consultant One frequently forwarded the information through emails that were 

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marked “CONFIDENTIAL” or “DO NOT FORWARD.”  In one instance where Consultant One 
provided PAC with such information, a PAC employee responded, “You always have info which 
makes me shake my head.”  Panasonic falsely recorded the payments to Consultant One on its 
books as legitimate expenses for services provided by the Vendor. 
24. Between January and December 2009, PAC Executive One used the Office of the 
President budget and the Vendor to pay $60,000 to another former PAC employee (“Consultant 
Two”).  Consultant Two performed no work for PAC or Panasonic, and was paid solely to prevent 
him from working for any of PAC’s competitors.  Nevertheless, the payments to Consultant Two 
were falsely recorded on Panasonic’s books as legitimate expenses of Vendor. 
25. The Office of the President budget was set annually by a senior PAC finance 
executive in consultation with PAC Executive One, based on the prior year’s costs and anticipated 
changes in expenses.  Apart from PAC Executive One, this budget was never meaningfully 
reviewed or approved by any Panasonic or PAC personnel and there were no reasonable internal 
accounting controls in place surrounding its use.   
26. PAC Executive One authorized nearly all payments made out of this budget, 
including payments totaling more than $1.76 million to the Government Official and the two other 
consultants who provided few, if any, legitimate services to PAC.  These payments were falsely 
recorded in PAC’s general ledger as legitimate consulting payments to the Vendor. 
27. Panasonic failed to maintain internal accounting controls reasonably designed to 
ensure that the funds from the budget were used for their intended purposes and that Panasonic’s 
books and records fairly reflected the transactions and dispositions of Panasonic’s assets. 
28. As noted above, in 2010, PAC’s Internal Audit Department conducted an audit over 
PAC’s use of certain third-party service providers, including consultants engaged through the 
Vendor.  The resulting “Selected Vendor Audit Report” (“Report”) described a number of “critical 
risk” and “high risk” observations, defined as issues that “could have material financial, internal 
control or operational consequences” and that required immediate attention from PAC’s senior 
management.  Specifically, the Report identified critical risks in connection with payments of 
consultants through the Vendor, whose service agreement with PAC had expired in May 2009.  
The Report further identified as “high risk” the retention of the Government Official and other 
consultants, observing that between 2009 and 2010, the Government Official was not requested to 
provide any services to PAC or Panasonic, and provided no deliverables, but “invoices [were] still 
paid,” while deliverables from other consultants were not verified before invoices were paid.  
Additionally, the report flagged as a “critical risk” the monthly payments of $10,000 to Consultant 
One noting, “there was no information found in the [Vendor] agreement for this consultant.”  
29. The Report was circulated to PAC senior executives.  The initial version of the 
Report noted that PAC’s procurement department was “not involved in hiring these consultants” 
and concluded that the “consultant payment should be carefully reviewed in light of FCPA 
regulation.”  However, no one from PAC or Panasonic ever conducted any meaningful review or 
follow-up to address the critical and high risk issues identified in the Report.  Although PAC 
subsequently requested that the Vendor seek activity reports from the consultants, these activity 
reports were provided to PAC only sporadically and listed little detail as to the nature of the 

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purported work performed.  The consultants continued to perform almost no work and PAC 
continued to pay the consultants via the Vendor for several more years.   
30. The payments to the consultants violated Panasonic’s Code of Conduct, which 
specifically required all Panasonic employees to abide by “applicable laws and regulations” and 
stated that Panasonic “[w]ill not engage in bribery of any kind.”  During the period that PAC used 
the Office of the President budget to pay the aforementioned consultants, PAC had specific 
policies and procedures concerning the retention and payment of consultants.  These policies set 
out a number of requirements, including defining the scope of work and limiting a contract’s 
duration to six months.  After February 2011, PAC recommended, but did not require, third-party 
due diligence reports concerning the consultants.   
31. Panasonic lacked sufficient internal accounting controls with respect to these 
policies and procedures, and it failed to follow its policies and procedures in the retention of the 
consultants described above. 
Retention of Sales Agents 
32. PAC’s practice of using sales agents, who solicited business for PAC from state-
owned airlines and other customers, varied depending upon the sales region.  For example, in 
Europe, Oceania, and the United States, PAC did not use sales agents.  By contrast, in its Middle 
East, Asia, and China sales regions, PAC routinely engaged sales agents to obtain business from 
state-owned airlines and other customers and typically paid them between six and ten percent of 
the net contract amount.  Between 2007 and 2017, PAC paid its sales agents in the Middle East, 
Asia, and China sales regions, including the Sales Rep, over $275 million. 
33. By 2004, PAC had established regional field offices in the Middle East, Asia, and 
China.  Moreover, by 2008 PAC’s primary regional office in Asia was staffed with numerous 
marketing and sales personnel versed and trained in PAC’s products, as well as field engineers.  
Nonetheless, PAC continued to use sales agents in connection with state-owned airlines and other 
customers in this region. 
34. Prospective sales agents would contact PAC sales and marketing employees in the 
Asia and China regions and offer their services in connection with requests for proposals issued by 
airlines for IFE products.  Vetting of the sales agents typically consisted of PAC having the agent 
arrange a phone call or meeting between PAC and high level executives or procurement staff of a 
potential customer.  In addition, PAC told at least one agent that he was expected to obtain 
confidential, non-public bids of PAC’s competitors.  This sales agent used sales commissions 
received from PAC to provide gifts, entertainment, and hospitality to government officials and 
their families as part of his efforts on behalf of PAC. 
35. While PAC historically conducted no meaningful due diligence on its sales agents, 
beginning in at least 1996, PAC started including audit rights in its contracts with sales agents.  
However, PAC did not exercise its audit rights in order to avoid upsetting relationships with the 
agents.  In early 2007, PAC began to put in place due diligence procedures for screening sales 
agents, including those agents with established relationships with PAC.  For sales agents that could 
not pass the new procedures, PAC made arrangements for the sales agents to enter into sub-
agreements with a Malaysia-based sales agent.  That agent ultimately served as a stand-in for at 

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least thirteen sales agents, some of which refused or failed the vetting process.  In this way, PAC 
could continue to use sales agents who did not pass the screening requirements by concealing their 
use and payment through the Malaysia-based sales agent.  PAC paid a one or two percent fee to the 
Malaysian representative who acted as the conduit for payments to the other agents, despite the fact 
that PAC policies explicitly prohibited the use of unapproved sales agents.  PAC falsely recorded 
the payments to the sub-agents in its books and records as legitimate payments to the Malaysia-
based sales agent. 
36. Beginning in February 2009, PAC instituted a formal process to hire sales agents.  
The new procedure set out a number of different requirements, including determining the need for 
the agent, internal due diligence documentation, preliminary background checks, interviews, and 
analysis of any red flags, before requesting that the prospective sales agent undergo a third-party 
due diligence vetting process.  In addition, PAC regional sales and marketing staff would submit a 
“Sales Representative Agreement Request” for review by PAC’s Legal Affairs Department.  
Finally, all requests were to be routed to PAC’s Internal Review Committee (the “IRC”), staffed by 
PAC executives, including PAC Executive One and another senior executive.   
37. Notwithstanding the implementation of these procedures, the IRC never rejected a 
request for use of a sales agent.  Prior to voting to approve sales agent contracts, the IRC typically 
received a single-page form providing cursory information regarding the agent and contract.  The 
due diligence information and red flags identified in the third-party reports were not communicated 
to the IRC, and the IRC never questioned the need for the extensive use of sales agents or 
requested to review due diligence reports.  Similarly, the IRC did not question the decrease in the 
number of agents after third-party due diligence requirements were instituted, or the fact that a 
little-known Malaysian company had the capacity to perform work for approximately fifty 
programs with nearly twenty airlines.  Between 2008 and 2015, PAC paid over $10 million to the 
Malaysian sales agent for the benefit of at least thirteen different unapproved sub-agents.  The IRC 
approved all of the contracts with the Malaysian agent after February 2009. 
38. Moreover, PAC’s compliance personnel lacked appropriate qualifications and 
training, and as a result failed to act on numerous red flags in connection with the retention of sales 
agents.  For example, they raised no questions or concerns about the retention of sales agents that 
internal forms clearly disclosed were hired after “being recommended by airline.”  Nearly all of the 
airlines internally described as recommending these sales agents were state-owned airlines in the 
Asia and China Regions.       
39. PAC’s compliance personnel failed to act on other red flags, including those that 
were specifically identified in PAC’s own policies and procedures such as:  (a) payment of large 
commissions to sales agents in relation to services rendered; (b) payments to bank accounts in 
countries other than where services were being provided; (c) the retention of sales agents 
recommended by state-owned airlines; and (d) lack of adequate educational, business, and 
technical qualifications.  Examples of ignored red flags include payments of approximately $4 
million to a sales agent whose primary work experience was as a Hong Kong department store 
clerk, and nearly $10 million to an agent who had served as the head of an Asian equestrian league, 
but had no relevant avionics experience.    

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40. Similarly, after a third-party vetting service discovered that one sales agent had 
forged references, and another was flagged as potentially being a “foreign official” under the 
FCPA, they were nevertheless engaged by PAC and simply paid as sub-agents through the 
Malaysian agent.   
41. As a result, Panasonic failed to devise and maintain a sufficient system of internal 
accounting controls in connection with the retention of sales agents and failed to accurately record 
the payments to the sales agents on its books and records. 
Fraudulent Reporting of Revenue 
42. During the time its securities were registered with the Commission, Panasonic filed 
or furnished periodic reports with the Commission containing, among other things, Panasonic’s 
consolidated financial statements.  The consolidated financial statements incorporated financial 
information (e.g., net sales, pre-tax income, net income) of its numerous subsidiaries, including 
PAC.  Panasonic reported to shareholders that the company’s consolidated financial statements 
were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). 
43. Under GAAP, Accounting Standards Codification 605-10-25-1, Revenue 
Recognition, provides that revenue should not be recognized until it is realized or realizable and 
earned.  PAC’s revenue recognition policy, consistent with GAAP, set forth four requirements that 
must generally be met before revenue can be realized and earned: 1) persuasive evidence of an 
arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller’s price to 
the buyer is fixed or determinable; and 4) collectability is reasonably assured. Based on PAC’s 
revenue recognition policy, and its customary business practice of requiring a written sales 
agreement from customers such as Government Airline, it could not recognize revenue for a 
quarter unless, among other requirements, a contract was signed by the customer during the quarter 
in which the revenue was recognized. Furthermore, PAC was repeatedly advised by its external 
auditor (“Auditor”) that a signed contract was necessary to recognize revenue from customers such 
as the Government Airline. 
44. As early as 2006, PAC backdated certain customer contracts in order to recognize 
revenue in time periods prior to when those contracts were actually signed. 
45. For example, in June 2012, PAC and the Government Airline were negotiating 
Amendment Six to the MPSA, but were unable to reach agreement on all of the terms of the 
contract.  While the negotiations were ongoing and it appeared that Amendment Six would not be 
signed by the end of June, PAC sought the advice of its Auditor about options to satisfy the 
requirement that persuasive evidence of an agreement existed.  Consistent with the Auditor’s prior 
advice, and PAC’s past practice in accounting for agreements with the Government Airline, the 
Auditor advised PAC that PAC could recognize revenue from Amendment Six in the quarter 
ending June 30, 2012 (“First Quarter”) if the agreement was signed prior to the end of June 2012. 
46. PAC’s senior executives understood that recognizing revenue from Amendment Six 
in the First Quarter was critical to Panasonic.  For example, on June 23, 2012, a Panasonic 
executive who also served as a senior PAC executive told PAC Executive One and another senior 
executive (“PAC Executive Two,” who was seconded from Panasonic) that failing to recognize 

 10 
revenue from Amendment Six “is a big problem for all of us.”  Similarly, on June 25, 2012 a 
Panasonic accounting employee told PAC Executive Two that “it will be a big problem if this 
contract fails to be signed.”  
47. Accordingly, PAC advised the Government Airline that it needed a signed contract 
before the end of June 2012.  However, the Government Airline was seeking additional discounts 
and did not execute Amendment Six before June 30, 2012.   
48. On July 1, 2012, PAC’s contracts manager informed several PAC executives, 
including PAC Executive Two, that Amendment Six still had not been signed.  Less than an hour 
later, PAC Executive Two advised accounting staff at Panasonic that the Government Airline had 
not yet signed Amendment Six.  In response, a Panasonic accounting executive voiced concern 
regarding whether the Auditor would approve recognition of revenue for Amendment Six without 
a signed contract. 
49. On July 2, 2012, the Government Airline advised PAC that it had signed 
Amendment Six, but refused to provide a copy of the executed contract because the Government 
Airline wanted additional discounts. 
50. On July 3, 2012, the Government Airline provided PAC with an executed, but 
undated, signature page for Amendment Six.  A PAC contracts manager then caused the date June 
28, 2012 to be added to the Government Airline signature page even though he and other PAC 
employees and executives knew that it was not signed on that date and that the Government Airline 
was still seeking additional pricing discounts.   
51. Thereafter, PAC sought to persuade the Auditor that Amendment Six revenue could 
be recognized in the First Quarter, despite the fact that no PAC executive had signed the agreement 
before the end of the quarter.  Several PAC employees falsely represented to the Auditor that 
Amendment Six had been signed on June 28, 2012.  PAC Executive Two told a Panasonic 
accounting employee in a Japanese language email that the Auditor had initially determined that 
PAC should not include the revenue in the First Quarter, but that PAC had convinced the Auditor, 
using a Japanese phrase subject to differing translations including “tweaks and tricks” and “tricks.” 
52. In mid-July 2012, PAC provided the Auditor with a Consolidation Package with 
PAC’s financial statements for the First Quarter.  PAC included over $82 million of improperly 
recognized revenue from Amendment Six in these financial statements.  PAC Executive Two 
signed a letter to the Auditor accompanying PAC’s financial statements, representing that the 
financial information had been presented in conformity with GAAP. 
53. At that time, PAC Executive Two knew or was reckless in not knowing that:  (1) 
PAC’s revenue recognition policy, which was consistent with GAAP, required persuasive evidence 
of an arrangement in order for the company to recognize revenue; (2) PAC’s Auditor had 
specifically advised that Amendment Six needed to be signed before the end of the quarter in order 
to serve as persuasive evidence of an arrangement and satisfy its revenue recognition requirements; 
(3) the Government Airline had not signed Amendment Six before the end of the quarter, and (4) 
Panasonic’s financial statements  nevertheless prematurely recognized approximately $82 million 
of revenue for Amendment Six in the First Quarter. 

 11 
54. Panasonic failed to accurately record the revenue from Amendment Six in its books 
and records, and it failed to devise and maintain internal accounting controls sufficient to provide 
reasonable assurances that transactions are recorded as necessary to permit preparation of financial 
statements in conformity with GAAP.  PAC’s financial results for the First Quarter – including 
approximately $82 million of improperly recognized revenue and associated pre-tax income of 
$38.5 million and net income of $22.4 million – were incorporated into Panasonic’s consolidated 
financial statements for the First Quarter.  Panasonic’s financial results and consolidated financial 
statements for the First Quarter were furnished to the Commission on Forms 6-K filed with the 
Commission on or about August 2, 2012, and on or about August 21, 2012. 
55. As a result of its premature recognition of revenue in connection with Amendment 
Six, Panasonic materially misstated pre-tax income by at least $38.5 million or 9%, and net income 
by at least $22.4 million or 16% , in its Form 6-K for the First Quarter 2012.  
LEGAL STANDARDS AND VIOLATIONS 
56. As a result of the conduct described above, Panasonic violated Section 30A of the 
Exchange Act, which prohibits any issuer with a class of securities registered pursuant to Section 
12 of the Exchange Act, or any officer, director, employee, or agent acting on behalf of such 
issuer, in order to obtain or retain business, from corruptly giving or authorizing the giving of, 
anything of value to any foreign official for the purposes of influencing the official or inducing 
the official to act in violation of his or her lawful duties, or to secure any improper advantage, or 
to induce a foreign official to use his influence with a foreign governmental instrumentality to 
influence any act or decision of such government or instrumentality.   
57. As a result of the conduct described above, Panasonic violated Section 
13(b)(2)(A) of the Exchange Act, which requires issuers that have a class of securities registered 
pursuant to Section 12 of the Exchange Act and issuers with reporting obligations pursuant to 
Section 15(d) of the Exchange Act to make and keep books, records, and accounts which, in 
reasonable detail, accurately and fairly reflect their transactions and disposition of their assets. 
58. As a result of the conduct described above Panasonic violated Section 13(b)(2)(B) 
of the Exchange Act, which requires issuers that have a class of securities registered pursuant to 
Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) 
of the Exchange Act to devise and maintain a system of internal accounting controls sufficient to 
provide reasonable assurances that (i) transactions are executed in accordance with 
management’s general or specific authorization; (ii) transactions are recorded as necessary (I) to 
permit preparation of financial statements in conformity with generally accepted accounting 
principles or any other criteria applicable to such statements, and (II) to maintain accountability 
for assets; (iii) access to assets is permitted only in accordance with management’s general or 
specific authorization; and (iv) the recorded accountability for assets is compared with the 
existing assets at reasonable intervals and appropriate action is taken with respect to any 
differences. 
59. As a result of the conduct described above, Panasonic violated Section 10(b) of 
the Exchange Act and Rule 10b-5 thereunder, which prohibit any person from making any untrue 
statement of a material fact or omitting to state a material fact necessary in order to make the 
statements made, in the light of the circumstances under which they were made, not misleading, 
in connection with the purchase and sale of a security.   

 12 
60. As a result of the conduct described above, Panasonic violated Section 13(a) of 
the Exchange Act and Rules 13a-16 and 12b-20 thereunder.  Section 13(a) requires issuers to file 
periodic and other reports as the Commission may prescribe and in conformity with such rules as 
the Commission may promulgate.  Rule 13a-16 of the Exchange Act requires each foreign 
private issuer to furnish information on Form 6-K as specified in the Rule.  Rule 12b-20 of the 
Exchange Act requires that the reports contain such further material information, if any, as may 
be necessary to make the required statements, in light of the circumstances under which they are 
made not misleading. 
DEFERRED PROSECUTION AGREEMENT 
61. Panasonic’s subsidiary PAC has entered into a deferred prosecution agreement 
with the Department of Justice that specifically acknowledges responsibility for criminal conduct 
relating to findings in the Order. 
PANASONIC’S REMEDIAL EFFORTS  
62. In determining to accept the Offer, the Commission considered remedial efforts 
undertaken by Respondent and cooperation afforded the Commission staff in the later stages of 
the staff’s investigation.  Respondent has replaced the senior PAC executives involved in the 
violations, established an Office of Compliance and Ethics led by a new Chief Compliance 
Officer, implemented new compliance and accounting procedures, and enhanced internal 
accounting controls to prevent and detect the type of misconduct described in the Order. 
IV. 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent’s Offer. 
 Accordingly, it is hereby ORDERED that: 
 A. Pursuant to Section 21C of the Exchange Act, Respondent cease-and-desist from 
committing or causing any violations and any future violations of Sections 10(b), 13(a), 13(b)(2)(A) 
13(b)(2)(B), and 30A of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-16 thereunder. 
 B. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of  
$126,900,000 and prejudgment interest of $16,299,018.93, for a total payment of $143,199,018.93 
to the Securities and Exchange Commission for remission to the United States Treasury, subject to 
Exchange Act Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue 
pursuant to SEC Rule of Practice 600.  Payment must be made in one of the following ways:   
(1)  Respondent may transmit payment electronically to the Commission, which will 
provide detailed ACH transfer/Fedwire instructions upon request;  
(2)  Respondent may make direct payment from a bank account via Pay.gov through the 
SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
(3)  Respondent may pay by certified check, bank cashier’s check, or United States 
postal money order, made payable to the Securities and Exchange Commission and 
hand-delivered or mailed to:  
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 

 13 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
Payments by check or money order must be accompanied by a cover letter identifying 
Panasonic as Respondent in these proceedings, and the file number of these proceedings.  A copy 
of the cover letter and check or money order must be sent to Charles Cain, Chief, FCPA Unit, 
Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, 
DC 20549.   
 By the Commission. 
 
       Brent J. Fields 
       Secretary 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 
 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 83128 / April 30, 2018 

 

ACCOUNTING AND AUDITING ENFORCEMENT 

Release No. 3938 / April 30, 2018 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-18459 

 

In the Matter of 

 

PANASONIC 

CORPORATION  

 

Respondent. 

 

 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER 

  

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”), against Panasonic Corporation (“Panasonic” or 

“Respondent”). 

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (“Offer”) which the Commission has determined to accept.  Solely for the purpose of 

these proceedings and any other proceedings brought by or on behalf of the Commission, or to 

which the Commission is a party, Respondent admits the Commission’s jurisdiction over it and the 

subject matter of these proceedings, and consents to the entry of this Order Instituting Cease-and-

Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 

Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.  

III. 

 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 

                                                 
1
   The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on 

any other person or entity in this or any other proceeding. 



 2 

Summary 

1. This matter concerns violations of the anti-bribery, anti-fraud, books and records, 

and internal accounting controls provisions of the federal securities laws by Panasonic, a global 

electronics corporation headquartered in Osaka, Japan.   

2. The anti-bribery violation is the result of a 2007 bribery scheme involving senior 

management of one of Panasonic’s U.S. subsidiaries, Panasonic Avionics Corporation (“PAC”), 

whereby a lucrative consulting position was provided to a government official (“Government 

Official”) who assisted PAC in obtaining and retaining business from a state-owned airline 

(“Government Airline”).  While PAC was negotiating two agreements valued at over $700 million 

with the Government Airline, PAC offered the Government Official a $200,000 a year post-

retirement consulting position in order to induce him to assist PAC.  Ultimately, PAC retained the 

Government Official and paid approximately $875,000 for his purported consulting position, 

which required little to no work.  The payments to the Government Official were made through a 

third-party vendor that provided unrelated services to PAC.  In addition, the engagement of the 

Government Official violated Panasonic’s policies and procedures, and the payments were not 

accurately reflected in its books and records. 

3. The anti-fraud violation is a result of Panasonic materially overstating its pre-tax 

income by at least $38.5 million or 9%, and net income by at least $22.4 million or 16%, for the 

quarter ending June 30, 2012.  PAC backdated an agreement with the Government Airline and 

provided misleading information about the agreement to PAC’s auditor in order to include the 

revenue in that quarter.  Thereafter, Panasonic knowingly and intentionally prematurely recognized 

this revenue in violation of generally accepted accounting principles. 

4. In addition, Panasonic lacked appropriate internal accounting controls with respect 

to the use of consultants and sales agents at PAC.  PAC paid over $1.76 million to purported 

consultants, including the Government Official, who provided few if any legitimate consulting 

services.  As with the payments to the Government Official, these payments were made through a 

third-party vendor and Panasonic’s books and records did not accurately reflect the true nature of 

the payments.  Additionally, because certain sales agents could not meet PAC’s internal due 

diligence requirements, PAC devised a scheme to retain those sales agents in the Asia, and China 

regions by paying them through a separate sales agent. 

Respondent 

5. Panasonic Corporation is a multinational corporation, headquartered in Osaka, 

Japan.  During the relevant period, Panasonic’s global business was organized into eight business 

segments, including the AVC Networks business segment that included PAC.  Panasonic’s 

securities were registered with the Commission pursuant to Section 12(b) of the Exchange Act until 

April 22, 2013, and its American Depositary Shares traded on the New York Stock Exchange under 

the ticker “PC.”  From May 1, 2015 through June 20, 2016, Panasonic’s securities were registered 

with the Commission pursuant to Section 12(g) of the Exchange Act.  During the periods when 

Panasonic securities were registered with the Commission, Panasonic was required to file or furnish 

periodic reports with the Commission pursuant to Section 15 of the Exchange Act. 



 3 

Other Relevant Entities and Individuals 

6. Panasonic Avionics Corporation (f/k/a Matsushita Avionics Systems 

Corporation), is a wholly-owned subsidiary of Panasonic’s North American subsidiary and is a 

Delaware corporation headquartered in Lake Forest, California.  PAC designs, engineers, 

manufactures, sells and installs in-flight entertainment systems (“IFE”) and global communication 

services (“GCS”) to airlines, aircraft leasing companies, and airplane manufacturers worldwide, 

including to state-owned airlines.  Panasonic managed PAC via its AVC Networks Company 

business segment, and certain PAC officers also held concurrent titles at Panasonic.  During the 

relevant period, PAC’s books and records and financial accounts were consolidated into 

Panasonic’s books and records and reported on Panasonic’s consolidated financial statements, 

which were filed or furnished with the Commission and reported to investors.   

FACTS 

Bribery in the Middle East Region 

7. In 1986, PAC retained a sales representative (“Sales Representative” or” Sales 

Rep”) to assist PAC in contract negotiations for the sale of IFE products to several airlines in the 

Middle East.  Over the years, through agreements between PAC and the company owned by the 

Sales Rep, his responsibilities grew, and he ultimately served as the exclusive representative for all 

PAC sales to over fifty airlines in the Middle East, Africa, and Central and South Asia region, 

many of which were state-owned.  The Sales Rep was engaged with the knowledge of Panasonic 

executives, although the Sales Rep lacked an education or background in avionics.  Additionally, 

the company knew that the Sales Rep employed his sons to assist him, even though they had no 

relevant qualifications to sell IFE and GCS products.  Between 2007 and 2016, PAC paid the Sales 

Representative more than $184 million in sales commissions through his British Virgin Islands 

entity. 

8. Beginning in at least 2004, PAC maintained a separate, regional office in the 

Middle East.  The office, based in Dubai, was staffed by sales and marketing professionals and had 

a repair shop, field engineers, and its own finance staff.  Nevertheless, PAC continued to use the 

Sales Rep despite concerns raised by PAC employees that the Sales Rep lacked the qualifications 

to negotiate technical contracts related to IFE and GCS products and other red flags regarding his 

conduct, such as his possession of confidential and proprietary materials of PAC’s competitors and 

customers.  Significantly, PAC also failed to adequately address allegations from its regional 

employees that the Sales Rep was paying bribes to win business on PAC’s behalf.  

9. While PAC engaged the Sales Rep as a sales agent through the entity that he 

owned, he operated as a PAC employee.  The Sales Representative had:  PAC business cards 

identifying him as PAC’s General Manager of Sales and Marketing in the Middle East, Africa and 

South Asia; his own office space in PAC’s Dubai office; a PAC phone number and email address; 

a PAC title; and numerous electronic devices.  Throughout the relevant period, the Sales Rep 

reported directly to senior PAC executives, including a senior executive (“PAC Executive One”) to 

whom the Sales Rep gave cash and luxury items valued at more than $60,000. 

10. The Government Airline was one of PAC’s most significant customers.  In 2004, 

PAC and the Government Airline signed a ten-year Master Product Supply Agreement (“MPSA”), 

which ultimately grossed well over a billion dollars, for PAC to provide IFE products and services 

for certain planes within the Government Airline’s fleet.  The Sales Rep helped to negotiate the 



 4 

MPSA on behalf of PAC, and the MPSA prohibited PAC from providing any consideration to 

employees of the Government Airline. 

11. The Government Airline appointed its own executive, the Government Official, to 

serve as the primary point of contact for contract negotiations with PAC, including the MPSA.  

During the relevant period, the Government Official reported directly to the Government Airline’s 

President.  The Government Official held substantial authority and had influence over the 

Government Airline’s contracting decisions, including influence over the airline’s decisions to 

award business to PAC as well as interpretations of specific terms in the MPSA and amendments 

thereto.  The Government Official negotiated significant terms with PAC, including credits, 

concessions, and system/component price lists, and was involved in approving payments to PAC.  

PAC identified the Government Official internally as a key executive at the Government Airline. 

12. In 2006, the Sales Rep and the Government Official began negotiating an 

amendment to the MPSA (“Amendment One”) for the purchase of additional IFE products by the 

Government Airline.  During the course of these negotiations the Government Official sought, and 

the Sales Rep provided, assistance in obtaining clients for a private consulting firm recently 

established by the Government Official.  Negotiations for Amendment One, which was worth 

nearly $360 million in additional business to PAC, continued through at least July 2007. 

13. Over the course of 2007, PAC and the Government Airline also negotiated and 

entered into a second amendment to the MPSA (“Amendment Two”) for the purchase of additional 

IFE products.  Due to the delay in the receipt of new aircraft by Government Airline, certain IFE 

products that PAC and the Government Airline had contemplated being included in Amendment 

One were instead included in Amendment Two.  Amendment Two was signed in November 2007, 

and was worth over $353 million in additional business to PAC. 

14. During the course of negotiations over Amendments One and Two, the 

Government Official solicited the Sales Rep for personal benefits.  Beginning in at least April 

2007, the Government Official sent numerous emails to the Sales Representative about obtaining a 

position with PAC.  For example, on June 17, 2007, the Government Official informed the Sales 

Representative what he wanted in a position, including an annual salary of £150,000 and other 

benefits.  The Sales Rep immediately informed PAC Executive One of the specific request.  The 

following week, PAC emailed the Government Official asking about the status of the execution of 

Amendment One. 

15. Senior PAC executives were aware of the negotiations.  In September 2007, a PAC 

executive who concurrently served as a director in Panasonic’s Avionics Business Unit told PAC 

Executive One and other PAC executives that “We should be very sensitive to [Government 

Official’s] current position . . . . I will get in trouble if we act like a small company.  What we are 

doing for [the Government Official] is a large risk for a corporation like Panasonic.  I think we still 

should for good reasons, but we must get this done above the table with complete transparency.”   

16. However, PAC and the Government Official concealed their negotiations for the 

consulting position from the Government Airline.  With the knowledge of PAC Executive One, in 

or around September 2007, the Government Official was offered a position as a PAC consultant 

for $200,000 per year plus travel expenses, which would be effective after his retirement from the 

Government Airline.  In addition, PAC Executive One arranged for the Government Official to be 

retained and paid through an unrelated third-party vendor that prepared product manuals for PAC 

(“Vendor”). 



 5 

17. During the course of the negotiations of Amendments One and Two, and while 

seeking these payments from PAC, the Government Official provided valuable information to help 

PAC gain an improper advantage in obtaining and retaining business from the Government Airline.  

This included confidential internal information, and advice on negotiating additional business and 

maintaining the relationship with the Government Airline.  For example, in April 2007, the 

Government Official advised the Sales Rep how to break up the cost of a particular item into 

several components, so the true cost would be hidden from the Government Airline and not raise 

any red flags. 

18. As a result of the Government Official’s actions, PAC was able to obtain a profit 

margin on Amendments One and Two that was significantly higher than what it obtained from 

other customers purchasing comparable products in the same time period.   

19. Ultimately, between April 2008 and January 2014, the Government Official 

provided little to no services and PAC paid over $875,000 to the Vendor for the Government 

Official’s position.  To effectuate the payments, PAC Executive One regularly authorized monthly 

payments to the Vendor in the amount of $12,500 and the Vendor then transferred $10,000 from 

each payment to the Government Official while retaining $2,500 as a fee. 

20. PAC’s internal audit group ultimately identified the payments to the Government 

Official as high risk, but nevertheless PAC continued to pay him.  In or about December 2010, 

senior PAC executives received a report from the Internal Audit group, which stated that no 

services were requested from the Government Official and that no deliverables were provided to 

PAC by the Government Official, but that invoices continued to be paid through the Vendor.  The 

report identified such payments as high risk, stating:  “Based on the information provided, 

[Vendor] consultant payment should be carefully reviewed in light of FCPA regulation due to lack 

of clarity in deliverables.”  Notwithstanding this report, PAC continued to make payments to the 

Government Official through the Vendor.     

21. Similarly, PAC continued to engage and pay the Sales Rep until 2016, despite 

learning in 2015 that he had destroyed electronic data on devices provided to him by PAC, 

including devices used for internal PAC communications and negotiations with the Government 

Airline and the Government Official, after he learned of an investigative subpoena issued by SEC 

staff. 

Retention of Consultants Through the Office of the President Budget  

22. From at least 2007 through at least January 2014, various purported consultants 

were engaged and paid through an Office of the President budget controlled by PAC Executive 

One, in circumstances in which little or no legitimate services were provided.  For example, both 

the Vendor and the Government Official were paid through this budget.   

23. In October 2007, PAC Executive One used the Vendor as a conduit to pay a former 

PAC employee (“Consultant One”), who was also working as a consultant for one of PAC’s largest 

domestic airline customers.  Between October 2007 and December 2013, PAC paid $825,000 for 

Consultant One from the Office of the President budget via the Vendor.  During that time, 

Consultant One was not supervised by anyone at PAC or Panasonic, and provided few, if any, 

legitimate services to PAC or Panasonic.  Instead, Consultant One provided PAC Executive One 

and others at PAC with non-public information regarding the customer, other airlines, and PAC 

competitors.  Consultant One frequently forwarded the information through emails that were 



 6 

marked “CONFIDENTIAL” or “DO NOT FORWARD.”  In one instance where Consultant One 

provided PAC with such information, a PAC employee responded, “You always have info which 

makes me shake my head.”  Panasonic falsely recorded the payments to Consultant One on its 

books as legitimate expenses for services provided by the Vendor. 

24. Between January and December 2009, PAC Executive One used the Office of the 

President budget and the Vendor to pay $60,000 to another former PAC employee (“Consultant 

Two”).  Consultant Two performed no work for PAC or Panasonic, and was paid solely to prevent 

him from working for any of PAC’s competitors.  Nevertheless, the payments to Consultant Two 

were falsely recorded on Panasonic’s books as legitimate expenses of Vendor. 

25. The Office of the President budget was set annually by a senior PAC finance 

executive in consultation with PAC Executive One, based on the prior year’s costs and anticipated 

changes in expenses.  Apart from PAC Executive One, this budget was never meaningfully 

reviewed or approved by any Panasonic or PAC personnel and there were no reasonable internal 

accounting controls in place surrounding its use.   

26. PAC Executive One authorized nearly all payments made out of this budget, 

including payments totaling more than $1.76 million to the Government Official and the two other 

consultants who provided few, if any, legitimate services to PAC.  These payments were falsely 

recorded in PAC’s general ledger as legitimate consulting payments to the Vendor. 

27. Panasonic failed to maintain internal accounting controls reasonably designed to 

ensure that the funds from the budget were used for their intended purposes and that Panasonic’s 

books and records fairly reflected the transactions and dispositions of Panasonic’s assets. 

28. As noted above, in 2010, PAC’s Internal Audit Department conducted an audit over 

PAC’s use of certain third-party service providers, including consultants engaged through the 

Vendor.  The resulting “Selected Vendor Audit Report” (“Report”) described a number of “critical 

risk” and “high risk” observations, defined as issues that “could have material financial, internal 

control or operational consequences” and that required immediate attention from PAC’s senior 

management.  Specifically, the Report identified critical risks in connection with payments of 

consultants through the Vendor, whose service agreement with PAC had expired in May 2009.  

The Report further identified as “high risk” the retention of the Government Official and other 

consultants, observing that between 2009 and 2010, the Government Official was not requested to 

provide any services to PAC or Panasonic, and provided no deliverables, but “invoices [were] still 

paid,” while deliverables from other consultants were not verified before invoices were paid.  

Additionally, the report flagged as a “critical risk” the monthly payments of $10,000 to Consultant 

One noting, “there was no information found in the [Vendor] agreement for this consultant.”  

29. The Report was circulated to PAC senior executives.  The initial version of the 

Report noted that PAC’s procurement department was “not involved in hiring these consultants” 

and concluded that the “consultant payment should be carefully reviewed in light of FCPA 

regulation.”  However, no one from PAC or Panasonic ever conducted any meaningful review or 

follow-up to address the critical and high risk issues identified in the Report.  Although PAC 

subsequently requested that the Vendor seek activity reports from the consultants, these activity 

reports were provided to PAC only sporadically and listed little detail as to the nature of the 



 7 

purported work performed.  The consultants continued to perform almost no work and PAC 

continued to pay the consultants via the Vendor for several more years.   

30. The payments to the consultants violated Panasonic’s Code of Conduct, which 

specifically required all Panasonic employees to abide by “applicable laws and regulations” and 

stated that Panasonic “[w]ill not engage in bribery of any kind.”  During the period that PAC used 

the Office of the President budget to pay the aforementioned consultants, PAC had specific 

policies and procedures concerning the retention and payment of consultants.  These policies set 

out a number of requirements, including defining the scope of work and limiting a contract’s 

duration to six months.  After February 2011, PAC recommended, but did not require, third-party 

due diligence reports concerning the consultants.   

31. Panasonic lacked sufficient internal accounting controls with respect to these 

policies and procedures, and it failed to follow its policies and procedures in the retention of the 

consultants described above. 

Retention of Sales Agents 

32. PAC’s practice of using sales agents, who solicited business for PAC from state-

owned airlines and other customers, varied depending upon the sales region.  For example, in 

Europe, Oceania, and the United States, PAC did not use sales agents.  By contrast, in its Middle 

East, Asia, and China sales regions, PAC routinely engaged sales agents to obtain business from 

state-owned airlines and other customers and typically paid them between six and ten percent of 

the net contract amount.  Between 2007 and 2017, PAC paid its sales agents in the Middle East, 

Asia, and China sales regions, including the Sales Rep, over $275 million. 

33. By 2004, PAC had established regional field offices in the Middle East, Asia, and 

China.  Moreover, by 2008 PAC’s primary regional office in Asia was staffed with numerous 

marketing and sales personnel versed and trained in PAC’s products, as well as field engineers.  

Nonetheless, PAC continued to use sales agents in connection with state-owned airlines and other 

customers in this region. 

34. Prospective sales agents would contact PAC sales and marketing employees in the 

Asia and China regions and offer their services in connection with requests for proposals issued by 

airlines for IFE products.  Vetting of the sales agents typically consisted of PAC having the agent 

arrange a phone call or meeting between PAC and high level executives or procurement staff of a 

potential customer.  In addition, PAC told at least one agent that he was expected to obtain 

confidential, non-public bids of PAC’s competitors.  This sales agent used sales commissions 

received from PAC to provide gifts, entertainment, and hospitality to government officials and 

their families as part of his efforts on behalf of PAC. 

35. While PAC historically conducted no meaningful due diligence on its sales agents, 

beginning in at least 1996, PAC started including audit rights in its contracts with sales agents.  

However, PAC did not exercise its audit rights in order to avoid upsetting relationships with the 

agents.  In early 2007, PAC began to put in place due diligence procedures for screening sales 

agents, including those agents with established relationships with PAC.  For sales agents that could 

not pass the new procedures, PAC made arrangements for the sales agents to enter into sub-

agreements with a Malaysia-based sales agent.  That agent ultimately served as a stand-in for at 



 8 

least thirteen sales agents, some of which refused or failed the vetting process.  In this way, PAC 

could continue to use sales agents who did not pass the screening requirements by concealing their 

use and payment through the Malaysia-based sales agent.  PAC paid a one or two percent fee to the 

Malaysian representative who acted as the conduit for payments to the other agents, despite the fact 

that PAC policies explicitly prohibited the use of unapproved sales agents.  PAC falsely recorded 

the payments to the sub-agents in its books and records as legitimate payments to the Malaysia-

based sales agent. 

36. Beginning in February 2009, PAC instituted a formal process to hire sales agents.  

The new procedure set out a number of different requirements, including determining the need for 

the agent, internal due diligence documentation, preliminary background checks, interviews, and 

analysis of any red flags, before requesting that the prospective sales agent undergo a third-party 

due diligence vetting process.  In addition, PAC regional sales and marketing staff would submit a 

“Sales Representative Agreement Request” for review by PAC’s Legal Affairs Department.  

Finally, all requests were to be routed to PAC’s Internal Review Committee (the “IRC”), staffed by 

PAC executives, including PAC Executive One and another senior executive.   

37. Notwithstanding the implementation of these procedures, the IRC never rejected a 

request for use of a sales agent.  Prior to voting to approve sales agent contracts, the IRC typically 

received a single-page form providing cursory information regarding the agent and contract.  The 

due diligence information and red flags identified in the third-party reports were not communicated 

to the IRC, and the IRC never questioned the need for the extensive use of sales agents or 

requested to review due diligence reports.  Similarly, the IRC did not question the decrease in the 

number of agents after third-party due diligence requirements were instituted, or the fact that a 

little-known Malaysian company had the capacity to perform work for approximately fifty 

programs with nearly twenty airlines.  Between 2008 and 2015, PAC paid over $10 million to the 

Malaysian sales agent for the benefit of at least thirteen different unapproved sub-agents.  The IRC 

approved all of the contracts with the Malaysian agent after February 2009. 

38. Moreover, PAC’s compliance personnel lacked appropriate qualifications and 

training, and as a result failed to act on numerous red flags in connection with the retention of sales 

agents.  For example, they raised no questions or concerns about the retention of sales agents that 

internal forms clearly disclosed were hired after “being recommended by airline.”  Nearly all of the 

airlines internally described as recommending these sales agents were state-owned airlines in the 

Asia and China Regions.       

39. PAC’s compliance personnel failed to act on other red flags, including those that 

were specifically identified in PAC’s own policies and procedures such as:  (a) payment of large 

commissions to sales agents in relation to services rendered; (b) payments to bank accounts in 

countries other than where services were being provided; (c) the retention of sales agents 

recommended by state-owned airlines; and (d) lack of adequate educational, business, and 

technical qualifications.  Examples of ignored red flags include payments of approximately $4 

million to a sales agent whose primary work experience was as a Hong Kong department store 

clerk, and nearly $10 million to an agent who had served as the head of an Asian equestrian league, 

but had no relevant avionics experience.    



 9 

40. Similarly, after a third-party vetting service discovered that one sales agent had 

forged references, and another was flagged as potentially being a “foreign official” under the 

FCPA, they were nevertheless engaged by PAC and simply paid as sub-agents through the 

Malaysian agent.   

41. As a result, Panasonic failed to devise and maintain a sufficient system of internal 

accounting controls in connection with the retention of sales agents and failed to accurately record 

the payments to the sales agents on its books and records. 

Fraudulent Reporting of Revenue 

42. During the time its securities were registered with the Commission, Panasonic filed 

or furnished periodic reports with the Commission containing, among other things, Panasonic’s 

consolidated financial statements.  The consolidated financial statements incorporated financial 

information (e.g., net sales, pre-tax income, net income) of its numerous subsidiaries, including 

PAC.  Panasonic reported to shareholders that the company’s consolidated financial statements 

were prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). 

43. Under GAAP, Accounting Standards Codification 605-10-25-1, Revenue 

Recognition, provides that revenue should not be recognized until it is realized or realizable and 

earned.  PAC’s revenue recognition policy, consistent with GAAP, set forth four requirements that 

must generally be met before revenue can be realized and earned: 1) persuasive evidence of an 

arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller’s price to 

the buyer is fixed or determinable; and 4) collectability is reasonably assured. Based on PAC’s 

revenue recognition policy, and its customary business practice of requiring a written sales 

agreement from customers such as Government Airline, it could not recognize revenue for a 

quarter unless, among other requirements, a contract was signed by the customer during the quarter 

in which the revenue was recognized. Furthermore, PAC was repeatedly advised by its external 

auditor (“Auditor”) that a signed contract was necessary to recognize revenue from customers such 

as the Government Airline. 

44. As early as 2006, PAC backdated certain customer contracts in order to recognize 

revenue in time periods prior to when those contracts were actually signed. 

45. For example, in June 2012, PAC and the Government Airline were negotiating 

Amendment Six to the MPSA, but were unable to reach agreement on all of the terms of the 

contract.  While the negotiations were ongoing and it appeared that Amendment Six would not be 

signed by the end of June, PAC sought the advice of its Auditor about options to satisfy the 

requirement that persuasive evidence of an agreement existed.  Consistent with the Auditor’s prior 

advice, and PAC’s past practice in accounting for agreements with the Government Airline, the 

Auditor advised PAC that PAC could recognize revenue from Amendment Six in the quarter 

ending June 30, 2012 (“First Quarter”) if the agreement was signed prior to the end of June 2012. 

46. PAC’s senior executives understood that recognizing revenue from Amendment Six 

in the First Quarter was critical to Panasonic.  For example, on June 23, 2012, a Panasonic 

executive who also served as a senior PAC executive told PAC Executive One and another senior 

executive (“PAC Executive Two,” who was seconded from Panasonic) that failing to recognize 



 10 

revenue from Amendment Six “is a big problem for all of us.”  Similarly, on June 25, 2012 a 

Panasonic accounting employee told PAC Executive Two that “it will be a big problem if this 

contract fails to be signed.”  

47. Accordingly, PAC advised the Government Airline that it needed a signed contract 

before the end of June 2012.  However, the Government Airline was seeking additional discounts 

and did not execute Amendment Six before June 30, 2012.   

48. On July 1, 2012, PAC’s contracts manager informed several PAC executives, 

including PAC Executive Two, that Amendment Six still had not been signed.  Less than an hour 

later, PAC Executive Two advised accounting staff at Panasonic that the Government Airline had 

not yet signed Amendment Six.  In response, a Panasonic accounting executive voiced concern 

regarding whether the Auditor would approve recognition of revenue for Amendment Six without 

a signed contract. 

49. On July 2, 2012, the Government Airline advised PAC that it had signed 

Amendment Six, but refused to provide a copy of the executed contract because the Government 

Airline wanted additional discounts. 

50. On July 3, 2012, the Government Airline provided PAC with an executed, but 

undated, signature page for Amendment Six.  A PAC contracts manager then caused the date June 

28, 2012 to be added to the Government Airline signature page even though he and other PAC 

employees and executives knew that it was not signed on that date and that the Government Airline 

was still seeking additional pricing discounts.   

51. Thereafter, PAC sought to persuade the Auditor that Amendment Six revenue could 

be recognized in the First Quarter, despite the fact that no PAC executive had signed the agreement 

before the end of the quarter.  Several PAC employees falsely represented to the Auditor that 

Amendment Six had been signed on June 28, 2012.  PAC Executive Two told a Panasonic 

accounting employee in a Japanese language email that the Auditor had initially determined that 

PAC should not include the revenue in the First Quarter, but that PAC had convinced the Auditor, 

using a Japanese phrase subject to differing translations including “tweaks and tricks” and “tricks.” 

52. In mid-July 2012, PAC provided the Auditor with a Consolidation Package with 

PAC’s financial statements for the First Quarter.  PAC included over $82 million of improperly 

recognized revenue from Amendment Six in these financial statements.  PAC Executive Two 

signed a letter to the Auditor accompanying PAC’s financial statements, representing that the 

financial information had been presented in conformity with GAAP. 

53. At that time, PAC Executive Two knew or was reckless in not knowing that:  (1) 

PAC’s revenue recognition policy, which was consistent with GAAP, required persuasive evidence 

of an arrangement in order for the company to recognize revenue; (2) PAC’s Auditor had 

specifically advised that Amendment Six needed to be signed before the end of the quarter in order 

to serve as persuasive evidence of an arrangement and satisfy its revenue recognition requirements; 

(3) the Government Airline had not signed Amendment Six before the end of the quarter, and (4) 

Panasonic’s financial statements  nevertheless prematurely recognized approximately $82 million 

of revenue for Amendment Six in the First Quarter. 



 11 

54. Panasonic failed to accurately record the revenue from Amendment Six in its books 

and records, and it failed to devise and maintain internal accounting controls sufficient to provide 

reasonable assurances that transactions are recorded as necessary to permit preparation of financial 

statements in conformity with GAAP.  PAC’s financial results for the First Quarter – including 

approximately $82 million of improperly recognized revenue and associated pre-tax income of 

$38.5 million and net income of $22.4 million – were incorporated into Panasonic’s consolidated 

financial statements for the First Quarter.  Panasonic’s financial results and consolidated financial 

statements for the First Quarter were furnished to the Commission on Forms 6-K filed with the 

Commission on or about August 2, 2012, and on or about August 21, 2012. 

55. As a result of its premature recognition of revenue in connection with Amendment 

Six, Panasonic materially misstated pre-tax income by at least $38.5 million or 9%, and net income 

by at least $22.4 million or 16% , in its Form 6-K for the First Quarter 2012.  

LEGAL STANDARDS AND VIOLATIONS 

56. As a result of the conduct described above, Panasonic violated Section 30A of the 

Exchange Act, which prohibits any issuer with a class of securities registered pursuant to Section 

12 of the Exchange Act, or any officer, director, employee, or agent acting on behalf of such 

issuer, in order to obtain or retain business, from corruptly giving or authorizing the giving of, 

anything of value to any foreign official for the purposes of influencing the official or inducing 

the official to act in violation of his or her lawful duties, or to secure any improper advantage, or 

to induce a foreign official to use his influence with a foreign governmental instrumentality to 

influence any act or decision of such government or instrumentality.   

57. As a result of the conduct described above, Panasonic violated Section 

13(b)(2)(A) of the Exchange Act, which requires issuers that have a class of securities registered 

pursuant to Section 12 of the Exchange Act and issuers with reporting obligations pursuant to 

Section 15(d) of the Exchange Act to make and keep books, records, and accounts which, in 

reasonable detail, accurately and fairly reflect their transactions and disposition of their assets. 

58. As a result of the conduct described above Panasonic violated Section 13(b)(2)(B) 

of the Exchange Act, which requires issuers that have a class of securities registered pursuant to 

Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) 

of the Exchange Act to devise and maintain a system of internal accounting controls sufficient to 

provide reasonable assurances that (i) transactions are executed in accordance with 

management’s general or specific authorization; (ii) transactions are recorded as necessary (I) to 

permit preparation of financial statements in conformity with generally accepted accounting 

principles or any other criteria applicable to such statements, and (II) to maintain accountability 

for assets; (iii) access to assets is permitted only in accordance with management’s general or 

specific authorization; and (iv) the recorded accountability for assets is compared with the 

existing assets at reasonable intervals and appropriate action is taken with respect to any 

differences. 

59. As a result of the conduct described above, Panasonic violated Section 10(b) of 

the Exchange Act and Rule 10b-5 thereunder, which prohibit any person from making any untrue 

statement of a material fact or omitting to state a material fact necessary in order to make the 

statements made, in the light of the circumstances under which they were made, not misleading, 

in connection with the purchase and sale of a security.   



 12 

60. As a result of the conduct described above, Panasonic violated Section 13(a) of 

the Exchange Act and Rules 13a-16 and 12b-20 thereunder.  Section 13(a) requires issuers to file 

periodic and other reports as the Commission may prescribe and in conformity with such rules as 

the Commission may promulgate.  Rule 13a-16 of the Exchange Act requires each foreign 

private issuer to furnish information on Form 6-K as specified in the Rule.  Rule 12b-20 of the 

Exchange Act requires that the reports contain such further material information, if any, as may 

be necessary to make the required statements, in light of the circumstances under which they are 

made not misleading. 

DEFERRED PROSECUTION AGREEMENT 

61. Panasonic’s subsidiary PAC has entered into a deferred prosecution agreement 

with the Department of Justice that specifically acknowledges responsibility for criminal conduct 

relating to findings in the Order. 

PANASONIC’S REMEDIAL EFFORTS  

62. In determining to accept the Offer, the Commission considered remedial efforts 

undertaken by Respondent and cooperation afforded the Commission staff in the later stages of 

the staff’s investigation.  Respondent has replaced the senior PAC executives involved in the 

violations, established an Office of Compliance and Ethics led by a new Chief Compliance 

Officer, implemented new compliance and accounting procedures, and enhanced internal 

accounting controls to prevent and detect the type of misconduct described in the Order. 

IV. 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent’s Offer. 

 Accordingly, it is hereby ORDERED that: 

 A. Pursuant to Section 21C of the Exchange Act, Respondent cease-and-desist from 

committing or causing any violations and any future violations of Sections 10(b), 13(a), 13(b)(2)(A) 

13(b)(2)(B), and 30A of the Exchange Act, and Rules 10b-5, 12b-20, and 13a-16 thereunder. 

 B. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of  

$126,900,000 and prejudgment interest of $16,299,018.93, for a total payment of $143,199,018.93 

to the Securities and Exchange Commission for remission to the United States Treasury, subject to 

Exchange Act Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue 

pursuant to SEC Rule of Practice 600.  Payment must be made in one of the following ways:   

(1)  Respondent may transmit payment electronically to the Commission, which will 

provide detailed ACH transfer/Fedwire instructions upon request;  

(2)  Respondent may make direct payment from a bank account via Pay.gov through the 

SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

(3)  Respondent may pay by certified check, bank cashier’s check, or United States 

postal money order, made payable to the Securities and Exchange Commission and 

hand-delivered or mailed to:  

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 



 13 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

Payments by check or money order must be accompanied by a cover letter identifying 

Panasonic as Respondent in these proceedings, and the file number of these proceedings.  A copy 

of the cover letter and check or money order must be sent to Charles Cain, Chief, FCPA Unit, 

Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, 

DC 20549.   

 By the Commission. 

 

       Brent J. Fields 

       Secretary