A large international bank agreed to pay over $16 Million in disgorgement, fines and penalties for hiring unqualified interns associated with foreign government officials in order to secure business. The SEC asserts that the respondent violated its own policies and procedures and created false books and records to conceal corrupt transactions in violation of the Exchange Act’s books and records requirements. The interns bypassed the bank’s “highly competitive and merit-based hiring process” and were often assigned to the very deals where a relative could steer business. The SEC charges the bank with violating the Foreign Corrupt Practices Act over an 8-year period.
It’s never good to violate your own policies and procedures as it shows knowledge of the regulations and (at least) negligence in failing to enforce the policies. Firms that do business overseas must create and implement procedures to ensure compliance with the FCPA.
A large retailer agreed to pay more than $282 Million to settle charges brought by the Department of Justice and the SEC that it failed to implement anti-corruption procedures required by the Foreign Corrupt Practices Act. The prosecutors assert that the company knew about FCPA violations including unlawful payments routed through intermediaries as far back as 2000 but failed to take any meaningful action until 2011. Alleged failures included neglecting to follow up on obvious red flags raised by the internal audit function, revising internal recommendations, delegating compliance to in-country business units, and failing to implement sufficient training. An SEC enforcement official maintains that the company “valued international growth and cost-cutting over compliance.”
The Foreign Corrupt Practices Act requires registrants to implement rigorous compliance and internal controls to prevent unlawful payments to foreign government officials. Violations can result in substantial civil and criminal penalties.
The SEC ordered a large asset manager to pay over $34 Million in disgorgement and interest to settle charges that it bribed foreign officials to obtain investment mandates. The firm also agreed to pay a $32 Million criminal fine and execute a non-prosecution agreement with the Department of Justice. The SEC alleges that employees at the asset manager knew that payments made by a foreign subsidiary to a solicitor were used to bribe foreign officials with power to direct investments by sovereign wealth funds. The SEC accuses the firm for violating the internal control provisions of the Foreign Corrupt Practices Act and for having insufficient internal accounting controls.
OUR TAKE: Compli-pros must implement enhanced procedures when their firms seek to attract foreign government clients. Procedures should include vetting of solicitors and due diligence into payments.
The SEC’s Enforcement Director, Andrew Ceresney, recently described how the SEC has prioritized FCPA (Foreign Corrupt Practices Act) enforcement with a focus on individual liability. Mr. Ceresney said the SEC has brought 21 FCPA cases and has taken “a lead role in fighting corruption worldwide.” Describing some recent FCPA enforcement cases, Mr. Ceresney highlighted the Enforcement Division’s “renewed emphasis on individual liability,” which includes holding CEOs accountable for ignoring red flags. Mr. Ceresney explained that “pursuing individual accountability is a critical part of deterrence.”
OUR TAKE: Individual liability should be a significant concern when the SEC and DoJ enforce the FCPA, which can carry criminal penalties. Firms should ensure a monitoring system that includes adequate follow-up on potential red flags.
A large investment bank agreed to pay over $264 Million including $130 Million to the SEC, $72 Million to the Justice Department, and nearly $70 Million to the Federal Reserve Board, for violating the Foreign Corrupt Practices Act by giving jobs in return for investment banking business. The SEC charges that the respondent bypassed normal procedures to hire friends and relatives of senior officials at government entities in order to secure investment banking assignments. The SEC asserts that those responsible for the program knew its illegality and intentionally misled internal audit and compliance reviews. According to the SEC, the referral program resulted in the hiring of 200 employees over a 7-year period and generated in more than $100 Million in revenue.
OUR TAKE: This is the second major FCPA case in the last several weeks (see https://cipperman.com/2016/10/04/large-hedge-fund-manager-ceo-pay-413-million-settle-bribery-charges/). The SEC intends to review FCPA compliance and bring enforcement actions with firms seeking business with foreign government entities.
A large hedge fund manager and its CEO agreed to pay over $413 Million in civil and criminal penalties to the SEC and the Justice Department in connection with bribing foreign officials to invest sovereign wealth funds into the respondents’ investment funds. The SEC asserts that the firm did not follow its own anti-corruption procedures by failing to conduct required enhanced due diligence when concerns were raised. Although the SEC does not accuse the CEO of knowing about the bribes, they fault him and the CFO for approving the transactions despite red flags and warnings. As part of the settlement, the firm must hire a dedicated CCO that does not have any other job at the company. The SEC and DoJ allege several violations of the Foreign Corrupt Practices Act, the Investment Advisers Act, and the Securities Exchange Act. The SEC’s Enforcement Director admonished: “Senior executives cannot turn a blind eye to the acts of their employees or agents when they became aware of suspicious transactions…”
OUR TAKE: As firms go global to attract assets, the risk management infrastructure to ensure compliance with the FCPA and other laws (including laws of the local jurisdiction) must follow.