Judge Refuses to Approve an FCPA Settlement Without Additional Detailed Reporting

Another Court Rejects SEC Deal

A theme we’ve seen in the new world of increased governmental enforcement in the U.S. has been the reluctance by the courts, in some instances, to approve the resulting settlements. Just last week a judge refused to approve a settlement of Foreign Corrupt Practices Act (FCPA) charges which had been brought by the U.S. Securities and Exchange Commission (SEC).

Back in 2011, the defendant company, without admitting or denying the charges, had agreed to pay $10 million in disgorgement and penalties to settle alleged violations of the books-and-records and internal-control provisions of the FCPA. This settlement was awaiting the needed court approval.

The Books & Records Provisions of The Foreign Corrupt Practices Act

The “books-and-records” provision of the FCPA requires U.S. public companies to:

  1. Maintain their books and records in sufficiently reasonable detail that they accurately and fully reflect transactions.
  2. Maintain effective internal accounting controls.

It is enforced by the SEC.

-The Foreign Corrupt Practices Act, USC Title 15. Commerce and Trade Chapter 2B–Securities Exchanges, § 78m.

“I’m not just going to roll over like the SEC has,” the judge told the defendant’s lawyer.

Repeat Offender?

Back in 2000, the company in this case had already settled a separate civil action with the Commission without admitting or denying charges under the FCPA. As part of the earlier settlement, it agreed to cease and desist from violating or causing any violation of the FCPA’s books-and-records provisions.

In the eyes of the judge, if there was any validity to the recent charges, then the company was a repeat offender. So he was looking for more from the company than the proposed settlement with the government would require.

The judge pushed for annual reports from the company not only on their FCPA compliance, but to focus on all possible accounting violations. In open court, he revealed that the company had balked at supplying information beyond bribe allegations.

SEC Argues for Less

In conflict with the judge, in supporting the narrower scope of the proposed ongoing disclosure, the SEC took the position that it believed that it “should be tailored to conduct that gave rise to the complaint.”

It is now up to the company and the SEC to prove statistically that the expanded disclosure obligations are too burdensome. And the judge warned that the company’s accountants may be called to testify to back up the company’s position.

Signals

It may be that the courts will look more stringently at what may seem to be repeat wrongful acts; and possibly less deference to government enforcement agencies. The judge in this case, notably, also presided over the gun sting case (the government’s first aggressive FCPA sting), which ended earlier this year with dismissals for all 22 defendants.

About Ann Longmore

Ann is Executive Vice President of Willis' Executive Risks practice. Based in New York, she has been with the compa…
Categories: Executive Risk, Financial Services | Tags: ,

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