Background

The Securities and Exchange Commission issued Aug. 11 an order under which a U.S. company will pay $5 million in disgorgement to settle charges that it violated the books and records and internal control provisions of the Foreign Corrupt Practices Act. The SEC states that in determining this amount and not to impose a penalty it considered the company’s current financial condition and its ability to maintain necessary cash reserves to fund its operations and meet its liabilities.

The SEC alleged that from August 2010 through at least April 2013 the company’s Mexican subsidiary made improper payments through a third party to an employee at a Mexican state-owned organization to induce him to provide inside information as well as advice and assistance on contracts. According to the SEC, the transfers to the third party were improperly recorded as legitimate business expenses in the subsidiary’s books and records, which were consolidated into the parent company’s books and records. In addition, the order states, despite having various written compliance policies the parent company failed to implement and maintain sufficient internal controls, including with respect to interactions with officials of the state-owned organization, and failed to respond to indicia of risk relating to the subsidiary’s improper use of consultants. Moreover, the company failed to adequately monitor and supervise the senior executives at the subsidiary to ensure that they complied with and enforced anti-corruption policies and kept accurate records.

The SEC states that in determining to accept the company’s settlement offer it considered the “significant remedial measures” the company took after discovering the conduct at issue, including (1) hiring a new chief compliance officer who oversaw a renovation and enhancement of the company’s compliance program, (2) a manual review of more than 600 vendors in Mexico for purposes of clearing legitimate payments and assessing whether to move forward with those vendors in current and future operations, (3) instituting an enhanced due diligence procedure for all vendors globally, (4) establishing enhanced financial controls around the procedure-to-pay process in Mexico, Colombia and Russia, including interim employee certification requirements, revised vendor onboarding requirements and heightened payment approval requirements, (5) in-person visits to each international location by the CCO and others to, among other things, conduct training of all international employees, (6) developing and/or reviewing several company policies and procedures, including the FCPA and anti-corruption policy, and (7) a coordinated wind-down and exit of all markets outside of North America and a commitment to exit Mexico by the end of 2016.

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