fcpa-resource-guide

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funds, off-the-books accounts, and systematic payments to
business consultants and other intermediaries—to facilitate
bribery. Payments were made in ways that obscured their
purpose and the ultimate recipients of the money. In some
cases, employees obtained large amounts of cash from cash
desks and then transported the cash in suitcases across international
borders. Authorizations for some payments were
placed on sticky notes and later removed to avoid any permanent
record. The company made payments totaling approximately
$1.36 billion through various mechanisms, including
$805.5 million as bribes and $554.5 million for unknown
purposes. 225 The company was charged with internal controls
and books and records violations, along with anti-bribery
violations, and paid over $1.6 billion to resolve the case with
authorities in the United States and Germany. 226
The types of internal control failures identified in the
above example exist in many other cases where companies
were charged with internal controls violations. 227 A 2010
case against a multi-national automobile manufacturer
involved bribery that occurred over a long period of time in
multiple countries. 228 In that case, the company used dozens
of ledger accounts, known internally as “internal third
party accounts,” to maintain credit balances for the benefit
of government officials. 229 The accounts were funded
through several bogus pricing mechanisms, such as “price
surcharges,” “price inclusions,” or excessive commissions. 230
The company also used artificial discounts or rebates on
sales contracts to generate the money to pay the bribes. 231
The bribes also were made through phony sales intermediaries
and corrupt business partners, as well as through the
use of cash desks. 232 Sales executives would obtain cash from
the company in amounts as high as hundreds of thousands
of dollars, enabling the company to obscure the purpose
and recipients of the money paid to government officials. 233
In addition to bribery charges, the company was charged
with internal controls and books and records violations.
Good internal controls can prevent not only FCPA
violations, but also other illegal or unethical conduct by the
company, its subsidiaries, and its employees. DOJ and SEC
have repeatedly brought FCPA cases that also involved
other types of misconduct, such as financial fraud, 234
commercial bribery, 235 export controls violations, 236 and
embezzlement or self-dealing by company employees. 237
Potential Reporting and Anti-Fraud Violations
Issuers have reporting obligations under Section
13(a) of the Exchange Act, which requires issuers to file
an annual report that contains comprehensive information
about the issuer. Failure to properly disclose material information
about the issuer’s business, including material revenue,
expenses, profits, assets, or liabilities related to bribery
of foreign government officials, may give rise to anti-fraud
and reporting violations under Sections 10(b) and 13(a) of
the Exchange Act.
For example, a California-based technology company
was charged with reporting violations, in addition to violations
of the FCPA’s anti-bribery and accounting provisions,
when its bribery scheme led to material misstatements in its
SEC filings. 238 The company was awarded contracts procured
through bribery of Chinese officials that generated material
revenue and profits. The revenue and profits helped the company
offset losses incurred to develop new products expected
to become the company’s future source of revenue growth.
The company improperly recorded the bribe payments as
sales commission expenses in its books and records.
Companies engaged in bribery may also be engaged
in activity that violates the anti-fraud and reporting provisions.
For example, an oil and gas pipeline company and
its employees engaged in a long-running scheme to use the
company’s petty cash accounts in Nigeria to make a variety
of corrupt payments to Nigerian tax and court officials
using false invoices. 239 The company and its employees also
engaged in a fraudulent scheme to minimize the company’s
tax obligations in Bolivia by using false invoices to claim
false offsets to its value-added tax obligations. The scheme
resulted in material overstatements of the company’s net
income in the company’s financial statements, which violated
the Exchange Act’s anti-fraud and reporting provisions.
Both schemes also violated the books and records
and internal controls provisions.