When FCPA Charges Break the Mold

Glen Jenkins, a senior manager in the forensic accounting services sector at accounting firm Warren Averett, says that these types of charges are sometimes included in an action along with foreign bribery charges, but certainly not always. “It can be something totally unrelated because the books and records provision that the SEC is using doesn't have to have any nexus or relationship to bribery,” he says. “It can be a stand-alone, by itself.”

Some Representative Cases

There are plenty of instances of companies getting dinged for books and records and internal controls violations in the recent past. One charge earlier this year, against Jacksonville, FL-based retailer Stein Mart Inc., had no discernible connection to bribes. The SEC found that the company had incorrectly recorded its pretax income, missing the mark in one quarter by about 30%. It also found that Stein Mart lacked the right internal controls to catch such a problem, as the company's merchandising department had sole responsibility for the accounting misstatements. In the end, the retailer did not admit or deny the wrongdoing, but had to dish out $800,000 to settle the case.

The SEC has also proved that books and records and internal controls violations can occur with other sorts of fact patterns that may have a connection to bribery, although no quid pro quo relationship was ever specifically proved. Earlier this year, the commission announced that it inked an FCPA settlement with Australian mining, metals and petroleum company BHP Billiton for $25 million. The company paid for government officials and employees of state-owned companies to attend the 2008 Summer Olympic Games. Although the SEC couldn't prove that the company actually got anything in return for this hospitality, it did find that the company didn't have enough internal controls on its hospitality program to ensure that potential bribery would not happen.

Staying on the Right Side of the Law

Glen Jenkins explains that there's no silver bullet to prevent the SEC from finding some fault in a company's books and records and internal controls, and leveling charges under the FCPA. But companies need to try and mitigate risk. “Companies have to do the best they can to make sure they have adequate programs to alert people to violations and make sure, as far as books and records, that they have as rigid standards as possible,” he says.

One major component, adds Jenkins, is educating everyone from the chief financial officer and the audit committee of the board of directors on down about these less visible provisions of the FCPA. A company may have a good handle on compliance with the anti-bribery side of the law, but may be less aware of the law's requirements on the accounting and internal controls side. “Just a great amount of education and awareness is the best thing a company can do, coupled with the existing internal controls they have already,” Jenkins says.

Rebekah Mintzer is a reporter for Corporate Counsel, an ALM sibling publication of this newsletter in which this article also appeared.