The internal controls provisions of the Foreign Corrupt Practices Act require issuers to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that” the specific financial objectives of the statute are met.
Besides these vague objectives such as “transactions are executed in accordance with management’s general or specific authorization” or “access to assets is permitted only in accordance with management’s general or specific authorization” the FCPA does not specify what issuers are supposed to do. Nor does any implementing rule or regulation.
Rather, enforcement of the internal controls provisions often amounts to the government – with the perfect of hindsight – adopting a theory of enforcement that represents little more than ipse dixit (an unsupported statement that rests solely on the authority of the individual who makes it). In other words, the failure to do x, y or z is an internal controls violations merely because the government says it is.
One of the more outlandish examples occurred in the 2016 PTC enforcement action (see here for the prior post), a $28 million action focused on travel and entertainment provided to alleged “foreign officials.”
Under the heading ,“PTC Failed to Devise and Maintain a System of Internal Accounting Controls,” the SEC’s order stated, among other things:
“PTC’s Code of Ethics and Anti-Bribery policies for the provision of business entertainment were vague (i.e., stating that employees should use “good taste” and consider the “customary business standards in the community” when providing business entertainment) and not risk-based to China.”
Certainly this was not the only alleged internal control deficiency in the PTC action, but I take the position that the SEC (and DOJ) include findings or allegations in corporate FCPA enforcement actions either: (i) to practice their typing skills or (ii) to send a message to the corporate community about what the government views as problematic.
Given the above internal control ding in the PTC enforcement, one might expect the U.S. government to have clear guidance for its own employees concerning travel and entertainment.
Recently, I dived into the Federal Travel Regulation (FTR) a regulation contained in 41 Code of Federal Regulations (CFR), Chapters 300 through 304, which implements statutory requirements and Executive branch policies for travel by Federal civilian employees and others authorized to travel at Government expense. (See here).
My first reaction to this government guidance is how it runs counter to the DOJ’s recent “Evaluation of Corporate Compliance Program” factors such as training and communication should be “in the form and language appropriate from the intended audience” as well as the DOJ/SEC FCPA Guidance which states that “the most effective codes are clear [and] concise …”.
The FTR is anything but. Some of my favorite examples from the FTR are the following:
When may I use other than coach-class airline accommodations?
“Government travelers are required to exercise the same care in incurring expenses that a prudent person would exercise if traveling on personal business when making official travel arrangements, and therefore, should consider the least expensive class of travel that meets their needs.”
How is this guidance to government employees any different than the guidance PTC provided to its employees – guidance the government found to be an internal control deficiency?
The FTR also contains the following guidance:
“Your agency may pay only those expenses essential to the transaction of official business.”
One of my favorite examples of vague guidance in the FTR is the following:
What baggage expenses may my agency pay?
Your agency may reimburse expenses related to baggage as follows:
(a) Transportation charges for authorized excess;
(b) Necessary charges for transferring baggage;
(c) Necessary charges for storage of baggage when such charges are the result of official business;
(d) All fees pertaining to the first checked bag. In addition, charges relating to the second and subsequent bags may be reimbursed when the agency determines those expenses necessary and in the interest of the Government. Travelers should verify their agency’s current policies and procedures regarding excess baggage prior to traveling; and
(e) Charges or tips at transportation terminals for handling Government property carried by the traveler.
The hypocrisy meter is high when the government dings companies for having vague travel and entertainment policies while having vague travel and entertainment policies for its own employees.
It’s another example of as we say, not as we do. (See here for another example relevant to the FCPA context).
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