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Support For FCPA Reform In An Unlikely Place

If one were to list the industries likely in favor of FCPA reform, the top of the list would likely include oil and gas, pharmaceutical, telecommunication, defense, and poultry.

Poultry?  That’s right.  In this November 1o, 2011 letter to U.S. Senator Mark Pryor (D-Ark) the Arkansas Poultry Growers Association advocates in favor of FCPA reform.  The copy quality of the letter is poor and below is what the letter appears to say.


Senator Pryor:

We were pleased to read media accounts of your press conference last Friday in Little Rock when you touted agriculture and reducing burdensome regulation as primary components of your job package as well as helping the U.S. regain some economic footing.  Those words ring true to anyone in agriculture, such as us.

As much as the success of U.S. agriculture depends on exports to foreign market, it is critical that you understand what an impediment the Foreign Corrupt Practices Act has become to this end.  The FCPA was passed over 30 years ago yet has not had meaningful legislative amendments since.  Meanwhile, the global economy has and continues to rapidly change.  Clearly the FCPA has not kept up, it is now archaic, and most troubling the administration of this Act is now left to un-elected federal bureaucrats. 

Unfortunately these government attorneys use their interpretation to carry out significant decisions, some of which have resulted in fines and even criminal charges against U.S. interests.  Arkansas agriculture needs clarity on the FCPA and we shouldn’t have to wait any longer for that to occur.  It is true the Administration can make changes to this that would help, but the fact is it hasn’t, nor did the last Administration.  We respectfully urge you to carry this matter forward in the U.S. Senate and lead the way to clarify consistency in the implementation of the FCPA. 

By reforming the FCPA as soon as possible you will be taking proactive steps perfectly aligned with the tenants you presented in your jobs program.  We hope we can count on you to do just that, and without waiting on the Administration or anyone else to perform this responsibility.

Thank you in advance.

Roy Casares (Fayetteville, Ar.) Guy Pavey (Springdale, Ar.), James Pepples (Springdale, AR).

[Incidentally, Springdale, Ar. is home to Tyson Foods.  As detailed in this prior post, in February 2011, Tyson resolved an FCPA enforcement action]


That’s democracy in action and more companies, trade groups, etc. ought to make their voice heard on FCPA reform issues.

“We Don’t Want The Auditors Raising Any Questions on Iraq Business”

Yet another Iraqi Oil-For-Food enforcement action.

Yesterday, the DOJ and SEC announced resolution of an enforcement action against AGCO Corp. (a Georgia-based manufacturer and supplier of agricultural machinery and equipment) as well as AGCO Limited (AGCO’s a wholly-owned subsidiary headquartered in the United Kingdom responsible for AGCO’s business in Europe, Africa, and the Middle East)(see here, here, here, here, and here).

Big picture, AGCO acknowledged responsibility for improper payments made by its subsidiaries and agents to the former government of Iraq in order to obtain contracts with the Iraqi Ministry of Agriculture under the United Nations Oil-For-Food program.

DOJ filed a criminal information against AGCO Limited charging one count of conspiracy to commit wire fraud and to violate the FCPA’s books and records provisions.

According to the DOJ, AGCO Limited paid approximately $550,000 to the former government of Iraq to secure three contracts. DOJ and AGCO entered into a three-year deferred prosecution agreement under which DOJ will defer prosecution upon, among other things, AGCO’s payment of a $1.6 million penalty. According to the DOJ, the basis for the deferred prosecution agreement was, among other things, AGCO’s cooperation in the DOJ’s investigation, its implementation of remedial measures, and its settlement with the SEC (see below).

Why no substantive FCPA anti-bribery charges in this case and other Iraqi Oil-For-Food cases (Novo Nordisk, Fiat, AB Volvo, etc.)? The anti-bribery provisions apply to payments to “foreign officials,” not foreign governments. Thus, in this and the other cases, conspiracy to commit wire fraud and to violate the FCPA books and records provisions were charged.

Because AGCO is an issuer, the SEC also played a role in the enforcement action. The SEC filed a settled civil complaint charging AGCO with violating the FCPA’s books and records and internal control provisions.

According to the SEC, certain AGCO subsidiaries made – through a Jordanian agent – approximately $5.9 million in kickback payments to Iraq in the form of “after-sales service fees” to secure contracts worth approximately $14 million. These payments were disguised or improperly recorded in the subsidiaries’ books and records which were consolidated with AGCO’s for SEC filing purposes. According to the SEC, “AGCO knew or was reckless in not knowing that kickbacks were paid in connection with its subsidiaries’ transactions.”

The SEC ordered AGCO to pay $18.3 million in combined disgorgement, interest, and penalties.

In a previous post (see here), it was noted that FCPA compliance is a task that not just company lawyers need to be concerned with, but rather a task that internal audit and finance should also be concerned with and actively involved in as well. It was noted that internal audit and finance personnel must be specifically trained to approach their specific job functions with “FCPA goggles” on.

Reading the SEC complaint against AGCO, it is clear that various AGCO personnel could have used a pair of “FCPA goggles” as the complaint is an indictment of the entire company’s control function.

In para 23, the SEC charges, among other things, that:

the “accrual account [where the kickback payments were recorded] was created by AGCO Ltd.’s marketing staff with virtually no oversight from AGCO Ltd.s’ finance department;”

“no one questioned the existence of the dual accounts;”

“no one questioned why the [accrual account] contained approximately ten percent of the contract value despite the fact that there was no contract in place requiring that such ten percent be paid to the ministry or anyone else;”

“when the finance department authorized payments from the [accrual account], it did not ask for or receive any proof of service to warrant the payments;” and

an employee cautioned the business manager for Iraq and his supervisor that “we don’t want the auditors raising any questions on Iraq Business!”

Further, in para 25, the SEC charges, among other things, that:

“Sales and marketing personnel were able to enter into contracts without review from the legal or finance departments;”

“an accounting employee described the Finance Department employees as ‘blind loaders’ who input information into AGCO’s books without any adequate oversight role;” and

“marketing personnel were able to create accrual accounts […] without any oversight and caused accounts to be created and payments to be made without proper documentation.”

In para. 26, the SEC charges, among other things, that:

“AGCO Ltd.’s structure at the time allocated inappropriate accounting and finance responsibilities to the marketing department;” and

“turnover in the marketing department […] was high and employees were forced to shoulder a great deal of the accounting burden.”

AGCO’s management and legal department did not fare much better.

In para. 27, the SEC charges, among other things, that:

“AGCO did not conduct any due diligence on the [Jordanian] agent or require that the agent undergo FCPA training;” and

the “agent’s contract with AGCO did not accurately explain the agent’s services and payments, and lacked any FCPA language.”

What would the results look like if your company or your client’s company was “put under the internal controls microscope” in an FCPA enforcement action?

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