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Further To The SEC’s Inconsistent Approach To Enforcing The FCPA’s Books And Records And Internal Controls Provisions

inconistent

I recognize that I can be a creature of habit, but when an issue – such as the SEC’s inconsistent treatment of FCPA violations – is so frequent I will keep on writing about it. So here goes the umpteenth post on this issue. (See here for other examples).

A basic rule of law principle is consistency. In other words, the same legal violation ought to be sanctioned in the same way. When the same legal violation is sanctioned in materially different ways, trust and confidence in law enforcement is diminished.

However, there sure does seem to be a lack of consistency between how the SEC resolves Foreign Corrupt Practices Act books and records and internal controls violations.

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An Instructive Example Of An FCPA Enforcement Action Having Nothing To Do With Foreign Bribery

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Conveying knowledge about the Foreign Corrupt Practices Act’s anti-bribery provisions is relatively straight-forward as there are specific elements or issues such as anything of value, foreign official, obtain or retain business, jurisdiction, facilitating payments and various affirmative defenses. Moreover, in some cases statutory definitions assist in the analysis.

Conveying knowledge about the FCPA’s other provisions – the books and records and internal controls provisions – is often more difficult because these provisions – aside from the term reasonable – are basically standardless as written. Indeed, in SEC v. Worldwide Coin the judge stated:  “The main problem with the internal accounting controls provision of the FCPA is that there are no specific standards by which to evaluate the sufficiency of controls; any evaluation is inevitably a highly subjective process in which knowledgable individuals can arrive at totally different conclusions.” Continue Reading

Citigroup Pays $10.5 Million To Resolve Books And Records And Internal Controls Enforcement Actions

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This 2014 post highlighted Citigroup’s FCPA scrutiny after it disclosed various business practices in its Mexican Banamex unit. The prior post highlighted how the FCPA’s generic books and records and internal controls provisions can be implicated in the absence of any FCPA anti-bribery issues.

Fast forward to last week as the SEC announced two enforcement actions (see here and here) against Citigroup finding violations of, among other things, the FCPA’s books and records and internal controls provisions.

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Maxwell Technologies Becomes A Repeat Offender Of The FCPA’s Books And Records And Internal Controls Provisions

repeatoffender

As highlighted in this previous post, in 2011 Maxwell Technologies (a California-based manufacturer of energy storage and power delivery products) resolved parallel DOJ and SEC Foreign Corrupt Practices Act enforcement actions concerning alleged business conduct in China by agreeing to pay approximately $14 million.

As noted in the previous post, the SEC’s charges included disclosure violations not often seen in FCPA enforcement actions, based on allegations that Maxwell’s bribe payments allowed the company to offset losses and fund product expansions that are now a source of revenue for the company. Specifically the SEC alleged: ““Maxwell greatly depended on the revenue from Maxwell SA’s high-voltage capacitor sales to China in order to help fund Maxwell’s expansion into new product lines that are now expected to become Maxwell’s future source of revenue. Maxwell engaged in the bribery scheme because it enabled the company to obtain material revenue needed to financially position itself to help fund the very products that today are sustaining Maxwell’s future growth.”

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Further To The SEC’s Inconsistent Approach To Enforcing The FCPA’s Books And Records And Internal Controls Provisions

inconistent

As highlighted in previous posts on this subject (here and here), a basic rule of law principle is consistency.

In other words, the same legal violation ought to be sanctioned in the same way. When the same legal violation is sanctioned in materially different ways, trust and confidence in law enforcement is diminished.

However, there sure does seem to be a lack of consistency between how the SEC resolves Foreign Corrupt Practices Act books and records and internal controls violations.

Continue Reading

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