There are two ways to react to the above headline.
The first is that MTS Systems is a corrupt business organization because “good companies don’t bribe period .”
The second is along the lines of what DOJ Assistant Attorney General Leslie Caldwell recently stated.
“We recognize that any big company can’t control all of its employees all of the time, we recognize that. If you are a company operating in certain geographies you are going to be paying possibly small, but you will be paying some kind of inappropriate payment, we recognize that. We recognize that companies have rogue employees who don’t follow company policy so even when there is a strong company policy it may still be the case that somebody in the company does something that is off the reservation, that happens all the time … it’s impossible for a big global company to make sure that all of its employees are following the law all of the time” (See here  for the video clip).
The third, I suppose, is something in between.
In any event, as highlighted in this prior post , MTS Systems previously disclosed FCPA scrutiny in March 2012 in the Asia Pacific Region. Over four years later, that scrutiny remains pending and here is what the company said in its most recent quarterly filing in August.
“As previously reported by us with disclosures starting in March 2012, we investigated certain gift, travel, entertainment and other expenses incurred in connection with some of our operations in the Asia-Pacific region. This investigation focused on possible violations of Company policy, corresponding internal control issues and possible violations of applicable law, including the Foreign Corrupt Practices Act. Substantial investigative work was completed on this matter and we took remedial actions, including changes to internal control procedures and removing certain persons formerly employed in our South Korea office. We voluntarily disclosed this matter to the Department of Justice and the SEC (the Agencies). We presented the results of our investigation and our corrective actions to representatives of the Agencies on January 16, 2013. We also investigated certain business practices in China. The investigation had a similar focus to the prior investigation described above. We have updated the Agencies regarding the China investigation and we took certain initial remedial actions, including changes to internal control procedures and removing certain persons formerly employed in our China business. We cannot predict the outcome of the matters described in this paragraph at this time or whether these matters will have a material adverse impact on our business prospects, financial condition, operating results or cash flows.”
Separate and distinct from the above, last week MTS Systems announced  “that it has initiated an internal investigation into apparent violations of the company’s code of conduct involving certain employees in its China operations and this investigation will delay the issuance of its fourth quarter and full year earnings as well as the filing of the company’s Annual Report on Form 10-K for fiscal 2016.”
“Regarding the internal investigation that has delayed the filing of our Annual Report and earnings release, we are deeply disappointed to report that we recently discovered that certain individuals in our leadership in China appear to have violated MTS’s code of conduct, including association with an independent business that may compete with MTS in certain markets. Given the level of the MTS personnel in China who appear to have violated our code of conduct, the filing of our Annual Report on Form 10-K and our earnings release will be delayed until the internal investigation has been completed and its findings evaluated.”
The Audit Committee of the Board of Directors of MTS has engaged independent external counsel in connection with the ongoing internal investigation and will assess the impact on the company’s financial inputs from China and review for potential violations of law. MTS has already begun taking certain remedial measures in response to this situation.”
Approximately 5% of the revenue of MTS Systems comes from U.S. government contracts.