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Issues To Consider From The General Cable Enforcement Action

This prior post [1] went in-depth into last week’s $75.8 million Foreign Corrupt Practices Act enforcement action against General Cable Corporation and this post continues the analysis by highlighting additional issues to consider.

Timeline

The SEC’s resolution document states that General Cable “promptly self-reported the potential FCPA violations to the Commission’s staff in January 2014.” As highlighted in this prior post [2], General Cable’s first mention of its FCPA scrutiny in SEC filings appears to be September 2014.

From start to finish, General Cable’s FCPA scrutiny lasted approximately three years. While three years is obviously shorter than the 4-6 years seen in certain FCPA inquiries, three years is still too long of time for FCPA scrutiny to last for a company that voluntarily disclosed and cooperated.

Indeed, in the words of the DOJ:

The company “conducted a thorough internal investigation; made regular factual presentations and proactively provided updates to the Fraud Section; voluntarily made foreign-based employees available for interviews in the United States; produced documents, including translations, to the Fraud Section from foreign countries in ways that did not implicate foreign data privacy laws; collected, analyzed, and organized voluminous evidence and information for the Fraud Section; and identified, investigated, and disclosed conduct to the Fraud Section that was outside the scope of its initial voluntary self-disclosure”

Similarly, in the words of the SEC:

General Cable “further provided complete and timely cooperation with the staff by providing detailed presentations on the key findings of the investigations, and promptly producing all relevant documents and information (including thousands of documents translated into English), chronologies, key document binders, interview downloads, and forensic accounting analyses. GCC also made its current or former employees available for interviews by the staff upon request, including facilitating certain employees to travel to the United States from abroad for interviews.”

Odd Statement

Given that General Cable voluntarily disclosed in 2014, the following statement in the DOJ’s release from Assistant Director Stephen Richardson of the FBI’s Criminal Investigative Division is a bit odd.

“In 2015, International Corruption Squads across the country were formed to address the national and international implications of foreign corruption. This settlement is an example of the exceptional efforts of those dedicated squads and investigators.  The FBI looks forward to continuing to work with our law enforcement partners to address corruption, no matter how big or small.”

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As stated by the DOJ's compliance counsel: "strong compliance must be data driven." FCPAnalytics strives to do just by assisting professionals in making efficient and informed decisions guided by data driven statistics.  

Learn More [3]

Internal Controls

With the perfect benefit of hindsight, were there certain things that General Cable could have done differently from an internal controls perspective, particularly relevant to third parties? Yes, of course.

But given the statutory mandate to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” that the statutory objectives are satisfied, it is hard to ignore the following findings from the resolution documents.

“At all relevant times, GCC had a code of ethics (“Code of Ethics”) that prohibited its employees from offering or giving any person any payment which may be illegal or unethical. The Code of Ethics specifically prohibited any consideration given to a public official, unless authorized by law, and made specific reference to the applicability of the FCPA to GCC and its employees. It also prohibited excessive payments to third parties when the value of the consideration offered or given exceeds the reasonable value of the services performed in return. Specifically, the Code of Ethics warned that an excessive payment to an individual arranging contracts with government officials could be illegal or unethical as it might suggest that some of the payment is being channeled to government officials, or is somehow being used for improper purposes. Finally, the Code of Ethics required all transactions to be executed only with management authority, general or specific, in compliance with federal securities laws that required GCC to maintain books, records, and accounts that accurately and fairly reflect transactions, and a system of internal accounting controls designed to provide reasonable assurances that GCC’s financial statements will be accurate and complete.”

various employees were required to sign “compliance questionnaires representing that they knew and understood the Code of Ethics”

certain commissions were approved by management at certain subsidiaries, “but the true nature of the payments were concealed from GCC’s executive management”

“GCC’s executive management commenced an internal investigation of [a subsidiary’s] relationship with the Agent for potential bribery of SOE officials. In October 2013, GCC’s executive management instructed [subsidiary] management to cease payment of past due commissions to the Agent pending further investigation and without authorization by GCC’s executive management.”

Regarding Indonesia conduct – “PDTL’s [a subsidiary] relationship with these freight forwarders was exclusively controlled by a PDTL Manager, who ignored PDTL’s policy in selecting freight forwarders, and failed to document the purpose of the fees or explain why they exceeded PDTL’s customary rates for third-party payments. In February 2014, after an investigation into the PDTL Manager’s relationship with the freight forwarders, PDTL terminated the PDTL Manager for refusing to cooperate with the investigation and for “fraudulent” and “dishonest and corrupt actions.”

Nevertheless, General Cable was found to have violated the internal controls provisions because “the payments or offers by GCC’s subsidiaries … violated GCC’s policies against bribery and excessive payments to third-parties on transactions with SOEs, or otherwise were not supported by proper documentation or authorization.”

Post-Enforcement Action Requirements

In the words of the DOJ:

“the Company has enhanced and has committed to the Fraud Section to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment B to [the NPA], the Company has engaged in extensive remedial measures, specifically by: (1) terminating the employment or accelerating the previously-planned departures and resignations of 13 employees who participated in the misconduct, (2) causing the resignation of 2 employees and accelerating the previously-planned departure of an additional employee who failed to supervise effectively others who were engaged in the misconduct described in the Statement of Facts, (3) causing the resignation of an additional employee who failed to take appropriate steps in response to identifying the misconduct; (4) terminating the business relationships with 47 third-party agents and distributors who participated in the misconduct described in the Statement of Facts; (5) hiring a Chief Compliance Officer who has an executive officer position in the Company and separate reporting lines to the CEO and Audit Committee of the Board of Directors; (6) conducting a global and enterprise-wide risk assessment and evaluation; (7) developing and implementing a risk mitigation plan for risks identified through the assessment and evaluation; (8) developing a comprehensive compliance program that integrates business functions into compliance leadership roles, is designed to deliver clear and consistent communications and expectations Company-wide through policies and procedures, and includes frequent leadership communications to all employees; (9) revamping the ethics and compliance helpline; (10) delivering tailored face-to-face compliance training, including training on the Foreign Corrupt Practices Act (“FCPA”), to the Board of Directors and senior executives, Internal Audit personnel, sales leaders, and all salaried employees; (11) adopting heightened controls on the selection and use of third parties, including building a system for third-party due diligence that assigns ownership to business personnel to shepherd prospective third parties through a comprehensive risk assessment, review, and approval process; (12) issuing, and providing training on, business amenities policies specific to certain countries; and (13) conducting on-site global compliance audits to test adherence to enhanced controls and procedures;”

Similarly, in the words of the SEC:

“GCC also undertook extensive remediation. GCC has terminated or taken disciplinary actions against employees who were involved in the improper payments. All of GCC’s executive management during the relevant time period has been replaced. In October 2014 GCC announced a strategic plan to focus on its core markets and divest its operations in the Africa and Asia Pacific regions. Finally, GCC restructured its compliance policies and programs by appointing a Chief Compliance Officer who reports directly to GCC’s CEO and Audit Committee. Under this restructuring, GCC has enhanced its training of sales and accounting personnel on compliance policies and expectations, implemented regular reviews of third-party relationships and accounting adjustments, developed a global information technology strategy for risk assessment and control for financial reporting, and instituted evaluations for compliance performance through performance indicators and audits.”

Against the backdrop of General Cable voluntarily disclosing, cooperating and the above facts, is it truly necessary that General Cable has an obligation (pursuant to the DOJ NPA and SEC administrative order) to report to the DOJ and SEC on an annual basis for three years regarding its remediation and implementation of compliance measures?

Or is this yet another example of a government mandated transfer of shareholder wealth to FCPA Inc. (See here [4] for the prior post and previous posts embedded therein).