Don’t yet close the books on 2016 Foreign Corrupt Practices Act enforcement.
Yesterday, the DOJ and SEC announced (here and here) an FCPA (and related) enforcement action against Kentucky-based General Cable Corporation (a manufacturer and distributor of cable and wire). The conduct at issue occurred in Angola, Bangladesh, Indonesia, Thailand, China, and Egypt.
The $75.8 million enforcement action involved a DOJ non-prosecution agreement in which the company agreed to pay an approximate $20.5 million penalty and an SEC administrative cease and desist order in which the company agreed to pay approximately $55.3 million in disgorgement and prejudgment interest.
In addition, the SEC also announced that Karl Zimmer, General Cable’s former Senior Vice President responsible for sales in Angola, agreed to pay a $20,000 civil penalty without admitting or denying the SEC’s findings that he knowingly circumvented internal accounting controls and caused FCPA violations when he approved certain improper payments.
Finally, the SEC also brought a separate administrative order against General Cable finding “improper inventory accounting and disclosure violations” in which the company agreed to pay a $6.5 million civil monetary penalty. Reflective of how the FCPA has always been a law much broader than its name suggests, the order finds that General Cable violated, among other provisions, the FCPA’s books and records and internal controls provisions.
DOJ
The NPA’s statement of facts contains a section titled “Overview of the Scheme” and states:
“General Cable, acting through certain executives and employees, including Executive A [described as an officer of Phelps Dodge International (Thailand) Ltd. (PDTL), an indirect subsidiary of General Cable headquartered in Thailand], knew that certain of its foreign subsidiaries used certain third-party agents and distributors to make corrupt payments to foreign officials in order to obtain and retain business in certain countries.
Nonetheless, General Cable knowingly and willfully failed to implement and maintain an adequate system of internal accounting controls designed to detect and prevent corruption or otherwise illegal payments by its agents. In particular and as relevant here, General Cable had deficient internal accounting controls that did not require and/or ensure, among other things (a) due diligence for the retention of third party agents and distributors; (b) proof that services had been rendered by third parties before payment could be made to them; (c) oversight of the payment process to ensure that payments were made pursuant to contractual terms or that payments were reasonable and legitimate. General Cable knowingly and willfully failed to address these known weaknesses, in relevant part, to allow the conduct to continue. 9. As a result, General Cable and its subsidiaries made more than $13 million in payments to third-party agents and distributors which were used to make unlawful payments to secure approximately $51 million in profits to General Cable.”
As to Angola, the NPA states:
“General Cable conducted business in Angola through General Cable Celcat [an indirect subsidiary headquartered in Portugal whose financial statements were consolidated with the financial statements of General Cable] and General Cable Condel [an indirect subsidiary headquartered in Angola whose financial statements were consolidated with the financial statements of General Cable] . The majority of the company’s sales in Angola were made to state-owned customers, including Angolan State-Owned Enterprise 1, Angolan State-Owned Enterprise 2, and Angolan State-Owned Enterprise 3.
Between 2003 and 2013, General Cable Celcat and General Cable Condel made corrupt payments, i.e. bribes, to employees of Angolan State-Owned Enterprise 1, Angolan StateOwned Enterprise 2, and Angolan State-Owned Enterprise 3, and other state-owned customers to obtain and retain business in Angola. Specifically: (i) between 2003 and 2009, General Cable Celcat and General Cable Condel paid more than $450,000 directly to officials at Angolan StateOwned Enterprise 1, Angolan State-Owned Enterprise 2, and Angolan State-Owned Enterprise 3; (ii) between 2009 and 2013, General Cable Condel paid more than $8 7 million to a sales agent in Angola with knowledge that the sales agent would, and did, pass a portion of those payments to officials at Angolan State-Owned Enterprise 1, Angolan State-Owned Enterprise 2, and Angolan State-Owned Enterprise 3; and (iii) General Cable Condel paid more than $150,000 to another agent with knowledge that the payments would be passed on, in part., to two officials of a state-owned customer.
General Cable, General Cable Celcat and General Cable Condel, acting through their employees or agents, communicated about the scheme via e-mail, among other means of communication. For example, on or about October 22, 2002, a General Cable Condel senior executive wrote an e-mail to a General Cable Celcat employee stating: “I agreed with [an Angolan State-Owned Enterprise 1 employee] on a commission of 2% on orders placed, which at this stage will be through General Cable Condel; I propose to work through objectives, on an identical basis with [Angolan State-Owned Enterprise 2].”
Similarly, on or about September 12, 2005, a General Cable Condel employee wrote an e-mail to a General Cable Celcat employee stating: “Everyone knew that [an Angolan StateOwned Enterprise 2 official] was being paid (if not there would be no need for the bills that come from there); when the contract was signed, this was what was agreed had to be paid.”
Beginning in or around May 2009, General Cable Celcat and General Cable Condel concealed the payments to the Angolan officials through the use of a third-party sales agent. General Cable Condel contracted with the sales agent to provide commercial assistance services in Angola, but General Cable Celcat and General Cable Condel in fact used the sales agent as an inteunediary to funnel corrupt payments to Angolan officials.
On or about December 19, 2012, General Cable executives received an internal audit report from General Cable’s internal audit department. The audit report summarized the findings of the audit, which included, among other things, identifying that: (i) payments made to the third-party sales agent far exceeded the amounts required under the contract with the agent, and (ii) the contract with the third-party sales agent did not include anti-corruption language. In addition, the audit report recommended that General Cable establish a global policy regarding the use of agents and sales representatives. Thereafter, the Company failed to establish adequate internal accounting controls and General Cable Conde’ continued to make corrupt payments to the agent in excess of the contractually required amounts.
For example, on September 5, 2013, General Cable Condel paid the sales agent in Angola approximately $223,433. General Cable Condel employees knew that the sales agent would. give at least part of that payment to government officials in Angola, including an Angolan State-Owned Enterprise 2 official and an Angolan State-Owned Enterprise 3 director.
General Cable Celcat and General Cable Condel falsely recorded the payments made directly to the foreign officials as payments for third-party consulting services, and falsely recorded the payments to the sales agent as offsets against sales.”
As to Bangladesh, Indonesia, and Thailand, the NPA states:
“General Cable conducted business in Bangladesh, Indonesia, and Thailand through PDTL. Between 2010 and 2014, PDTL made corrupt payments, i.e, bribes, to obtain business in Bangladesh and Indonesia. Specifically, PDTL paid: (i) more than $2 million to two freight forwarders in Indonesia with the understanding-that the freight forwarders would use the money, in part, for corrupt purposes; and (ii) $43,700 to an agent in Bangladesh with the understanding that the agent would use the money, in part, for corrupt purposes. General Cable was aware of red flags in connection with these payments and ultimately became aware of, or at the very least were willfully blind to, certain of the corrupt payments.
General Cable and PDTL, acting through their employees and agents, communicated about the scheme via e-mail, among other means of communication. For example, on or about March 11, 2010, a PDTL employee wrote an e-mail describing the services of a principal of the two freight forwarders in Indonesia, stating “Mike I mention it before, my agent doesn’t ask for any money upfront. He can afford to pay his way in and out of PLN [Perusahaan Listrik Negara, the Indonesia-state-owned electricity company].”
Similarly, on or about June 18, 2012, an employee of a Bangladeshi sales agent emailed multiple PDTL employees, including Executive A, and stated that a portion of the money that PDTL was paying the sales agent would “be shared by decision makers in customer, concerned higher ups in Ministry and some top executives at bidder.”
On or about May 5, 2013, Executive A approved an approximately $43,700 payment to the Bangladeshi sales agent.
In addition, from 2012 to 2013, PDTL provided more than $1.5 million in rebates to a distributor in Thailand with the understanding that the distributor would use the money, in part, for corrupt purposes in association with PDTL’s sales to_state-owned customers in Thailand, including sales to: (i) the Provincial Electricity Authority, a state-owned electricity supplier in Thailand; (ii) the Metropolitan Electricity Authority, a state-owned electricity supplier in Thailand; and (iii) TOT Public Company Limited, a state-owned telecommunications company.
In or about 2011, Executive A met with a high-level executive at General Cable with responsibility for overseeing international operations and expressed concerns that payments to the distributor in Thailand were being used for corrupt purposes. Despite this conversation, the corrupt payments did not stop, nor was an investigation conducted.
On December 13, 2011, the same high-level executive at General Cable received emails that included the following statement regarding the findings of a tax review in Thailand: “potential applicability of the US Foreign Corrupt Practices Act (‘FCPA’) for commissions paid to Thai governmental authorities.” Another email from a General Cable employee with responsibility for corporate taxes stated: “[s]ince this is a legal matter rather than tax, no need to do anything further for me. I will leave it up to you as to whether you want to look into any further.” General Cable took no further action and did not take any steps to implement adequate internal accounting controls. The corrupt payments made through intermediary companies in Thailand and elsewhere continued and General Cable failed to enhance its deficient internal controls.
Thus, even if senior employees of General Cable were unaware initially that the payments to the distributor were being used for illegal purposes, employees at PDTL and General Cable, including Executive A, came to the understanding that money being paid to the distributor was being used for illegal purposes, and closed their eyes to it being used for bribery.
Indeed, shortly after the meeting and email referenced … above, to conceal the true nature of the payments to the distributor, employees of PDTL ceased booking the payments as “success fees,” which they viewed as overly suspicious, and instead established a rebate structure on unrelated sales to the distributor that falsely reflected the nature of the payments. General Cable ultimately became aware that PDTL falsely recorded the payments to the distributor in the company’s books as “Cash Discounts” and “Discount—Customer Rebates.”
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Elevate Your ResearchAs to China, the NPA states:
“General Cable conducted business in China through General Cable China [an indirect subsidiary whose financial statements were consolidated into the financial statements of General Cable], among other entities. Themajority of the company’s sales in China were made to state-owned customers through distributors or with the assistance of sales agents.
Between in or around December 2012 and 2015, General Cable China made corrupt payments to obtain and retain business in China. Specifically, General Cable China paid more than $500,000 to China-based agents and distributors, typically in the form of rebates, special discounts, and technical service fees. General Cable China knew that the third-party agents and distributors would use the money, in part, for corrupt purposes.
Executive A was the General Cable Executive that was responsible for General Cable China’s business beginning in or around December 2012 until his departure from the Company.
General Cable China, acting through its employees and agents, communicated about the scheme via e-mail, among other means of communication. For example, on or about August 14, 2013, a General Cable China employee sought approval from a General Cable China supervisor to provide additional money to a distributor in the fowl of a discount in association with a sale to a China-state-owned end-customer. The General Cable China employee emailed the supervisor and justified the corrupt payment, stating that “a few key players at [the state-owned customer] are our internal contacts and charge a certain amount of fees. If we are looking to have long-teint cooperation with them, charges for this is rather inevitable.”
Similarly, on or about February 26, 2014, a General Cable China internal document outlined the reasons General Cable China provided special discounts to a distributor in association with sales to a state-owned end-customer, and stated: “[o]n July 17, 2013, processed the consulting fee of 20,000 [yuan] for [a state-owned end-customer employee] with 10,900 [yuan] remaining.”
Based on the above statement of facts, General Cable agreed to pay a monetary penalty of $20,469,694 and to pay $51,174,237 in disgorgement of profits plus prejudgment interest. The NPA states:
“The monetary penalty is based upon profits of $51,174,237 as a result of the corrupt scheme, and reflects a discount of 50% off of the bottom of the U.S. Sentencing Guidelines fine range. The Fraud Section will credit the disgorgement paid by the Company to the U.S. Securities and Exchange Commission in connection with its resolution of this matter.”
As stated in the NPA, the agreement (which has a term of three years) was based on the individual facts and circumstances presented in the case and the company including:
- a) the Company received voluntary self-disclosure credit because it voluntarily and timely disclosed to the Fraud Section the conduct described in the Statement of Facts;
- b) the Company received full credit for its cooperation with the Fraud Section’s investigation, which included conducting a thorough internal investigation; making regular factual presentations and proactively providing updates to the Fraud Section; voluntarily making foreign-based employees available for interviews in the United States; producing documents, including translations, to the Fraud Section from foreign countries in ways that did not implicate foreign data privacy laws; collecting, analyzing, and organizing voluminous evidence and information for the Fraud Section; and identifying, investigating, and disclosing conduct to the Fraud Section that was outside the scope of its initial voluntary self-disclosure;
- c) by the conclusion of the investigation, the Company had provided to the Fraud Section all relevant facts known to it, including information about individuals and third parties involved in the misconduct;
- d) 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;
- e) based on the Company’s remediation and the state of its compliance program, and the Company’s agreement to report to the Fraud Section as set forth in Attachment C to [the NPA], the Fraud Section determined that an independent compliance monitor was unnecessary;
- f) the Company has agreed to continue to cooperate with the Fraud Section in any ongoing investigation of the conduct of the Company, its subsidiaries and affiliates and their officers, directors, employees, agents, business partners, distributors, and consultants relating to violations of the FCPA;
- g) the nature and seriousness of the offense conduct, including that certain high-level executives responsible for overseeing international operations and employees of the Company knowingly and willfully failed to implement adequate internal accounting controls over payments to third parties despite knowing that third parties were making illegal payments; the illegal payments occurred in at least five separate countries and over a ten-year span; and the profits to the Company exceeded $50 million; and
- h) accordingly, after considering (a) through (e) above, the Company received an aggregate discount of 50% off of the bottom of the U.S. Sentencing Guidelines fine range in connection with this Agreement.
Pursuant to the NPA, General Cable admitted, accepted, and acknowledged that it was responsible for the acts of its officers, directors, employees and agents as set forth in the Statement of Facts. As is typical in corporate FCPA enforcement actions, General Cable agreed to a muzzle clause in which it agreed, directly and indirectly through others, not to contradict the acceptance of responsibility by the company.
In addition, General Cable agreed to report to the DOJ annually during the three year term of the NPA regarding remediation and implementation of the compliance measures set forth in the NPA.
In the DOJ’s release Assistant Attorney General Leslie Caldwell stated:
“General Cable paid bribes to officials in multiple countries in a scheme that involved a high-level executive of the company and resulted in profits of more than $50 million worldwide. But General Cable also voluntarily self-disclosed this misconduct to the government, fully cooperated and remediated. This resolution demonstrates the very real upside to coming in and cooperating with federal prosecutors and investigators. It also reflects our ongoing commitment to transparency.”
Assistant Director Stephen Richardson of the FBI’s Criminal Investigative Division stated:
“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.”
SEC
This administrative order is based on the same core conduct set forth in the DOJ’s NPA. In addition, the order sets forth additional findings as to improper payments in Egypt. The below summary does not repeat the same findings in the DOJ’s NPA, but does highlight additional findings in the SEC’s order as well as the additional Egypt conduct. Of note, the SEC finds that General Cable violated the FCPA’s anti-bribery provisions only in regards to the Angola conduct.
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Learn More and RegisterIn summary fashion, the order states:
“This matter concerns violations of the anti-bribery, books-and-records, and internal accounting controls provisions of the FCPA by General Cable Corporation (GCC). […]
Between 2003 and 2015, GCC’s subsidiaries made improper payments of approximately $19 million to foreign government officials in Angola, Thailand, China, Indonesia, Bangladesh, and Egypt, generating illicit profits over $51 million on sales to state-owned enterprises (“SOEs”). GCC made these payments directly to foreign government officials, or through third-party agents or distributors, in the form of sales commissions, rebates, discounts, and other fees, who passed on payments to foreign government officials in connection with SOE business. Some of these payments were made even though employees of GCC’s subsidiaries informed executives and employees at GCC that they suspected that payments to third parties were being used for improper purposes, including potential bribery.
GCC failed to require or ensure, among other things, (a) anticorruption due diligence on the retention of third-party agents and distributors; (b) proof that services had been rendered by third parties before payment could be made to them; and (c) oversight of the payment process to ensure that payments were made pursuant to GCC’s policies or contractual terms, or that payments were reasonable and legitimate. GCC failed to address these risks, which allowed the conduct to continue. And GCC’s subsidiaries improperly recorded these payments as legitimate business expenses on their books and records and financial statements, which were consolidated into GCC’s financial statements filed with the Commission.”
In terms of relevant background, the order begins:
“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.
Although GCC’s Code of Ethics applied globally to its subsidiaries and employees, GCC did not provide adequate guidance or training on policies and procedures to ensure compliance with the FCPA. As a result, a number of GCC’s foreign subsidiaries lacked internal accounting controls for doing business with third-party entities on sales to government customers. Further, despite signing compliance questionnaires representing that they knew and understood the Code of Ethics, some of GCC’s employees generally were not aware that the FCPA, as a U.S. law, applied to their operations, and failed to perform anticorruption due diligence on third-party entities, obtain written contracts with third-party entities requiring their compliance with the FCPA, and report to management transactions that raised corruption issues.”
In terms of certain Angola payments, the order states: “the commissions … were approved by senior management at Celcat or Condel, but the true nature of the payments were concealed from GCC’s executive management. In particular, Condel’s Country Manager conceived of and orchestrated the scheme to make improper payments to employees of the SOEs in Angola.”
The order also states:
“Beginning in May 2009, Celcat and Condel concealed the payments to the Angolan officials through the Agent. Condel’s Country Manager facilitated Condel’s engagement of the Agent to provide purported services under a written agreement, which was approved by Celcat’s CEO and CFO. The agreement did not specify any terms and conditions except that Condel would pay the Agent “a commission of 1% of the amount of each invoice . . . [that] may be revised on a case-by-case basis.” The agreement did not contain language prohibiting the Agent from paying bribes or other illicit payments. And Celcat and Condel used the Agent as a conduit to direct corrupt payments to Angolan officials.
Under Condel’s relationship with the Agent, Celcat and Condel’s annual sales to the SOEs in Angola increased substantially, from approximately $6.7 million in 2009 to $23.6 million in 2012. During this period, Condel’s Country Manager exclusively controlled the relationship with the Agent, including calculating the commissions that Condel would pay to the Agent on SOE sales, and took steps to conceal the improper payments from GCC’s executive management. From 2009 to 2013, in violation of GCC’s policies, Condel paid commissions to the Agent from 5 to 24% of the sales value, with an average commission rate of 16%. Records of these commissions did not describe any services performed by the Agent; the commissions were calculated separately from sales invoices to the SOEs; and Condel’s Country Manager directed the commission payments to the Agent’s personal bank account. Celcat and Condel’s management violated GCC’s policies and did not seek approval of the commissions to the Agent from E&M’s management.”
Under the heading “GCC’s Investigation of Agent,” the order states:
“In September 2012, GCC’s Internal Audit department (“Internal Audit”) performed an on-site audit of financial and operational processes and controls at Condel. In December 2012, Internal Audit submitted a report to GCC’s executive management that identified several red flags concerning Condel’s relationship with the Agent: (a) the agreement with the Agent did not include an anti-bribery clause for compliance with the FCPA; (b) the agreement with the Agent established a 1% commission, but actual commissions paid to the Agent in 2012 ranged from 8.5 to 18.5%, although E&M’s policy prohibited commissions over 10%; and (c) Condel’s management was not aware that contracts with agents should include language requiring compliance with the FCPA.
Despite red flags that GCC’s relationship with the Agent may violate anti-bribery laws and its policies, GCC’s executive management failed to implement any additional internal accounting controls in response to the report until August 2013. As a result, from December 2012 to August 2013, Condel continued to make commission payments to the Agent over $1.5 million in violation of GCC’s policies.
In August 2013, eight months after the Internal Audit report was issued, an E&M Compliance Manager conducted an onsite review of Condel to address internal controls matters and follow up on Internal Audit’s December 2012 report. The Compliance Manager identified additional red flags about Condel’s relationship with the Agent, including: (a) the average commissions paid in 2012 was 18% when the agreement with the Agent specified 1%; (b) Condel’s Country Manager, who exclusively managed the relationship with the Agent, directed payments to the Agent’s personal bank account; (c) no proof of services performed were provided by the Agent; and (d) the customers related to the Agent were Angolan SOEs.
The Compliance Manager submitted a memorandum detailing the red flags to E&M’s management, including a GCC executive officer. The Compliance Manager also informed E&M’s management that Condel’s management may be paying bribes to the Agent or government officials on sales to SOEs.
Within days, GCC’s executive management commenced an internal investigation of Condel’s relationship with the Agent for potential bribery of SOE officials. In October 2013, GCC’s executive management instructed Celcat and Condel’s management to cease payment of past due commissions to the Agent pending further investigation and without authorization by GCC’s executive management.”
Under the heading “GCC Approves Additional Commissions to the Agent During the Investigation,” the order states:
“In November 2013, E&M’s management consulted GCC’s executive management on how to proceed with proposing new business to the Angolan SOEs in light of the investigation of the Agent. E&M’s management anticipated that the prohibition of commission payments to the Agent would result in a potential loss of approximately $10 million in sales to the Angolan SOEs and in approximately $5 million in termination costs. To avoid further loss of sales, E&M’s management asked GCC’s executive management whether Condel could continue to use the Agent in dealing with the SOEs, or whether Condel should use another agent or deal directly with the SOEs.
GCC’s executive management instructed that (1) Condel should terminate the Agent and transition to a new agent, but (2) to allow time to transition to the new agent, Condel could work with the existing Agent on a case-by-case basis, until the new agent is in place, for new business with the SOEs, but with “appropriate” and “proper” commission payments to the Agent. At all relevant times, E&M’s policy prohibited commissions above 10%. GCC’s executive management requested E&M’s management to follow up on these instructions and to lay out the process for dealing with the Agent while they transition to a new agent.
Shortly thereafter, in November 2013 an E&M manager approved sales contracts with the Angolan SOEs that called for commissions to the Agent from 7.5% to 18.5%. Further, in December 2013, the E&M manager approved the payment of past due commissions of $342,613 to the Agent from 6 to 18% of the related sales contracts. These commissions violated GCC’s Code of Ethics, E&M’s policy on excessive payments to third-parties, and GCC executive management’s instructions.”
Regarding the Indonesia conduct, the order states:
“PDTL’s 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.”
As to Egypt, the order states:
“From September 2010 to May 2015, GC Egypt employees gave or offered to give more than $80,000 in improper payments, including cash, gifts, or tips to employees of certain customers or suppliers, some of which were Egyptian SOEs, resulting in approximately $114,000 in profits. Some of these payments were improperly recorded as “consultant fees” for SOE customer employees to add GC Egypt to, or not to remove it from, supplier lists of the SOE customers. Also, GC Egypt gave small amounts of cash or merchandise, such as laptop computers and televisions, to employees of SOE customers or suppliers as tips, “new year gifts,” to buy goodwill, or to recognize them in winning or successfully completing contracts.
In 2013 GC Egypt’s General Manager offered to pay a third-party agent a commission of approximately 10% on a $1.53 million tender by GC Egypt to sell cables to an SOE of Iraq. The commission was to be shared between the SOE staff and the agent. When the SOE submitted an order under the tender, GCC’s E&M managers rejected the order based on the high level of the contemplated commission, not because the order contemplated the sharing of the commission with the SOE staff.”
Based on the above, the order finds:
“GCC violated [the anti-bribery provisions] by corruptly paying or offering to pay bribes or give other things of value to employees or officials of SOEs in Angola to obtain or retain business. GCC also violated [the books and records provisions] as the payments described above by Celcat, Condel, PDTL, GC China, and GC Egypt were recorded as legitimate business expenses on their respective books and records, when knowing or believing they were in fact used as bribes or improper payments to foreign government officials, or otherwise lacked reasonably detailed documentation to accurately and fairly reflect the payments on the subsidiaries’ books and records, which were included in GCC’s books and records and consolidated financial statements. Finally, GCC violated [the internal controls provisions] as the payments or offers by GCC’s subsidiaries identified above 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. Employees of GCC’s subsidiaries were not adequately trained on anticorruption risks, did not require third-parties on SOE sales to comply with the FCPA, and did not perform any anticorruption due diligence on third parties.”
Under the heading, “GCC’s Self-Reporting, Cooperation, and Remedial Efforts,” the order states:
“In determining to accept GCC’s Offer, the Commission considered GCC’s selfreporting, substantial cooperation, and remedial efforts. GCC promptly self-reported the potential FCPA violations to the Commission’s staff in January 2014, after it retained outside counsel to conduct an internal investigation. GCC also self-reported other potentially improper payments as its investigation progressed, and regularly updated the staff on the investigation.
GCC 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.
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. 52. 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.”
Based on the above findings, General Cable agreed to pay disgorgement of approximately $51.2 million and prejudgment interest of approximately $4.1 million. The payments are to be spread out over one year.
Finally, the order states: “GCC acknowledges that the Commission is not imposing a civil penalty for the violations described in this Order based in part on GCC’s payment of a criminal fine of $20,469,694.80 as part of GCC’s settlement with the Department of Justice.”
Like the DOJ’s NPA, pursuant to the order, General Cable agreed to report to the SEC on an annual basis regarding its remediation and implementation of compliance measures.
Eric Sitarchuk and Alison Tanchyk (Morgan, Lewis & Bockius) represented General Cable.
Zimmer Action
The SEC also brought this related administrative order against Karl Zimmer who is described as follows.
“Zimmer joined GCC in June 2001 and was promoted, effective January 2014, to Senior Vice President of GCC’s Europe and Africa Supply Chain and Global Supply Chain, responsible for sales and marketing in those regions. Zimmer’s employment with GCC ended in January 2015.”
In summary fashion, the order states:
“In November and December 2013, Zimmer, who was a Senior Vice President of General Cable Corporation (“GCC”), approved improper commission payments to a third-party agent (“Agent”) on sales by GCC’s Angolan subsidiary to Angolan state-owned enterprises (“SOEs”). At the time, Zimmer knew that GCC’s policies prohibited excessive commissions to third parties on sales to SOEs, GCC had commenced an investigation of potentially improper payments to the Agent, and GCC had prohibited the payment of past due commissions to the Agent while the investigation was pending and without further approval. Zimmer, however, approved multiple commissions to the Agent totaling $342,613, including commissions nearly double GCC’s prescribed limits on third-party commissions, and which were not documented by any services performed by the Agent. By approving these commissions, Zimmer caused GCC’s violations of the books and records and internal accounting controls provisions of the FCPA, and knowingly circumvented a number of GCC’s internal accounting controls.”
Under the heading “Zimmer Approves Improper Payments to the Agent,” the order states:
“In October 2013, GCC promoted Zimmer as a Senior Vice President of GCC, and head of E&M’s supply chain. As one of his many responsibilities in this capacity, Zimmer would supervise Condel’s operations, including its sales and marketing functions.
By at least October 2013, Zimmer knew that GCC’s Code of Ethics prohibited, among other things, excessive payments to an individual arranging contracts with government officials as it might suggest that some of the payment is being channeled to government officials, or is somehow being used for an improper purpose. Zimmer certified to GCC’s Legal Department that he had read and understood the Code of Ethics and he was and has been in compliance with the Code of Ethics since January 1, 2012.
Further, by at least October 2013, Zimmer also was aware that Condel had paid commissions to the Agent between 8.5 to 18.5% , although E&M’s policy required approval of third-party commissions above 5%, and prohibited third-party commissions over 10%. And he was aware that GCC was investigating Condel’s relationship with the Agent and had restricted the payment of past due commissions to the Agent without the approval of GCC’s executive management. Zimmer instructed Condel’s management not to pay any commissions to the Agent while the investigation was pending, and informed Condel’s management that GCC’s executive management was considering replacing the Agent and limiting commissions to 10%.
In November 2013, E&M’s management, including Zimmer, consulted GCC’s executive management on how to proceed with proposing new business to the Angolan SOEs in light of the investigation of the Agent. The prohibition of commission payments to the Agent had resulted in a loss or potential loss of approximately $15 million in sales to the Angolan SOEs. To avoid further loss of sales, E&M’s management asked GCC’s executive management whether Condel could continue to use the Agent in dealing with the SOEs, or whether Condel should use another agent or deal directly with the SOEs.
GCC’s executive management instructed that (1) Condel should terminate the Agent and transition to a new agent, but (2) to allow time to transition to the new agent, Condel could work with the existing Agent on a case-by-case basis, until the new agent is in place, for new business with the SOEs, but with “appropriate” and “proper” commission payments to the Agent. E&M’s policy required E&M’ management’s approval of third-party commissions above 5% and prohibited commissions above 10%. GCC’s executive management requested E&M’s management, including Zimmer, to follow up on these instructions and to lay out the process for dealing with the Agent while they transition to a new agent.
Shortly thereafter, in November 2013, Zimmer approved sales contracts with the Angolan SOEs that called for commissions to the Agent from 7.5% to 18.5% Further, in December 2013, Zimmer approved the payment of multiple past due commissions totaling $342,613 to the agent from 6 to 18% of the related sales contracts. Zimmer did not follow up with or seek advance approval from GCC’s executive management before knowingly approving these commissions. These commissions violated GCC’s Code of Ethics, E&M’s policy on excessive payments to third-parties, and GCC executive management’s instructions.
The new business with, and past due commissions to, the Agent were not supported by any documentation of the services performed by the Agent. Condel nonetheless improperly recorded these payments as legitimate commissions on its books and records and financial statements. Condel’s financial statements were ultimately included in GCC’s consolidated financial statements presented in GCC’s filings with the Commission for the quarterly and annual periods ended December 31, 2013.”
Pursuant to the order, Zimmer agreed to pay a $20,000 civil penalty.
General Cable Accounting Order
In summary fashion, the order states:
“This matter concerns improper inventory accounting and disclosure violations by GCC.
From 2008 to the second quarter of 2012, GCC materially misstated its financial statements due to improper inventory accounting at its Brazil subsidiary that went undetected due to the company’s internal accounting controls failures. During this period, certain Brazilian accounting employees manipulated the company’s accounting systems, which GCC executives knew were highly manual and presented financial reporting risks, by entering false entries for inventory values to cover up missing copper inventory from the subsidiary’s manufacturing plants. When the improper accounting was reported to GCC’s then-Rest of World (“ROW”) segment Chief Executive Officer and Chief Financial Officer in January 2012, they actively concealed the inventory overstatement from GCC’s executive management. Instead, the ROW CEO and ROW CFO overrode internal accounting controls and issued or passed on directives to employees to destroy documents about the missing inventory, signed false sub-certifications of financial statements, and failed to take corrective action to ensure that the accounting errors did not continue.
In October 2012, GCC announced that it had identified these inventory accounting issues, and in March 2013, GCC restated its financial statements from 2008 to the second quarter of 2012. During this period, the missing inventory in Brazil caused GCC to materially overstate its inventory by $46.7 million and overstate its net income available to common shareholders by 21.6%, 11.3%, and 29.8% for the annual periods ended December 31, 2011, 2010, and 2009, and 8.8% and 13.8% for the quarterly periods ended June 30 and March 31, 2012, respectively.”
*****
General Cable’s stock closed up .26% of the day the enforcement action was announced.
