The Foreign Corrupt Practices Act has always been a law much broader than its name suggests.
Sure, the FCPA contains anti-bribery provisions which concern foreign bribery.
Sure, the FCPA’s books and records and internal controls provisions can be implicated in foreign bribery schemes.
However, the fact remains that most FCPA enforcement actions (that is enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions) have nothing to do with foreign bribery. For lack of a better term, these enforcement actions have longed been called non-FCPA, FCPA enforcement actions by this site.
The latest example concerns Fluor Corporation (a Texas based engineering, procurement, and construction services company).
In summary fashion, this administrative order finds:
“This matter involves deficiencies in Fluor’s accounting over a period of years for two fixed-price construction projects on which Fluor carried a risk of cost overruns with respect to work within the contract’s scope. Fluor bid on these projects, relying on overly optimistic cost and timing estimates. Following each project’s contract award, Fluor experienced cost overruns that worsened over time. Yet, Fluor failed to maintain a system of internal accounting controls sufficient to account for these contracts in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). These failings resulted in inaccurate books and records and ultimately in materially misstated financial statements included in periodic reports filed with the SEC.
In August 2019, Fluor announced $714 million in pre-tax charges stemming from an “operational and strategic review” of sixteen projects. These included a project requiring Fluor to validate and complete the design and to build a one-of-a-kind U.S. Army facility for manufacturing nitrocellulose, an ammunition propellant, (“Radford” or the “Radford Project”), and a project requiring Fluor to design and build a Floating Production Storage and Offloading (“FPSO”) facility for delivery to the Penguins oil and gas field located in the North Sea (“Penguins” or the “Penguins Project”).
Prompted by the SEC staff’s investigation, Fluor undertook an internal investigation in 2020 that identified material weaknesses in its internal control over financial reporting and material errors in its financial statements, and resulted in Fluor restating its annual and quarterly financial statements for its fiscal year 2016 through the third quarter of 2019, as disclosed in its 2019 Form 10-K filed with the SEC on September 25, 2020 (the “Restatement”). The material weaknesses identified in the Restatement were attributable to control failures associated with the Radford and Penguins projects, which resulted in material errors. Throughout the fiscal year ended December 31, 2016 through the first quarter ended March 31, 2019 (“Relevant Period”), Fluor’s accounting issues on Radford resulted in materially overstated net earnings in Fluor’s reported financial statements. Fluor overstated its annual net earnings by $51 million (22%) in 2016, by $38 million (25%) in 2017, and $43 million (25%) in 2018, and understated its net loss by $3 million (5%) in the first quarter of 2019. On the Penguins Project, Fluor’s delayed recognition of its loss for two quarters resulted in Fluor overstating its net earnings by $17 million (22%) in the second quarter of 2018.”
Based on the above, the SEC found that Fluor (among other things) violated the FCPA’s books and records and internal controls provisions.
Without admitting or denying the SEC’s findings, Fluor agreed to pay a $14.5 million civil penalty.
As noted in the SEC’s release,
“[F]ive former and current Fluor officers and employees [also] agreed to settle charges for causing Fluor’s violations are: Bradley R. Scott, a current Fluor business-line CFO, Robin K. Chopra, Fluor’s former Chief Accounting Officer and Controller; James F. Brittain, a former Fluor business-line president; Jon Eric Best, a former Fluor business-line CFO; and Kent N. Smith, a former Fluor business-line senior vice president. […] [W]ithout admitting or denying the SEC’s findings, Scott, Chopra, Brittain, Best, and Smith consented to cease and desist from committing or causing the relevant violations and to pay penalties ranging from $15,000 to $25,000.”