Top Menu

Issues To Consider From The AB InBev Enforcement Action


This previous post went in-depth into the SEC’s Foreign Corrupt Practices Act enforcement action against AB InBev.

This post continues the analysis by highlighting additional issues to consider from the enforcement action.


Per the SEC’s order, the SEC began its inquiry in October 2011.

Thus from start to finish, AB InBev’s FCPA scrutiny lasted just shy of five years.

It is absolutely inexcusable on any level for FCPA scrutiny to last five years. If the SEC wants the public to view its FCPA enforcement program as legitimate, credible, and effective, it must resolve instances of FCPA scrutiny much faster.

What About the Law?

Pardon me for being “that” law guy, but the misconduct in AB InBev focused on InBev India International Private Limited (“IIIPL”) a joint venture in which AB InBev held a 49% interest according to the SEC with a 51% interest held by RJ Corp., an Indian corporation. According to AB InBev’s public disclosures, this joint venture was a non-consolidated joint venture.

AB InBev was found to be violation of the FCPA books and records and internal controls provisions.

The FCPA provides the following qualification to the books and records and internal controls provisions:

“Where an issuer … holds 50 per centum or less of the voting power with respect to a domestic or foreign firm, the [books and records and internal controls provisions] require only that the issuer proceed in good faith to use its influence, to the extent reasonable under the issuer’s circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls consistent with [the provisions]. Such circumstances include the relative degree of the issuer’s ownership of the domestic or foreign firm and the laws and practices governing the business operations of the country in which such firm is located. An issuer which demonstrates good faith efforts to use such influence shall be conclusively presumed to have complied with the requirements of [the books and records and internal controls provisions].”

Findings in the SEC’s order that suggest AB InBev’s good faith include that in-house counsel at its Indian subsidiary “forwarded AB InBev’s FCPA due diligence forms to IIIPL staff and offered to help complete them” and in response to concerns at IIIPL “including potential FCPA issues related to Promoter Company A … AB InBev expedited an already-planned internal audit of IIIPL.”

The SEC took issue with how fast AB InBev “rectified many of the issues identified in the audit,” but nowhere does the SEC suggest that AB InBev lacked good faith.

Not the First

The AB InBev enforcement action was not the first FCPA enforcement action against a beverage company concerning conduct in India.

As highlighted here, in 2011 the SEC brought an FCPA enforcement action against Diageo based on conduct in India and other countries.

Government Function?

AB InBev was not charged with FCPA anti-bribery violations.

However, as is often the case in enforcement actions alleging or finding “only” FCPA books and records and internal controls violations, the enforcement action still was very much about the alleged “foreign officials.”

Indeed, in its order the SEC advances the position that Andhra Pradesh Beverages Corp. Limited and Tamil Nadu State Marketing Corp. were instrumentalities of the Indian government because they purchased beer directly from brewers and sold the beer directly to private retailers and otherwise controlled wholesale and retail beer sales.

In U.S. v. Esquenazi, the only legal decision of precedent that directly addressed the meaning of “foreign official, the 11th Circuit stated:

“An ‘instrumentality’ [under the FCPA] is an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own. Certainly, what constitutes control and what constitutes a function the government treats as its own are fact-bound questions. It would be unwise and likely impossible to exhaustively answer them in the abstract.”

As to function, the 11th Circuit stated:

  • “[In] deciding if the entity performs a function the government treats as its own, Courts and juries should examine whether
  • the entity has a monopoly over the function it exists to carry out;
  • whether the government subsidizes the costs associated with the entity providing services;
  • whether the entity provides services to the public at large in the foreign country; and whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.”

Beer as a government function?

Root Causes

It has been highlighted numerous times on these pages.

The root cause of many FCPA enforcement actions are foreign trade barriers and distortions.  The narrative is rather simple.

  • Trade barriers and distortions create bureaucracy.
  • Bureaucracy creates points of contact with foreign officials.
  • Points of contact with foreign officials create discretion.
  • Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.

The following is not meant to excuse the conduct at issue in the AB InBev matter, only to put it in the proper perspective.

For instance, in the AB InBev matter we learn that the “sale of beer in India is predominately regulated by individual states.” In one state, the SEC states that “an instrumentality of the government … purchases beer directly from brewers and sells beer directly to private retailers.” In another state, “an instrumentality of the government … controls both wholesale and retail beer sales, purchasing beer from brewers and selling to consumers through [government] retail outlets.

Elsewhere, the SEC’s order describes that a state “Excise Minister” limited brewery production time to 8 hours a day and how the company needed permission to brew its product for additional hours.

If AB InBev could have sold its product in India directly to customers and could have determined, without government interference, how long its brewery would operate, the FCPA enforcement action likely would not have occurred.

In short, the way to reduce bribery is not just to bring more corporate enforcement actions.  Rather, it is to address the root causes of bribery by seeking a reduction in trade barriers and distortions.

No-Charged Bribery Disgorgement

AB InBev was not charged or found to be in violation of the FCPA’s anti-bribery provisions. Yet approximately half of the $6 million settlement amount comprised disgorgement and pre-judgment interest.

As highlighted in this previous post, so-called no-charged bribery disgorgement is troubling.

Among others, Paul Berger (here) (a former Associate Director of the SEC Division of Enforcement) has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” Berger noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”

Powered by WordPress. Designed by WooThemes