This previous post highlighted the $9.9 million Foreign Corrupt Practices Act enforcement actions against Deere & Co. concerning subsidiary conduct in Thailand.
This post highlights additional issues to consider.
No Prior Disclosure
It is rarely a surprise when a publicly-traded company (an issuer under FCPA speak) resolves an FCPA enforcement action because most issuers disclose FCPA scrutiny in an SEC filing.
It is unique (although not unprecedented) for an issuer not to disclose its FCPA scrutiny.
Based on a review of Deere’s prior SEC filings, it does not appear that Deere disclosed its FCPA scrutiny prior to the enforcement action.
Anything of Value
Like several other FCPA enforcement actions, the Deere enforcement action highlights a variety of things of value allegedly provided to foreign officials.
- Entertaining foreign officials at several massage parlors in Thailand
- A bogus factory visit of facilities in Germany “that solely consisted of sightseeing in Switzerland, including travel to Interlaken, Zermatt, and Lake Lucerne, as well as 5 shopping and touring in the Alps, with stays in luxury hotels at each stop” as well as other non-business travel
- Direct cash payments and payments made through a third-party agent to bribe officials
- A set of golf clubs given to a foreign official
Assumed Causation?
Like many other FCPA enforcement actions, the Deere enforcement action seems to assumes causation.
In other words, the SEC’s order seems to assume that the only (or primary) reason Deere’s Thai subsidiary (Wirtgen) sold equipment to various Thai government agencies was because individuals associated with those agencies received company funded massages at various massages parlors or other things of value such as sightseeing trips.
Perhaps, the equipment being offered was the best equipment for the best price?
If so, questioning causation is not condoning providing things of value to foreign officials. Rather, questioning causation would seem relevant to disgorgement issues – which after all was (along with prejudgment interest) approximately $5.5 million of the overall $9.9 million settlement amount.
No Charged Bribery Disgorgement
Speaking of disgorgement, the Deere enforcement action was the latest in a long line of FCPA enforcement action in which the SEC did not allege or find a violation of the FCPA’s anti-bribery provisions, yet still sought a disgorgement remedy based solely on violations of the FCPA’s books and records and/or internal controls provisions.
As highlighted in this previous post (and numerous prior posts thereafter), no-charged bribery disgorgement is troubling. Among others, 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.” The former SEC enforcement official noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”
Deere’s Culpability?
Like several other FCPA enforcement actions against a parent company issuer based on foreign subsidiary conduct, there is really no finding in the SEC’s order that anyone associated with Deere did anything wrong relevant to the conduct at issue.
The only sentence in the SEC’s order relevant to Deere’s conduct is the following: “Deere failed to complete the full integration of this acquired subsidiary [acquired in 2017] into its compliance program and overall control environment.”
The SEC’s order does acknowledge however the following:
- That expense reports were routinely approved by “Wirtgen’s Managing Director for Southeast Asia or its Managing Director in Thailand, without regard for compliance with Deere’s policies and procedures relating to entertainment of government officials and the true purpose for the payments”;
- Various expenses did not comply with Deere’s “policies and procedures relating to entertainment of government officials, none followed proper approval processes for such interactions, and all were improperly booked as legitimate business expenses.”
- “During this period, Deere had policies governing visits by non-U.S. government officials to its factories and facilities which required the provision of a variety of information in connection with seeking approval. This included details regarding the purpose of each visit, an agenda, names of government officials in attendance, whether any gifts or entertainment would be provided, and information about overall accommodations and cost. Wirtgen Thailand did not provide the required information and did not obtain prior authorization for the DOH trip.”
So Much For Those Warranties
Speaking of Deere’s 2017 acquisition of Wirtgen Group, a privately held company located in Germany, the Share and Asset Sale and Purchase Agreement contains a number of warranties by Wirtgen Group (Seller) including the following:
“Neither the Seller (in relation to the Wirtgen Business), nor any of the Companies or the Subsidiaries, nor any of their respective officers, directors or employees have, in the last two (2) years prior to the Signing Date or during the Interim Period, paid, given, or made an offer or promise to pay or give a payment of money or anything of value or have authorized any such payment, giving or offer to or for the benefit of any officer or employee of, or any other person acting in an official capacity for any governmental entity, including any state-owned entity, or public international organization, any political party or any candidate for political office (an “Official”) or other individual while knowing that all or a portion of such money or value in kind would be paid, given or offered to or for the benefit of any Official or any other individual, for any of the following purposes: (i) influencing any act or decision of such Official in his or its official capacity; (ii) inducing such Official to do or omit to do any act in violation of the lawful duty of such Official; (iii) inducing such Official to use his or its influence with any governmental entity, public international organization or political party to affect or influence any act or decision of such entity, organization or party; or (iv) securing any improper advantage; in all cases provided that such payment was made or such benefit was granted (or was supposed to be made or granted) (a) in connection with Wirtgen Business’ activities, and (b) in violation of any provision of criminal laws against corruption, as applicable in the individual case, including, the U.S. Foreign Corrupt Practices Act of 1977 ….”.
The Seller (in relation to the Wirtgen Business) has implemented and maintains in effect written policies, procedures and internal controls, including an internal accounting controls system, as required by applicable German law in relation to a German GmbH operating as the holding company of an international group of companies in order to prevent, deter and detect violations of Anti-Corruption Laws and Foreign Trade Laws.”
World’s Most Ethical … FCPA Violator
This site has long highlighted companies that resolve an FCPA enforcement action, yet during the same general time frame are recognized as being among the World’s Most Ethical Companies. (See here).
Deere is the latest example as the company is not only a 2024 World’s Most Ethical Company, but a 17 time honoree.
Not the First Instance of FCPA Scrutiny
While the Thailand matter was the first instance in which Deere resolved an FCPA enforcement action, it was not first instance in which the company was under FCPA scrutiny.
As highlighted in this prior post, in August 2011 various media outlets reported that Deere received an inquiry from regulators regarding alleged payments made in Russia and nearby countries. In a subsequent statement, Deere stated as follows. “On July 25, 2011, Deere received a request from the SEC that it voluntarily produce documents relating to Deere’s activities, and those of third parties, in certain foreign countries. Deere is cooperating with the SEC’s requests.”
In a subsequent press release, Deere stated:
“Deere & Company has been notified in a letter from the U.S. Securities and Exchange Commission Enforcement Division staff that it has completed an investigation of Deere and does not plan to pursue any enforcement action. In August 2011, news media reported that Deere & Company was subject to an inquiry concerning alleged payments to foreign officials in Russia and surrounding countries. At that time, Deere stated that it had received a request from the SEC that Deere produce documents related to the company’s activities, and those of third parties, in certain foreign countries. Deere said it fully cooperated with the SEC during the investigation and is pleased to report this conclusion. The company also stated that Deere remains committed to its core value of doing business with the highest integrity around the globe.
