This recent post discussed the approximate $2.5 million FCPA enforcement action against Gartner based on conduct in South Africa – specifically conduct involving the South Africa Revenue Service (“SARS”).
This post highlights additional issues to consider.
Timeline
As stated in Gartner’s most recent annual report (Feb. 16, 2023):
“During the second half of 2018 we fully cooperated with a South African government commission established to review a wide range of issues related to the country’s revenue service, including the procurement and fulfillment of consulting agreements we entered into with the revenue service through a sales agent from late 2014 through early 2017. In parallel, we commenced an internal investigation regarding this matter. We voluntarily disclosed the matter to the SEC and Department of Justice (DOJ) in November 2018. Since that time, we have cooperated fully with their review, and we are working toward a resolution.
Thus, from start to finish, Gartner’s FCPA scrutiny lasted approximately 4.5 years.
I’ve said it many times, and will continue saying it until the cows come home: if the DOJ/SEC want their FCPA enforcement programs to be viewed as more credible and more effective, the enforcement agencies must resolve instances of FCPA scrutiny much quicker.
This is particularly true in the Gartner matter given the following language from the SEC:
“[The company’s] cooperation included providing regular updates and sharing facts identified in the course of its own internal investigation, making foreign-based employees available for interviews in the United States, and encouraging cooperation by former employees.”
Self (Voluntary) Disclosure?
The SEC’s order does not use the phrase voluntary disclosure, but rather self disclosure. Assuming these phrases have the same general meaning, it is interesting that the SEC considered “Gartner’s self-disclosure following press reports in South Africa.”
For instance, in the DOJ’s FCPA Corporate Enforcement Policy the definition of voluntary self-disclosure includes (as the first prong) “prior to an imminent threat of disclosure or government investigation.”
Press Reports
Speaking of the press reports, in mid-2018 there were various press reports regarding The Nugent Commission of Inquiry Into Tax Administration and Governance at SARS. According to one report from October 2018:
“The Nugent Commission of Inquiry has heard that consultancy firm Gartner, which was awarded a R200million contract to design an information technology (IT) structure for the SA Revenue Service (Sars), illegally gifted a huge chunk of the tender to the company of suspended commissioner Tom Moyane’s long-time friend, Patrick Monyeki.
It is believed that Monyeki, who is not as employee at Sars, managed to obtain 30 to 40% of the Gartner contract.
Moyane signed off on a contract worth more than R200m to the global advisory firm Gartner in July 2015. The consultancy firm was meant to revive and restructure the IT modernisation model.”
Bain & Co.
Speaking of the Nugent Commission of Inquiry into SARS, Gartner was not the only U.S. company to be criticized.
So too was consulting company Bain & Co. (See here for the company’s 2018 statement and here for the company’s 2022 statement).
In the 2022 statement, Bain stated:
“There is no evidence that Bain colluded with SARS or engaged in any corrupt and fraudulent practices. While we acknowledge that Bain SA was aware of the request for proposal (RFP) before it was formally issued (as detailed on www.bain.com/sars), we have found no evidence, nor has any been produced, that Bain manipulated the procurement process in any way to exclude other bidders or specifically advantage Bain. This process was wholly run by SARS.”
Root Cause
It has been highlighted numerous times on these pages. The root cause of certain FCPA enforcement actions is a local law or regulation that force companies into a relationship that is not necessarily market driven – but a distortion of the market.
Pointing out this root cause is not meant to excuse the conduct at issue in an FCPA enforcement, but only to put it in the proper perspective.
Prior FCPA enforcement actions concerning in conduct in South Africa involved, in whole or in part, the country’s Broad-Based Black Economic Empowerment Act and government policies implementing it.
See here for the 2022 ABB enforcement action and here for the 2015 Hitachi enforcement action.
Add the Gartner enforcement action to this list.
As stated by the SEC:
“The purported justification for hiring the Private Company offered by the Gartner Consulting Manager was that (1) Gartner needed to sub-contract with the Private Company in order to meet the requirements of South Africa’s Broad-Based Black Economic Empowerment legislation (“B-BBEE”) and (2) neither Gartner nor its local sub-agents qualified under the applicable law. This justification was false because Gartner, through its local sub-agents, did in fact qualify under the B-BBEE.”
Statute of Limitations
Although not specifically mentioned in the SEC’s order, part of Gartner’s “cooperation” may have included a waiver of statute of limitations defenses or a tolling of the statute of limitations.
Indeed, the conduct at issue in the enforcement action occurred between 2014 and 2015 (in other words approximately 8-9 years ago) – beyond any conceivable statute of limitations.
Quotable
This South Africa column about the Gartner enforcement action states:
“The Foreign Corrupt Practices Act is a money-raiser for the American taxpayer, not for the victims of overseas crimes. It does impose an obligation on the company to change its ways, but it doesn’t require the company to clean up its poop in the place it was unceremoniously deposited.”
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