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Issues To Consider From The World Acceptance Corp. Enforcement Action


This prior post went in-depth into the SEC’s recent $21.7 million Foreign Corrupt Practices Act enforcement action against World Acceptance Corp. (WAC) and this post highlights additional issues to consider.


As highlighted in this post, WAC disclosed its FCPA scrutiny in mid-2017.  Thus, from start to finish, its scrutiny lasted more than three years. I’ve said it many times, and will continue saying it until the cows come home, if the SEC wants its FCPA enforcement program to be viewed as credible and effective it must resolve instances of FCPA scrutiny much quicker.

This is particularly true in the WAC matter given that the conduct focused on a single country and the following language in the SEC’s order:

“In determining to accept the Offer, the Commission considered remedial acts promptly undertaken by WAC and cooperation afforded the Commission staff, including facilitating witnesses traveling from Mexico to the U.S. for interviews.”

Moreover, the DOJ’s so-called declination letter stated:

“The Department has decided to decline prosecution of this matter based on an assessment of the factors set forth in the Corporate Enforcement Policy … and the Principles of Federal Prosecution of Business Organizations … including but not limited to: (1) World’s prompt, voluntary self-disclosure of the misconduct; (2) World’s full and proactive cooperation in this matter (including its provisions of all known relevant facts about the misconduct;”

Strict Liability for Anti-Bribery Violations

It is relatively common for the SEC to advance a strict liability theory of enforcement under the FCPA’s books and records and internal controls provisions against issuers for subsidiary actions.

However, in the WAC enforcement action the SEC took it a step further and held WAC strictly liable for FCPA anti-bribery violations by WAC de Mexico (a former wholly-owned subsidiary).

Under the heading “The Bribery Scheme,” the SEC order contains five paragraphs of findings but there is not one finding as to WAC itself.

It is black-letter law that the legal liability of each distinct corporate entity is to be contained within that entity absent a finding of abuse of corporate form such as insufficient capitalization, failure to hold annual meetings or the like.  In short, legal liability does not ordinary hop, skip and jump around a multinational company.  However, in the WAC enforcement action (like certain others in the modern era of FCPA enforcement), the SEC advanced the theory that a parent corporation is legally responsible for the acts of subsidiary employees absent any allegation or suggestion that the parent company was aware of, or participated in, the alleged improper conduct.

Philip Urofsky (a former DOJ Assistant Chief of the Fraud Section) has previously commented on this theory by asking “are there any limits to parent corporation liability” and stated:

“This approach, however, fails to honor the corporate form and the black-letter rule that to ‘pierce the corporate veil’ the government and other litigants must show that the parent operated the subsidiary as an alter ego, and itself paid no attention to the corporate form.  Moreover, it is contrary to the language of the [FCPA’s] original history.”

Invoking A Standard That Does Not Even Exist

Once again, in the WAC enforcement action the SEC invoked a legal standard that does not even exist in the FCPA. The SEC’s order states: “WAC failed to make and keep accurate books and records and failed to devise and maintain a sufficient system of internal accounting controls necessary to detect and prevent these bribe payments.”

However, you can read the FCPA statute until the cows come home but you will never find the words “detect and prevent” in the statute – quite simply because that is not the statutory standard.

Rather, the internal controls provision state that an issuer shall “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that” certain financial objectives are met. The FCPA then defines  “reasonable assurances” to “mean such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”

Is it asking too much for SEC enforcement officials to articular the proper statutory standard?

No Liu Impact

On June 22nd, the Supreme Court’s held in Liu – as to the statutory scheme relevant to SEC federal court actions – that “a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible” under the relevant statutory scheme. (See here for the prior post).

Despite commentary that Liu will make “a significant change to how corporate FCPA settlements will be reached” with the SEC, this prior post predicted that Liu will not have a meaningful impact on administrative actions brought by the SEC (as the WAC and nearly all issuer enforcement actions are) and that the Supreme Court’s most FCPA relevant observations in Liu were merely dicta.

Liu did not seem to have an impact on the disgorgement amount in the WAC enforcement action.

Ripple Effects

In its most recent annual report, here is what WAC said about the “ripple effects” (see here for the article “FCPA Ripples” of its FCPA scrutiny:

“Detecting, investigating, and resolving these matters is expensive and consumes significant time and attention of the Company’s senior management. While we are currently unable to predict what actions the DOJ, SEC, or other governmental agencies (including governmental agencies in Mexico) might take, or what the likely outcome of any such actions might be, we may incur substantial additional expenses responding to such actions. In addition, such actions, fines, and/or penalties could adversely affect the Company’s reputation and its ability to obtain new business or retain existing business from its current customers and potential customers, to attract and retain employees, and to access the capital markets. If it is determined that a violation of the FCPA has occurred, such violation, or a settlement thereof, may give rise to an event of default under the agreement governing our revolving credit facility, which could have a material adverse effect on our liquidity. We depend to a substantial extent on borrowings under our revolving credit agreement to fund our liquidity needs and the terms of our debt limit how we conduct our business.”

As highlighted in this original post regarding WAC’s FCPA scrutiny, the scrutiny resulted in the company being unable to file its annual report – causing the company’s stock to drop more than 12%.

Country Exit

As highlighted in this previous post, a troubling aspect of the current FCPA enforcement climate is that the enforcement agencies seem to view retreat from a foreign country that presents FCPA risk as a good thing – perhaps even a “remedial measure.”

The WAC enforcement action is another example as the SEC stated that “WAC remedial acts included … in mid-2018 WAC divested itself of WAC Mexico.” Elsewhere, the SEC order notes “WAC currently does not have any foreign subsidiaries, or conduct any business internationally.”

That WAC does not conduct any business internationally makes it sort of odd that the DOJ cited “World’s full remediation, including the additional FCPA training added to World’s compliance program” in its so-called declination letter.

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