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 and these provisions are among the most generic legal provisions one can possibly find.
The latest example is this recent SEC enforcement action against Cantaloupe Inc. (a manufacturer and distributor of cashless payment devices which operated under the name USA Technologies Inc. prior to April 2021).
In summary fashion, this administrative order finds:
“This matter concerns improper revenue recognition by USA Technologies, Inc., a Malvern, Pennsylvania-based manufacturer and distributor of cashless payment devices beginning in the fourth quarter of fiscal year (“FY”) 2017 and continuing through the third quarter of FY 2018. As a result, USAT filed with the Commission materially misstated financial statements in its annual, quarterly, and current reports filed with the Commission during the period.
The misstatements primarily resulted from USAT’s efforts to maximize end-of-quarter revenue and meet internal sales targets – in contravention of its publicly-stated sales and revenue recognition policies and generally accepted accounting principles (“GAAP”) – in two ways. First, USAT entered into purported “bill and hold” sales transactions, a type of sale that, if certain criteria are met, may properly result in a company recognizing revenue for a transaction before shipping the product to the customer, without conforming those transactions to GAAP principles. Second, USAT inflated its quarterly sales revenue by deliberately shipping to its customers devices the customers had not ordered or had explicitly told USAT they did not want.
On September 11, 2018, the Company issued a Form 8-K filing announcing that it was currently unable to file its 10-K for Fiscal Year 2018. On October 9, 2019, the Company announced the results of an Audit Committee internal investigation. As a result of that investigation, the Company restated its FY 2017 Form 10-K and its Form 10-Q filings for the first three quarters of FY 2018. The company overstated revenue by $2.56 million, or 2.53%, for Fiscal Year 2017, and an additional $2.05 million cumulatively for first three quarters of FY 2018, resulting in a total overstatement of $4.61 million or 3.5%, for the entire period.”
Based on the above, the order finds that USAT violated, among other things, the FCPA’s books and records and internal controls provisions.
Without admitting or denying the SEC’s findings, USAT agreed to pay a $1.5 million civil penalty.
