This post highlights a new instance of Foreign Corrupt Practices Act scrutiny involving KT Corporation (a South Korean telephone company) and updates regarding long-standing FCPA scrutiny of Herbalife, World Acceptance Corp., Raytheon, and Stericyle.
For several years, KT Corp (South Korea’s largest telecom company with shares traded on the New York Stock Exchange) has been under scrutiny by South Korean authorities for, among other things: donations to non-profit foundations at former President Park’s request; making certain donations or gifts to various lawmakers; and alleged improper hiring of college graduates.
The company recently disclosed :
“We are also cooperating with an investigation by the U.S. Securities and Exchange Commission (the “SEC”) related to the above-described matters and other related allegations regarding compliance with the U.S. Foreign Corrupt Practices Act. It is not possible to determine the outcome of any such investigations at this time, including the timing or terms of any potential resolution and what final costs, remediation, payments or other criminal or civil liability may occur. There can be no assurance that the SEC or another regulatory body will not make further regulatory inquiries or pursue further action. Furthermore, there can be no assurance that any outcome or any further developments relating to the above-mentioned matters, including adverse publicity, will not adversely affect our business, financial results, reputation or stock price.”
“As previously disclosed, the SEC and the Department of Justice, or DOJ, have been conducting investigations into the Company’s compliance with the Foreign Corrupt Practices Act, or FCPA, in China, which are mainly focused on the Company’s China external affairs expenditures, its China business activities, adequacy of and compliance with the Company’s internal controls in China, and accuracy of the Company’s books and records relating to its China operations. The Company conducted its own review and implemented remedial and improvement measures based upon this review, including but not limited to replacement of certain employees and enhancements of Company policies and procedures in China. The Company is continuing to cooperate with the SEC and DOJ and is continuing to discuss with them possible resolution, including settlement, of these matters. As a result of these discussions, the Company has reached an understanding in principle with respect to the material terms of settlement with each of the SEC staff and DOJ relating to alleged activities that took place in 2006 through 2016. Based on these understandings, the Company would enter into an administrative resolution with the SEC with respect to alleged violations of the books and records and internal controls provisions of the FCPA. The Company would separately enter into a deferred prosecution agreement (“DPA”) with DOJ, under which DOJ would defer criminal prosecution of the Company for a period of three years related to a conspiracy to violate the books and records provisions of the FCPA. Among other things, the Company would also undertake compliance self-reporting obligations for the three-year term of the respective agreements with the SEC and DOJ. If the Company remains in compliance with the DPA during its three-year term, the deferred charge against the Company would be dismissed with prejudice. In addition, the Company would agree to pay the SEC and DOJ aggregate penalties, disgorgement and prejudgment interest of approximately $123 million. Based on these understandings and as required by U.S. GAAP, in addition to the $40 million previously accrued, the Company has recognized an additional estimated aggregate accrued liability for these matters of approximately $83 million within its condensed consolidated balance sheet as of March 31, 2020 for a total accrual of approximately $123 million relating to these matters. Final resolution of these matters is subject to negotiation of documentation satisfactory to all the parties. It is also subject to final approvals by the Company’s board of directors, the SEC, and DOJ, and may require court approval of the DPA. While the Company believes that, based on the foregoing terms, it is nearing resolution of these matters, there can be no assurance as to the timing or the ultimate terms of any final settlements, including the principle terms discussed above, or that final resolutions will be reached at all. In the event settlements are not reached, litigation may ensue and, accordingly, the actual loss incurred in connection with these matters, if any, could be less than, equal to or exceed the aggregate accrued amount noted above, and such actual loss amount could be materially adverse to the Company, its financial condition, its results of operations, and its operations. At the present time, the Company is unable to reasonably estimate nor provide any assurance regarding the amount of any potential loss in excess of the aggregate amount of approximately $123 million accrued as stated above relating to these matters.”
World Acceptance Corp.
“As previously disclosed, we retained outside legal counsel and forensic accountants, upon receipt of an anonymous letter regarding compliance matters, to conduct an investigation of our operations in Mexico. The investigation focuses on the legality under the U.S. Foreign Corrupt Practices Act and certain local laws of certain payments related to loans, the maintenance of the Company’s books and records associated with such payments, and the treatment of compensation matters for certain employees. We voluntarily contacted the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) in June 2017 to advise both agencies that an investigation was underway. We are committed to compliance with applicable laws and regulations and intend to cooperate fully with both the SEC and the DOJ.
There have been ongoing discussions with the SEC regarding the possible resolution of these matters. The discussions with the SEC have progressed to a point that the Company can now reasonably estimate a probable loss and has recorded an aggregate accrual of $21.7 million with respect to the SEC matters. As the discussions with the SEC are continuing, there can be no assurance that the Company’s efforts to reach a final resolution with the SEC will be successful or, if they are, what the timing or terms of such resolution will be. The Company has no offer of settlement or resolution with the Department of Justice at this time.”
“As previously disclosed in Raytheon Company’s Form 10-K for the year ended December 31, 2019, in 2019, Raytheon Company received a subpoena from the Securities and Exchange Commission (SEC) seeking information in connection with an investigation into whether there were improper payments made by Thales-Raytheon Systems (TRS), Raytheon or anyone acting on their behalf in connection with TRS or Raytheon contracts in certain Middle East countries since 2014. In the first quarter of 2020, the Department of Justice (DOJ) advised Raytheon it had opened a parallel investigation. Raytheon maintains a rigorous anti-corruption compliance program, is cooperating fully with the SEC’s inquiry, and is examining whether there has been any conduct that is in violation of Raytheon policy. At this point there is no ability to predict the outcome of the SEC’s or DOJ’s inquiry. Based on the information available to date, however, we do not believe the results of this inquiry will have a material adverse effect on our financial condition, results of operations or liquidity. This matter became applicable to Raytheon Technologies following the April 3, 2020 Raytheon Merger.”
The company has been under FCPA scrutiny since mid-2017 and recently disclosed :
“On June 12, 2017, the SEC issued a subpoena to the Company, requesting documents and information relating to the Company’s compliance with the FCPA or other foreign or domestic anti-corruption laws with respect to certain of the Company’s operations in Latin America. In addition, the DOJ notified the Company that it was investigating this matter in parallel with the SEC. The Company is cooperating with these agencies and certain foreign authorities. The Company is also conducting an internal investigation of these and other matters, including outside of Latin America, under the oversight of the Audit Committee of the Board of Directors and with the assistance of outside counsel, and this investigation has found evidence of improper conduct.
As part of the FCPA investigation discussed above, the SEC has requested certain additional information from the Company.”
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