This post highlights a scrutiny alert regarding previous FCPA violator SQM and scrutiny updates regarding Calavo Growers (is it “boiling the ocean?) and the two instances of “monkey business” FCPA scrutiny involving Inotiv and Charles River.
SQM
As highlighted in this prior post, in 2017 Sociedad Quimica y Minera de Chile S.A. (SQM) (a chemical and mining company based in Chile with American Depository Shares listed on the New York Stock Exchange) resolved a $30.5 million FCPA enforcement action (DOJ and SEC) in relation to alleged conduct with Chilean officials.
SQM recently disclosed:
“The Company is required to be in compliance with all applicable laws and regulations in Chile and internationally with respect to anti-corruption, anti-money laundering and other regulatory matters, including the Foreign Corrupt Practices Act (FCPA). The Company has received a request for information and subpoena from the SEC requesting information related to our business operations, compliance program, and allegations of potential violations of the FCPA and other anti-corruption laws. The SEC has said that the investigation is a non-public, fact-finding inquiry and we are not aware
that any conclusion has been reached by the SEC. Management has initiated an internal review to identify materials that are responsive to the SEC’s inquiry and is actively cooperating in the SEC’s review by providing the information requested.”
Calavo Growers
As highlighted in this prior post, in January 2024 Calavo (which describes itself as a global leader in quality produce, including avocados, tomatoes and papayas, and a pioneer of healthy fresh-cut fruit, vegetables and prepared foods) disclosed FCPA scrutiny.
The company’s most recent quarterly filing (dated September 9th) states:
“On January 16, 2024, we announced that its internal audit process had identified to the Audit Committee of the Board of Directors certain matters that the Board of Directors determined after fiscal year end merited enhanced evaluation. A Special Committee of the Board of Directors (the “Special Committee”) was established to commence an investigation, with the assistance of external legal counsel and external forensic accountants. The Special Committee determined that certain of those matters related to our operations in Mexico raised potential issues under the Foreign Corrupt Practices Act (“FCPA”). We have voluntarily disclosed this ongoing internal investigation to the SEC and the Department of Justice (DOJ), and we intend to fully cooperate with the SEC and the DOJ in connection with these matters. Any determination that our operations or activities were not in compliance with laws, including the FCPA, could result in the imposition of material fines and penalties and the imposition of equitable remedies. We cannot currently predict the timing of completion or the outcome of its internal investigation or of any actions that may be taken by the SEC, the DOJ or Mexican authorities in connection with the matters under investigation, and we cannot currently estimate the amount or range of loss or potential impact on its consolidated financial statements associated with these matters. Although unanticipated issues may arise, we currently expect the costs associated with our investigation efforts to decline beginning in the third quarter.”
The same filing also discloses:
“For the three and nine months ended July 31, 2024, we incurred $1.4 million and $6.4 million of professional fee expenses related to the internal investigation.”
Is spending approximately $6.4 million in professional fee expenses over nine months to conduct an FCPA investigation in one country “just what it takes” or is this an example of “boiling the ocean.”
The phrase “boiling the ocean” was used by then Assistant Attorney General Leslie Caldwell in April 2015. As highlighted in this post, against the backdrop of ever-escalating FCPA investigative fees (an issue that has been highlighted on FCPA Professor for years), Caldwell stated:
“All too often, criticism is leveled against the Justice Department for purportedly causing companies to spend years, and many millions of dollars, investigating potential violations. This is particularly true in the FCPA context where the need for international evidence can add to the expense and burden of an investigation. Critics wrongly question the wisdom of disclosing misconduct and cooperating with the government in light of what they perceive to be the department’s requirement that companies then must conduct unnecessarily costly, time consuming and widespread investigations.
There is no question that some cooperating companies spend large sums of money investigating potential misconduct and correcting internal controls issues that allowed the misconduct to occur. The decision to incur those costs, however, is one made by those companies, not a requirement of the department. When a company chooses to cooperate with the government, the manner in which the company approaches its cooperation, and its own investigation of the conduct, can significantly affect the length of the investigation and the costs incurred by the company.
Although we expect internal investigations to be thorough, we do not expect companies to aimlessly boil the ocean. Indeed, there have been some instances in which companies have, in our view, conducted overly broad and needlessly costly investigations, in some cases delaying our ability to resolve matters in a timely fashion.”
Assistant Attorney General Caldwell returned to this issue in a November 2016 FCPA speech (see here for the prior post and video clips) when she stated:
“I’ve seen over the years, alot of companies that did way too broad of investigation and in my experience that was not the result of what DOJ told them to do.”
During my nearly decade-long FCPA private practice career, I conducted several FCPA internal investigations around the world. Such investigations are not a cost-free exercise.
However, Calavo’s disclosure that it has incurred approximately $6.4 million in professional fee expenses over nine months to conduct an FCPA investigation in one country strikes me as a bit unusual.
If I were a Calavo board member (not to mention a Calavo shareholder), I would have some concerns.
Inotiv & Charles River
Prior posts here and here highlighted two instances of “monkey business” FCPA scrutiny (that is FCPA issues in connection with importation of non-human primates from Asia).
In its most recent quarterly filing, Inotiv stated:
“On May 23, 2023, Inotiv received a voluntary request from the U.S. Securities and Exchange Commission (“SEC”) seeking documents and information for the period December 1, 2017 to the present regarding the Company, EGSI, and OBRC’s importation of NHPs from Asia, including information relating to whether their importation practices complied with the U.S. Foreign Corrupt Practices Act. In March 2024, the SEC provided the Company a formal order of investigation concerning this matter that is dated January 9, 2024, and on April 12, 2024, the SEC provided supplemental document requests to the Company. The Company is cooperating with the SEC.”
In its most recent quarterly filing, Charles River stated:
“On February 16, 2023, the Company was informed by the U.S. Department of Justice (DOJ) that in conjunction with the U.S. Fish and Wildlife Service (USFWS), it had commenced an investigation into the Company’s conduct regarding several shipments of non-human primates from Cambodia. On February 17, 2023 the Company received a grand jury subpoena requesting certain documents related to such investigation. The Company is aware of a parallel civil investigation being undertaken by the DOJ and USFWS. The Company is cooperating with the DOJ and the USFWS and believes that the concerns raised with respect to the Company’s conduct are without merit. The Company maintains a global supplier onboarding and oversight program incorporating risk-based due diligence, auditing, and monitoring practices to help ensure the quality of our supplier relationships and compliance with applicable U.S. and international laws and regulations, and has operated under the belief that all shipments of non-human primates it received satisfied the material requirements, documentation and related processes and procedures of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) documentation and related processes and procedures, which guides the release of each import by USFWS. Notwithstanding our efforts and good-faith belief, in connection with the civil investigation, the Company has voluntarily suspended future shipments of non-human primates from Cambodia to the United States until such time that the Company and USFWS can agree upon and implement additional procedures to reasonably ensure that non-human primates imported from Cambodia are purpose-bred. The Company continues to care for the Cambodia-sourced non-human primates from certain shipments in the United States. The carrying value of the inventory related to these shipments was approximately $27 million as of June 29, 2024, which reflects the value of the shipments in accordance with the Company’s inventory accounting policy. On May 16, 2023, the Company received an inquiry from the Enforcement Division of the U.S. Securities and Exchange Commission (SEC) requesting it to voluntarily provide information, subsequently augmented with a document subpoena and additional inquiries, primarily related to the sourcing of non-human primates and related disclosures, and the Company is cooperating with these requests. The Company is not able to predict what action, if any, might be taken in the future by the DOJ, USFWS, SEC or other governmental authorities as a result of the investigations. None of the DOJ, USFWS or SEC has provided the Company with any specific timeline or indication as to when these investigations or, specific to the DOJ and USFWS, discussions regarding future processes and procedures, will be concluded or resolved. The Company cannot predict the timing, outcome or possible impact of the investigations, including without limitation any potential fines, penalties or liabilities.
