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Further To The SEC’s Inconsistent Approach To Enforcing The FCPA’s Books And Records And Internal Controls Provisions


I recognize that I can be a creature of habit, but when an issue – such as the SEC’s inconsistent treatment of FCPA violations – is so frequent I will keep on writing about it. So here goes the umpteenth post on this issue. (See here for other examples).

A basic rule of law principle is consistency. In other words, the same legal violation ought to be sanctioned in the same way. When the same legal violation is sanctioned in materially different ways, trust and confidence in law enforcement is diminished.

However, there sure does seem to be a lack of consistency between how the SEC resolves Foreign Corrupt Practices Act books and records and internal controls violations.

As most readers no doubt know, the FCPA has always been a law much broader than its name suggests.   The anti-bribery provisions are just one prong of the FCPA.

Indeed, most FCPA enforcement actions do not involve allegations of foreign bribery, but rather violations of the FCPA’s generic books and records and internal controls provisions. These provisions generally require that issuers shall: (i) maintain books and records which, in reasonable detail, accurately and fairly reflect issuer transactions and disposition of assets (the books and records provisions); and (ii) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly authorized, recorded, and accounted for (the internal controls provisions).

For lack of a better term, let’s call such actions “non-FCPA FCPA enforcement actions.” Such actions are not dissected in the FCPA space and do not appear on the DOJ or SEC’s FCPA websites (here and here). Yet such actions are deserving of analysis because they highlight a troubling aspect of FCPA enforcement: that being how the same alleged legal violations are sanctioned in materially different ways.

In the most recent example, the SEC found in this administrative action that GT Advanced Technologies engaged in accounting misconduct and that the company, including its CEO (that would be considered a high-level executive if you are scoring at home) made material misrepresentations to the market resulting in the company overstating its working capital by approximately $307 million, or by 200%, and to understate its current liabilities by approximately $307 million, or 43%.

Among other legal violations, the SEC found that GT violated the FCPA’s books and records and internal controls provisions.

As Anita Bandy (an Associate Director in the SEC’s Division of Enforcement) stated in this release. “GT and its CEO painted a rosy picture of the company’s performance and ability to obtain funding that was paramount to GT’s survival while they were aware of information that would have catastrophic consequences for the company.”

What was the settlement amount for GT’s violations – which involved the conduct of the CEO – and involved approximately $307 million in deception?


Rather, without admitting or denying the findings, GT consented to the entry of SEC order and agreed to cease and desist from further violations of the FCPA’s books and records and internal controls provisions.

To resolve the matters, the issuers agreed to pay civil penalties of $35,000, $100,000, $100,000 and $200,000.

Compare this enforcement action with say the SEC’s $25 million enforcement action against BHP Billiton (see prior posts herehere and here) for – you better sit down for this one – the company’s “failure to devise and maintain sufficient internal controls over a global hospitality program that the company hosted in connection with its sponsorship of the 2008 Beijing Summer Olympic Games.”

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