Deere & Co., Goldman, Pfizer, News Corp, Parametric Technology, Bruker, Diebold, Watts Water Technologies, 3M Corp. The flurry of public company disclosures of FCPA inquiries (some new, some merely updates) in recent days raise many questions.
Has the increase in FCPA enforcement done anything to deter future FCPA violations?
Why in this era of increased FCPA compliance does there seem to be more, not less, FCPA inquiries? Does effective compliance reduce FCPA scrutiny or does effective compliance uncover more FCPA issues? If the latter, does that argue in favor of a compliance defense?
If every company hired FCPA counsel to do a thorough review of its world-wide operations would – given the enforcement agencies theories of interpretation - 50% of companies find technical FCPA violations? 75%? 95%? If the answer is any one of these numbers is that evidence of how corrupt business has become or is that evidence of how unhinged FCPA enforcement theories have become?
Other than plaintiffs’ firms representing certain investors in (some would say opportunistic) securities class actions or derivative claims, do investors even care about these disclosures?
What do these recent disclosures – involving companies in diverse industries operating in diverse countries – say about the FCPA itself? Is it working? Does it need reform?
Ponder these questions while browsing the latest disclosures.
From the company’s August 9th 10-Q:
“[The company] and certain of its affiliates are subject to a number of investigations and reviews, certain of which are industry-wide, by various governmental and regulatory bodies and self-regulatory organizations relating to the sales, trading and clearance of corporate and government securities and other financial products, including compliance with the SEC’s short sale rule, algorithmic and quantitative trading, futures trading, securities lending practices, trading and clearance of credit derivative instruments, commodities trading, private placement practices, compliance with the U.S. Foreign Corrupt Practices Act and the effectiveness of insider trading controls and internal information barriers.”
As noted in this prior post, Goldman’s FCPA scrutiny relates to its relationship with Libya’s sovereign wealth fund.
The company stated as follows in its August 11th 1o-Q:
“The Company has voluntarily provided the DOJ and the U.S. Securities and Exchange Commission (SEC) with information concerning potentially improper payments made by Pfizer and by Wyeth in connection with certain sales activities outside the U.S. We are in discussions with the DOJ and SEC regarding a resolution of these matters. In addition, certain potentially improper payments and other matters are the subject of investigations by government authorities in certain foreign countries, including a civil and criminal investigation in Germany with respect to certain tax matters relating to a wholly owned subsidiary of Pfizer.”
News Corp.’s FCPA exposure has been detailed in several prior posts (see here for instance) and in the company’s August 10th 8-K it stated as follows.
“In July 2011, the Company announced that it would close its publication, News of the World, after allegations of phone hacking and payments to police. As a result of these allegations, the Company is subject to several ongoing investigations by U.K. and U.S. regulators and governmental authorities, including investigations into whether similar conduct may have occurred at the Company’s subsidiaries outside of the U.K. The Company is fully cooperating with these investigations. In addition, the Company has admitted liability in a number of civil cases related to the phone hacking allegations and has settled a number of cases. The Company has taken steps to solve the problems relating to News of the World including the creation and establishment of an independent Management & Standards Committee, which will have oversight of, and take responsibility for, all matters in relation to the News of the World phone hacking case, police payments and all other connected issues at News International Group Limited (“News International”), including as they may relate to other News International publications.”
Parametric Technology Corp.
In a new disclosure, the company stated as follows in its August 10th 10-Q:
“In the third quarter of 2011, we identified certain payments by certain business partners in China that raised questions of compliance with laws, including the Foreign Corrupt Practices Act, and/or compliance with our business policies. We are conducting an internal investigation and have voluntarily disclosed this matter to the United States Department of Justice and the Securities and Exchange Commission. We are unable to estimate the potential penalties and/or sanctions, if any, that might be assessed in connection with this matter. If we determine that the replacement of certain employees and/or business partners is necessary, it could have an impact on our level of sales in China until such replacements are in place and productive. Revenue from China has historically represented 6% to 7% of our total revenue.”
In a new disclosure, the company stated as follows in its August 9th 10-Q:
“The Company has received certain anonymous communications alleging improper conduct in connection with the China operations of its Bruker Optics subsidiary. In response, the Audit Committee of the Company’s Board of Directors initiated an investigation of those allegations, with the assistance of independent outside counsel and an independent forensic consulting firm. The investigation is ongoing and includes a review of compliance by Bruker Optics and its employees in China with the requirements of the Foreign Corrupt Practices Act (“FCPA”) and other applicable laws and regulations. To date, the investigation has found evidence indicating that payments were made that improperly benefit employees or agents of government-owned enterprises in China. The Company voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway. It is the intent of the Audit Committee and the Company to cooperate with both agencies in connection with any investigation that may be conducted in this matter. In 2010, the China operations of Bruker Optics accounted for less than 2.5 percent of the Company’s consolidated net sales and less than 1.0 percent of its consolidated total assets. The internal investigation being conducted by the Audit Committee is ongoing and no conclusions can be drawn at this time as to its outcome; however, the FCPA and related statutes and regulations do provide for potential monetary penalties as well as criminal and civil sanctions in connection with FCPA violations. It is possible that monetary penalties and other sanctions could be assessed by the Federal government in connection with this matter. The nature and amount of any monetary penalty or other sanctions cannot reasonably be estimated. We have not recorded any provision for monetary penalties related to criminal and civil sanctions at this time.”
In its August 8th 10-Q the company stated as follows.
“The Company’s global Foreign Corrupt Practices Act (FCPA) review remains on schedule with no material developments during the three months ended June 30, 2011: During the second quarter of 2010, while conducting due diligence in connection with a potential acquisition in Russia, the Company identified certain transactions and payments by its subsidiary in Russia (primarily during 2005 to 2008) that potentially implicate the FCPA, particularly the books and records provisions of the FCPA. As a result, the Company is conducting an internal review and collecting information related to its global FCPA compliance. In the fourth quarter of 2010, the Company identified certain transactions within its Asia Pacific operation over the past several years which may also potentially implicate the FCPA. The Company’s current assessment indicates that the transactions and payments in question to date do not materially impact or alter the Company’s consolidated financial statements in any year or in the aggregate. The Company’s internal review is ongoing, and accordingly, there can be no assurance that this review will not find evidence of additional transactions that potentially implicate the FCPA. The Company has voluntarily self-reported its findings to the SEC and the DOJ and is cooperating with these agencies in their review. The Company was previously informed that the SEC’s inquiry has been converted to a formal, non-public investigation. The Company also received a subpoena for documents from the SEC and a voluntary request for documents from the DOJ in connection with the investigation. The Company expects to complete its internal review of these matters by the end of 2011. Once the Company completes its internal review, it will begin discussions with the SEC and the DOJ to resolve this matter. At this time, the Company cannot predict the results of the government investigations and therefore cannot estimate the potential loss or range of loss it may incur with respect to these investigations or their potential impact on the consolidated financial statements. Future resolution of these matters with the DOJ and SEC could result in a material impact to the Company’s consolidated financial statements.”
Watts Water Technologies Inc.
In an August 3rd 8-K filing, the company provided this update:
“In the second quarter of 2011, the Company recorded income of $0.05 per share in discontinued operations related to a reserve adjustment for the previously disclosed FCPA investigation. The adjustment reflects management’s best estimate of a possible charge in connection with this matter based on ongoing discussions with SEC staff. There is no definitive agreement for resolution of this matter at this time.”
In an August 4th 10-Q filing, the company provided this update:
“On November 12, 2009, the Company contacted the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation as a result of reports it received about its subsidiary in Turkey, alleging bid rigging and bribery and other inappropriate conduct in connection with the supply of certain reflective and other materials and related services to Turkish government entities. The Company also contacted certain affected government agencies in Turkey. The Company retained outside counsel to conduct an assessment of its policies, practices, and controls and to evaluate its overall compliance with the Foreign Corrupt Practices Act, including an ongoing review of our practices in certain other countries and acquired entities. The Company continues to cooperate with the DOJ and SEC and government agencies in Turkey in the Company’s ongoing investigation of this matter. The Company cannot predict at this time the outcome of its investigation or what regulatory actions may be taken or what other consequences may result.”
Deere & Co.
In addition to the above disclosures, the Wall Street Journal Corruption Currents, among others, reported this week that Deere & Co. “received an inquiry from regulators last month regarding payments made in Russia and nearby countries.” In a statement, Deere stated as follows. “On July 25, 2011, Deere received a request from the SEC that it voluntarily produce documents relating to Deere’s activities, and those of third parties, in certain foreign countries. Deere is cooperating with the SEC’s requests.”