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Recent $29.2 Million FCPA Settlement with Major Contractor Cites Bids and Bookkeeping, Not Bribes

August 18, 2017

The Foreign Corrupt Practices Act of 1977 (FCPA) is associated with bribes, but a recent SEC enforcement order against a major defense contractor reminds companies that the law is also about bids and bookkeeping as well. The FCPA has three main provisions: one requiring proper books, one requiring internal accounting controls and one banning bribes. In a July 27 press release and accompanying accounting and auditing enforcement release, the sixth so far this year according to FCPA enforcement history, the SEC cited only the first two.

The SEC alleged that, in the course of obtaining lucrative oilfield services contracts in Angola, a company manager violated the company’s own internal controls by selecting a local vendor without either seeking competitive bids or providing an adequate single source justification. The manager also allegedly made false accounting entries to hide this fact. As a result, the manager allegedly “violated Section 13(b)(5) of the Exchange Act, which prohibits persons from knowingly circumventing or knowingly failing to implement a system of internal accounting controls … and Exchange Act Rule 13b2-1, which prohibits persons from directly or indirectly falsifying or causing to be falsified any book, record or account.” The company paid $29.2 million to settle the charges and agreed to “obtain an independent compliance consultant to oversee its anti-corruption policies and procedures in Africa.” The (now former) manager paid a $75,000 penalty.

This emphasis on internal controls and bookkeeping serves as a cautionary lesson to companies with foreign operations. Even without bribes, there can be “foreign corrupt practices” in the eyes of regulators.

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