|The Foreign Corrupt Practices Act (FCPA) has recently been in the news again. On December 13 the Securities and Exchange Commission filed a civil action in the Southern District of New York against seven former executives of Siemens AG for allegedly bribing senior government officials in Argentina. Also this month Wal Mart Stores disclosed in their 10-Q that they had begun an internal investigation into possible FCPA violations following a review of their ant-corruption policy.
The FCPA was enacted in 1977 to prohibit payments to foreign officials in order to obtain or retain business and is jointly enforced by the U.S. Department of Justice and the Securities and Exchange Commission. 2011 has been a busy year so far for FCPA cases by the SEC. Besides the action against the former Siemens executives mentioned above, companies such as Ball Corporation, Comverse Technology, Diageo, International Business Machines, Johnson & Johnson and Tyson Foods have also been the subject of FCPA cases by the SEC this year.
The FCPA also has generated disclosures from issuers in their risk factors and material agreements. Recent risk factor disclosure ranges from the generic as seen in Northern Technologies International Corp 11/21/11 10-K:
- Failure to comply with the U.S. Foreign Corrupt Practices Act could subject NTIC to, among other things, penalties and legal expenses that could harm its reputation and have a material adverse effect on its business, financial condition and results of operations.
To disclosure of specific instances as seen in the 10/28/11 10-Q of Hercules Offshore:
- Any violation of the Foreign Corrupt Practices Act or similar laws and regulations could result in significant expenses, divert management attention, and otherwise have a negative impact on us. We are subject to the Foreign Corrupt Practices Act (the “FCPA”), which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or retaining business, and the anti-bribery laws of other jurisdictions. On April 4, 2011, we received a subpoena from the SEC requesting that we produce documents relating to our compliance with the FCPA. We have also been advised by the Department of Justice that it is conducting a similarinvestigation. Under the direction of the audit committee, we are conducting an internal investigation regarding these matters. Any determination that we have violated the FCPA or laws of any other jurisdiction could have a material adverse effect on our financial condition.
Beyond risk factor disclosure issuers also included compliance clauses in their material exhibits. Diodes Incorporated filed a lease for an office in Shanghai on their 11/09/11 10-Q which contains the following clause:
16. Compliance with the Foreign Corrupt Practices Act
16.1 Ding Hong acknowledges that DSH is a corporation with substantial presence and affiliation in the United States and, as such, is subject to the provisions of the Foreign Corrupt Practices Act of 1977 of the United States of America, 15 U payments (the “FCPA”). Under the FCPA, it is unlawful to pay or to offer to pay anything of value to foreign government officials, or employees, or political parties or candidates, or to persons or entities who will offer or give such payments to any of the foregoing in order to obtain or retain business or to secure an improper commercial advantage.
16.2 Ding Hong further acknowledges that it is familiar with the provisions of the FCPA and hereby agrees that Ding Hong shall take or permit no action which will either constitute a violation under, or cause DSH to be in violation of, the provisions of the FCPA.
While Cyber Informatix included an FCPA clause within an employment agreement filed as an exhibit to a 10/06/11 8-K:
Foreign Corrupts Practices Act
||The Company and the Executive each represent and warrant that it is aware of and familiar with the provisions of the Foreign Corrupt Practices Act of 1977, as amended by the Omnibus Trade and Competitiveness Act of 1988 (“FCPA”), and the rules and regulations thereunder, and its purpose. Each party agrees that it will take no action and make no payment in violation of, or which might cause the Company or the Executive to be in violation of, the FCPA, including, but not limited to, the making of unlawful payments to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds
The SEC has also focused on these disclosures while reviewing filings. Yayi International was asked to “briefly describe the safeguards you have in place to discourage FCPA violations by your employees” in relation to a risk factor in their 10/27/10 S-1. The SEC asked Grifols SA to expand their FCPA risk factor to include the “actions involved in the possible violations of the FCPA that you have identified and the countries where there are potential violations” during the review of an 8/10/10 F-4.