U.S. Enforcement Actions Go GlobalBy
Many SEC enforcement actions in the last 12 months have involved companies and operations outside the United States.
Honesty and transparency are integral components of ethically sound business no matter where you are in the world. Many countries have enacted laws or standards to deter corruption in business within their borders. And as globalization continues, businesses will be subject to scrutiny wherever they operate. For multinational companies that want to participate in U.S. capital markets, a number of recent U.S. Securities & Exchange Commission (SEC) enforcement actions illustrate the consequences they might face if they fail to make ethics and integrity a priority.
One SEC announcement was a global settlement of nearly $1 billion with Swedish-based telecommunications giant Telia Company AB for violating the Foreign Corrupt Practices Act (FCPA). Described by U.S. prosecutors as “one of the largest criminal corporate bribery and corruption scandals ever,” the settlement also involved the U.S. Department of Justice (DOJ) and Dutch and Swedish law enforcement bodies. According to the SEC, Telia used shell corporations to bribe Uzbekistan government officials with at least $330 million for lobbying and consulting services that never took place.
“Corporate bribery is not just unfair and illegal, it has terribly corrosive effects on business, government, and society,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division. “As this global settlement demonstrates, the SEC continues to work closely with our counterparts at home and abroad to expose and pursue such corruption.”
In another bribery case, the SEC, DOJ, and authorities in Brazil and Switzerland reached a settlement with Brazilian-based petrochemical manufacturer Braskem S.A. to pay $957 million in fines for concealing millions of dollars in bribes paid to Brazilian government officials by falsifying books and records. The bribes were made in order to win or retain business.
Mexico-based home builder Desarrolladora Homex S.A.B. de C.V. (Homex) allegedly overstated home sales revenue by $3.3 billion and units sold by 100,000 during a three-year period. The SEC used satellite-imaging techniques to demonstrate that the company hadn’t even broken ground on large sites where it reported substantial revenue from home sales. No monetary penalty was assessed, but Homex agreed to forego any offering of securities in the U.S. for at least five years.
Israel-based Teva Pharmaceutical Industries Limited paid a total of $519 million, representing disgorgement of profits of $236 million including interest to the SEC and a $283 million deferred prosecution penalty to the DOJ. Teva allegedly paid bribes to foreign government officials in Russia, Ukraine, and Mexico.
JP Morgan Chase & Co. agreed to pay more than $130 million to settle SEC charges that investment bankers at its subsidiary in Asia violated the FCPA by corruptly influencing government officials and winning business from clients by giving jobs and internships to their relatives and friends. The bank also paid $72 million to the DOJ and $61.9 million to the Federal Reserve Board of Governors resulting from the firm’s referral hiring practices.
General Cable Corporation paid $81.5 million to settle both an FCPA and fraud case involving payments to government officials in Angola, Bangladesh, China, Egypt, Indonesia, and Thailand and improper inventory accounting in Brazil. Former CFO Brian J. Robinson returned $2.1 million in compensation that he received from the company in the time period when the violations occurred.
“General Cable operated globally without the effective compliance programs and internal controls necessary to proactively address corruption risks and accounting errors,” Avakian said.
Several enforcement cases involved unlawful trading in American Depository Receipts (ADR), which are products allowing U.S. trading without actual ownership of shares. A broker subsidiary of Italian bank Sanpaolo SpA agreed to a fine of more than $35 million for obtaining ADRs without possessing the underlying foreign shares. Broker ITG paid penalties of $24.4 million for similar wrongdoing.
The SEC froze $29 million in assets of Chinese trader Shaohua (Michael) Yin that resulted from illegal profits from insider trading prior to the acquisition of DreamWorks Animation SKG, Inc., by Comcast Corp. Yin didn’t use his own account—he traded through the accounts of five Chinese nationals, including his parents.
“Despite the defendant’s alleged attempts to hide his control over these accounts, the SEC’s data analytic investigative tools enabled us to determine who was behind the suspicious trading,” noted Michele Wein Layne, director of the SEC’s Los Angeles regional office, who went on to explain that the SEC’s actions show it “will not hesitate to freeze the assets of foreign traders when they use our markets to conduct illegal activity.”
Medical device company Orthofix International agreed to pay $14 million for improperly booking revenue and improperly paying doctors at government-owned hospitals in Brazil to increase sales. Orthofix improperly recorded revenue as soon as a product shipped despite requirements that certain events occur in order for payment to be received. Orthofix also immediately recorded revenue after customers had been provided with significant extensions of time to make their payments.
Jeff Hammel, a former accounting executive at Orthofix, agreed to pay $20,000 and to be suspended from appearing or practicing as an accountant before the SEC. He can apply for reinstatement after two years. Orthofix’s former corporate CFO Brian McCollum paid a $35,000 penalty and reimbursed the company $40,885 for bonuses he received during the period in which the company committed accounting violations.
IMA ETHICS HELPLINE
For clarification of how the IMA Statement of Ethical Professional Practice applies to your ethical dilemma, contact the IMA Ethics Helpline.
In the U.S. or Canada, dial (800) 245-1383. In other countries, dial the AT&T USA Direct Access Number from www.usa.att.com/traveler/index.jsp, then the above number.
The IMA Helpline is designed to provide clarification of provisions in the IMA Statement of Ethical Professional Practice, which contains suggestions on how to resolve ethical conflicts. The helpline cannot be considered a hotline to report specific suspected ethical violations.