Wednesday, March 15, 2006

FCPA Problems Keep Popping Up

Two companies disclosed recently possible foreign bribery that may violate the Foreign Corrupt Practices Act.  Universal Corp., a tobacco and lumber company with annual sales of over $3 billion, issued a press release (here) disclosing that

[A]s a result of a posting to the Company’s Ethics Complaint hotline alleging improper activities that involved or related to certain of the Company’s tobacco subsidiaries, the Audit Committee of the Company’s Board of Directors engaged an outside law firm to conduct an investigation of the alleged activities. That investigation revealed that there have been payments that may have violated the U.S. Foreign Corrupt Practices Act. At this time, the payments involved appear to have approximated $1 million over a five-year period. In addition, the investigation revealed activities in foreign jurisdictions that may have violated the competition laws of such jurisdictions, but the Company believes those activities did not violate U.S. antitrust laws.

At least it is heartening to see that the hotlines many companies set up as part of their internal compliance program can be useful in discovering wrongdoing.  It is likely that that Universal Corp.'s response will spare it from much if any criminal sanction for an FCPA, although a civil settlement with the SEC is likely, although the possible antitrust problems could be a different story.

United Parcel Service, Inc., disclosed an FCPA problem in one of its overseas subsidiaries, although the company only disclosed it in its most recent 10-K (here) and largely soft-pedals the issue:

With the assistance of outside counsel, we have undertaken an internal investigation of certain conduct within our Supply Chain Solutions subsidiary in certain locations outside the United States. Our investigation has determined that certain conduct, which commenced prior to our subsidiary’s 2001 acquisition of a freight forwarding business that was part of Fritz Companies Inc., may have violated the United States Foreign Corrupt Practices Act. Our investigation also determined that a small number of former employees directed the conduct in question. The monetary value involved in this conduct appears to be immaterial. We have implemented numerous remediation steps, and our investigation continues. In March 2006 we informed the SEC and the Department of Justice of our investigation, and we intend to cooperate fully with any review by the government of these issues. We do not believe that the results of this investigation, the remediation or related penalties, if any, will have a material adverse effect on our financial condition, liquidity or results of operations, nor do we believe that these matters will have a material adverse effect on our business and prospects.

Whether the DOJ and SEC agree with UPS's assessment will remain to be seen. (ph)

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