Page 52 - U.S. FOREIGN CORRUPT PRACTICES ACT

A Resource Guide to the U.S. Foreign Corrupt Practices Act. Second Edition.

controls and failed to act on red flags indicating that final judgments permanently enjoining them from
its affiliates were engaged in bribery. The California violating the accounting and anti-bribery provisions,
company paid $1.15 million in civil disgorgement with two executives paying civil penalties. 260 As
and a criminal monetary penalty of $1.7 million. in other areas of federal securities law, corporate
Companies may not be able to exercise officers also can be held liable as control persons. 261

the same level of control over a minority-owned Similarly, in October 2011, SEC instituted a
subsidiary or affiliate as they do over a majority or proceeding against a U.S. water valve manufacturer
wholly owned entity. Therefore, if a parent company and a former employee of the company’s Chinese
owns 50% or less of a subsidiary or affiliate, the subsidiary for violations of the FCPA’s accounting
parent is only required to use good faith efforts to provisions. 262 The Chinese subsidiary had made
cause the minority-owned subsidiary or affiliate to improper payments to employees of certain

devise and maintain a system of internal accounting design institutes to create design specifications
controls consistent with the issuer’s own obligations that favored the company’s valve products. The
under the FCPA. 256 In evaluating an issuer’s good payments were disguised as sales commissions
faith efforts, all the circumstances—including “the in the subsidiary’s books and records, thereby
relative degree of the issuer’s ownership of the causing the U.S. issuer’s books and records to be

domestic or foreign firm and the laws and practices inaccurate. The general manager of the subsidiary,
governing the business operations of the country who approved the payments and knew or should
in which such firm is located”—are taken into have known that they were improperly recorded,
account. 257 was ordered to cease-and-desist from committing
or causing violations of the accounting provisions,
Civil Liability for Individuals and Other among other charges. 263
Entities Additionally, individuals and entities can be
Companies (including subsidiaries of issuers) held directly civilly liable for falsifying an issuer’s
and individuals may also face civil liability for aiding books and records or for circumventing internal

and abetting or causing an issuer’s violation of the controls. Exchange Act Rule 13b2-1 provides:
accounting provisions. 258 For example, in April 2010, “No person shall, directly or indirectly, falsify
SEC charged four individuals—a Country Manager, a or cause to be falsified, any book, record or
Senior Vice President of Sales, a Regional Financial account subject to [the books and records
Director, and an International Controller of a U.S. provision] of the Securities Exchange Act.” 264

issuer—for their roles in schemes to bribe Kyrgyz And Section 13(b)(5) of the Exchange Act
and Thai government officials to purchase tobacco (15 U.S.C. § 78m(b)(5)) provides that “[n]o person
from their employer. The complaint alleged that, shall knowingly circumvent or knowingly fail
among other things, the individuals aided and to implement a system of internal accounting
abetted the issuer company’s violations of the controls or knowingly falsify any book, record, or
books and records and internal controls provisions account ….” 265 The Exchange Act defines “person” to

by “knowingly provid[ing] substantial assistance to” include a “natural person, company, government, or
the parent company. 259 All four executives settled political subdivision, agency, or instrumentality of a
the charges against them, consenting to the entry of government.” 266

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