Материал: guide

The accounting provisions consist of two primary components. First, under the “books and records” provision, issuers must make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect an issuer’s transactions and dispositions of an issuer’s assets.213 Second, under the “internal controls” provision, issuers must devise and maintain a system of internal accounting controls sufficient to assure management’s control, authority, and responsibility over the firm’s assets.214

These components, and other aspects of the accounting provisions, are discussed in greater detail below.

Although the accounting provisions were originally enacted as part of the FCPA, they do not apply only to brib- ery-related violations. Rather, the accounting provisions ensure that all public companies account for all of their assets and liabilities accurately and in reasonable detail, and they form the backbone for most accounting fraud and issuer disclosure cases brought by DOJ and SEC.215

In the past, “corporate bribery has been concealed by the falsification of corporate books and records” and the accounting provisions “remove[] this avenue of coverup.”

Senate Report No. 95-114, at 3 (1977)

What Is Covered by the Accounting Provisions?

Books and Records Provision

Bribes, both foreign and domestic, are often mischaracterizedincompanies’booksandrecords.Section13(b)(2)(A) of the Exchange Act (15 U.S.C. § 78m(b)(2)(A)), commonly called the “books and records” provision, requires issuers to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.”216 The “in reasonable detail” qualification was adopted by Congress “in light of the concern that such a standard, if unqualified, might connote a degree of exactitude and precision which is unrealistic.”217 The addition of this phrase was intended to make clear “that the issuer’s records should reflect transactions in conformity with accepted methods of recording economic events and effectively prevent off-the-books slush funds and payments of bribes.”218

The term “reasonable detail” is defined in the statute as the level of detail that would “satisfy prudent officials in the conduct of their own affairs.”219 Thus, as Congress noted when it adopted this definition, “[t]he concept of reasonableness of necessity contemplates the weighing of a number of relevant factors, including the costs of compliance.”220

Although the standard is one of reasonable detail, it is never appropriate to mischaracterize transactions in a company’s books and records.221 Bribes are often concealed

under the guise of legitimate payments, such as commissions or consulting fees.

In instances where all the elements of a violation of the anti-bribery provisions are not met—where, for example, there was no use of interstate commerce—companies nonetheless may be liable if the improper payments are inaccurately recorded. Consistent with the FCPA’s approach to prohibiting payments of any value that are made with a corrupt purpose, there is no materiality threshold under the books and records provision. In combination with the internal controls provision, the requirement that issuers maintain books and records that accurately and fairly reflect the corporation’s transactions “assure[s], among other things, that the assets of the issuer are used for proper corporate purpose[s].”222 As with the anti-bribery provisions, DOJ’s and SEC’s enforcement of the books and records provision has typically involved misreporting of either large bribe payments or widespread inaccurate recording of smaller payments made as part of a systemic pattern of bribery.

Bribes Have Been Mischaracterized As:

Commissions or Royalties

Consulting Fees

Sales and Marketing Expenses

Scientific Incentives or Studies

Travel and Entertainment Expenses

Rebates or Discounts

After Sales Service Fees

Miscellaneous Expenses

Petty Cash Withdrawals

Free Goods

Intercompany Accounts

Supplier / Vendor Payments

Write-offs

“Customs Intervention” Payments

Internal Controls Provision

The payment of bribes often occurs in companies that have weak internal control environments. Internal controls over financial reporting are the processes used by companies to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements. They include various components, such as: a control environment that covers the tone set by the organization regarding integrity and ethics; risk assessments; control activities that cover policies and procedures designed to ensure that management directives are carried out (e.g., approvals, authorizations, reconciliations, and segregation of duties); information and communication; and monitoring. Section 13(b)(2)(B) of the Exchange Act (15 U.S.C. § 78m(b)(2)(B)), commonly called the “internal controls” provision, requires issuers to:

devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that—

(i)transactions are executed in accordance with management’s general or specific authorization;

(ii)transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets;

(iii)access to assets is permitted only in accordance with management’s general or specific authorization; and

(iv)the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences ….223

chapter 3

The FCPA:

Accounting Provisions

An effective compliance program is a critical component of an issuer’s internal controls. Fundamentally, the design of a company’s internal controls must take into account the operational realities and risks attendant to the company’s business, such as: the nature of its products or services; how the products or services get to market; the nature of its work force; the degree of regulation; the extent of its government interaction; and the degree to which it has operations in countries with a high risk of corruption. A company’s compliance program should be tailored to these differences. Businesses whose operations expose them to a high risk of corruption will necessarily devise and employ different internal controls than businesses that have a lesser exposure to corruption, just as a financial services company would be expected to devise and employ different internal controls than a manufacturer.

A 2008 case against a German manufacturer of industrial and consumer products illustrates a systemic internal controls problem involving bribery that was unprecedented in scale and geographic reach. From 2001 to 2007, the company created elaborate payment schemes—including slush

Like the “reasonable detail” requirement in the books and records provision, the Act defines “reasonable assurances” as “such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”224

The Act does not specify a particular set of controls that companies are required to implement. Rather, the internal controls provision gives companies the flexibility to develop and maintain a system of controls that is appropriate to their particular needs and circumstances.

Companies with ineffective internal controls often face risks of embezzlement and self-dealing by employees, commercial bribery, export control problems, and violations of other U.S. and local laws.

funds, off-the-books accounts, and systematic payments to business consultants and other intermediaries—to facilitate bribery. Payments were made in ways that obscured their purpose and the ultimate recipients of the money. In some cases, employees obtained large amounts of cash from cash desks and then transported the cash in suitcases across international borders. Authorizations for some payments were placed on sticky notes and later removed to avoid any permanent record. The company made payments totaling approximately $1.36 billion through various mechanisms, including $805.5 million as bribes and $554.5 million for unknown purposes.225 The company was charged with internal controls and books and records violations, along with anti-bribery violations, and paid over $1.6 billion to resolve the case with authorities in the United States and Germany.226

The types of internal control failures identified in the above example exist in many other cases where companies were charged with internal controls violations.227 A 2010 case against a multi-national automobile manufacturer involved bribery that occurred over a long period of time in multiple countries.228 In that case, the company used dozens of ledger accounts, known internally as “internal third party accounts,” to maintain credit balances for the benefit of government officials.229 The accounts were funded through several bogus pricing mechanisms, such as “price surcharges,” “price inclusions,” or excessive commissions.230 The company also used artificial discounts or rebates on sales contracts to generate the money to pay the bribes.231 The bribes also were made through phony sales intermediaries and corrupt business partners, as well as through the use of cash desks.232 Sales executives would obtain cash from the company in amounts as high as hundreds of thousands of dollars, enabling the company to obscure the purpose and recipients of the money paid to government officials.233 In addition to bribery charges, the company was charged with internal controls and books and records violations.

Good internal controls can prevent not only FCPA violations, but also other illegal or unethical conduct by the company, its subsidiaries, and its employees. DOJ and SEC have repeatedly brought FCPA cases that also involved other types of misconduct, such as financial fraud,234

commercial bribery,235 export controls violations,236 and embezzlement or self-dealing by company employees.237

Potential Reporting and Anti-Fraud Violations

Issuers have reporting obligations under Section 13(a) of the Exchange Act, which requires issuers to file an annual report that contains comprehensive information about the issuer. Failure to properly disclose material information about the issuer’s business, including material revenue, expenses, profits, assets, or liabilities related to bribery of foreign government officials, may give rise to anti-fraud and reporting violations under Sections 10(b) and 13(a) of the Exchange Act.

For example, a California-based technology company was charged with reporting violations, in addition to violations of the FCPA’s anti-bribery and accounting provisions, when its bribery scheme led to material misstatements in its SEC filings.238 The company was awarded contracts procured through bribery of Chinese officials that generated material revenue and profits. The revenue and profits helped the company offset losses incurred to develop new products expected to become the company’s future source of revenue growth. The company improperly recorded the bribe payments as sales commission expenses in its books and records.

Companies engaged in bribery may also be engaged in activity that violates the anti-fraud and reporting provisions. For example, an oil and gas pipeline company and its employees engaged in a long-running scheme to use the company’s petty cash accounts in Nigeria to make a variety of corrupt payments to Nigerian tax and court officials using false invoices.239 The company and its employees also engaged in a fraudulent scheme to minimize the company’s tax obligations in Bolivia by using false invoices to claim false offsets to its value-added tax obligations. The scheme resulted in material overstatements of the company’s net income in the company’s financial statements, which violated the Exchange Act’s anti-fraud and reporting provisions. Both schemes also violated the books and records and internal controls provisions.