A Settled FCPA Case Cautions All Issuers About Business Partners

The settled FCPA actions filed yesterday by the SEC should serve as a clear warning to issuers regarding the necessity for FCPA compliance programs and for strong controls not just at the company, but with regard to transactions with business partners and agents. SEC v. Con-way Inc., Civil Action No. 1:08-CV-01478 (D.D.C. August 27, 2008); In the Matter of Con-Way Inc., Adm. Proc. File No. 3-13148.

The complaint and Order for Proceedings allege that Con-way violated the books and records and internal controls provisions of the FCPA as a result of payments made by Philippine-based Emery Transnational. From 2000 to 2003, Emery made hundreds of small payments which totaled $417,000 to Philippine customs officials and to officials of numerous majority foreign state-owned airlines. The payments were made with the purpose and effect of improperly influencing these foreign officials to assist Emery to obtain and retain business.

According to the Commission, Con-way, through its U.S. based wholly owned subsidiary, Menlo Worldwide Forwarding, Inc., did business with Emery. Menlo received a yearly 55% dividend from Emery and Con-way and Menlo required that Emery report its net profits.

Based on these facts, the Commission concluded that Con-way and Menlo failed to ensure compliance with the FCPA by Emery. The Order for Proceedings states that “Con-way and Menlo Forwarding engaged in little supervision or oversight over Emery . . . Neither Con-way nor Menlo … took steps to devise or maintain internal accounting controls concerning Emery … to ensure that it acted in accord with Con-way’s FCPA policies, or to make certain that its books and records were detailed or accurate.” According to the Commission’s papers, none of the payments made by Emery were properly recorded on Con-ways books and records. As a result, the SEC concluded that Con-way violated the books and records provisions of the FCPA.

The improper conduct was discovered by Con-way, which conducted a broad review of the practices and disclosed the existence of possible FCPA violations to the SEC staff. At the conclusion of its inquiry Con-way imposed heightened financial reporting and compliance requirements on Emery, which like Menlo, was later acquired, and provided additional FCPA training and education to its employees. The SEC did not commend the company for its cooperation.

To resolve these matters, Con-way consented to the entry of an order in the civil action requiring that it pay a $300,000 civil penalty. In the administrative proceeding, the company consented to the entry of an order directing that it cease and desist from violations of the books and records provisions of the FCPA.

In view of the breadth of the FCPA books and records provisions, every issuer and particularly those with business partners in some corners of the world should carefully review its FCPA compliance procedures and its controls.