FCPA ENFORCEMENT: A CONTINUING FOCUS OF DOJ AND THE SEC
Aggressive FCPA enforcement based on an expansive view of the statutes and a targeting of individuals has been an enforcement priority for the SEC and DOJ recently. The SEC continued this focus with the filing of another settled bribery and books and records and internal controls case relating to Faro Technologies, Inc., SEC v. Meza, Civil Action No. 1:09-cv-01688 (D.D.C. Filed Aug. 28, 2009). Defendant Oscar Meza is a former Director of Asia-Pacific Sales for Faro Technologies, a software development and manufacturing company. Mr. Meza was responsible for the Asia-Pacific sales force.
In 2003, Mr. Meza recommended a former employee of Faro’s Chinese distributor for the then newly created position of Country Sales Manager. The new sales manager then approached Mr. Meza about doing business the “Chinese way,” that is by paying kickbacks and giving other things of value. The request was reviewed by Faro officers who secured a legal opinion regarding if such payments were permissible under local law. Mr. Mesa and others were advised that such payments likely violated China’s anti-bribery laws.
Subsequently, Mr. Meza authorized the Country Manager to pay what they called referral fees to employees of Chinese state-owned companies in order to secure business. Payments approved by Mr. Meza, as reflected in various e-mails, included not just dinners and travel, but cash. These payments were made during 2004 and 2005.
To conceal the payments, Mr. Meza instructed Faro-China’s staff to alter account entries and delete the actual payees. The payments were booked as referral fees.
In February 2005, a new Faro officer circulated an e-mail with an article on international business. The articles discussed the prosecution of another U.S. company for the payment of bribes in China. In the e-mail, the new officer emphasized that Faro must take precautions to “observe U.S. law” in its dealings in China. Although Mr. Meza distributed the e-mail, he also subsequently proposed to the Country Manager that in the future they use an intermediary to funnel payments to avoid exposure. That arrangement was used for about another year. Illegal payments of over $400,000 were made generating about $4.5 million in sales and $1.4 million in net profits.
Mr. Meza agreed to settle with the SEC by consenting to the entry of a permanent injunction prohibiting future violations of the bribery and books and records and internal control provisions. He also agreed to pay $26,707 in disgorgement and prejudgment interest and a $30,000 civil penalty. See also Litig. Rel. 21190 (Aug. 28, 2009).
Previously, the company resolved DOJ and SEC investigations based on these matters. The criminal inquiry concluded with a non-prosecution agreement and the company agreeing to pay a penalty of $1.1 million. The SEC investigation was resolved by consenting to the entry of a cease and desist order in an administrative proceeding and agreeing to pay disgorgement. Both cases are discussed here.
The Faro cases are part of a continuing aggressive enforcement program in the FCPA area by DOJ and the SEC. Here, the facts suggest that the company took steps to ensure compliance. Nevertheless, Faro became ensnared in SEC and DOJ inquiries which in the end were settled.
Faro is consistent with a trend of aggressive enforcement based on an expansive interpretation of the statutes. For example, earlier this year the SEC filed a settled FCPA action against Avery Denison Corporation, discussed here, based on improper payments made by an indirect subsidiary. In Natures Sunshine earlier this year, the SEC relied on Section 20 to impose liability on supervising officers, as discussed here. Indeed, since the beginning of 2008 over 20 individuals have been indicted, convicted, sentenced or charged civilly for their role in FCPA violations. In view of these and other similar cases, it is clear that issuers and their directors, officers and counsel should carefully review their compliance programs and revisit their employee education efforts in this critical area.
Seminar: On September 10, 2009 from 12:00 to 1:30 p.m. the ABA will sponsor the Second Annual seminar on the FCPA. The program features a discussion of current enforcement trends by senior DOJ and SEC officials and provides guidance on compliance by expert in-house counsel. For more information, please click on the link here.