THE FCPA CONTINUES TO BE AN ENFORCMENT PRIORITY
The FCPA continues to be an enforcement priority for the SEC and DOJ. This year alone there are record-setting settlements and a record number of trials. Increasingly, the cases involve foreign regulators. With over 120 open investigations at DOJ, it is clear that these trends are going to continue.
SEC v AGCO Corporation, Civil Action No. 1:09-CV-01865 (D.D.C. Filed Sept. 30 2009) is one of twelve cases the SEC has brought based on the United Nations Oil for Food Program. This case involved the humanitarian side of that program.
AGCO is a manufacturer and supplier of agricultural equipment based in Duluth, Georgia. Prior to the initiation of the UN program, the company attempted to increase its market share in Iraq. The effort was not successful, although its U.K. subsidiary conducts business in the country.
Beginning in December 2000 AGCO learned through a Jordanian agent that the Iraqi Ministry of Agriculture required a 10% kickback based on the value of the contract as a condition of doing business. A manager in an AGCO sub agreed to the arrangement. Bank guarantees in favor of the agent were set up for the payments.
According to the Commission’s complaint, three types of fees were paid to the agent: 1) a flat commission; 2) a commission based on the value of the deal; and 3) an after sales commission. The latter permitted the agent to set up an infrastructure in Iraq to support the farm machinery of the company.
To conceal the commissions and additional payments demanded by the agent in 2001, the company recorded them as Ministry Accrual. This account was created by the marketing staff with virtually no assistance from the finance department. Employees from that department in the U.K., Denmark and France were instrumental to the scheme. From 2000 through 2003 approximately $5.9 million in kickbacks were paid.
In February 2002, the internal auditors raised questions about the sales process and the accruals. The company failed to take any action in response to the issues raised.
The Commission’s complaint alleged violations of the books and records and internal control provisions. To resolve the matter, the company consented to the entry of a permanent injunction prohibiting future violations of the books and records and internal control provisions. In addition, the company agreed to disgorge over $13.9 million plus prejudgment interest. AGCO was given credit for a $1.6 million penalty paid under a deferred prosecution agreement with DOJ. The company also agreed to a criminal disposition with the Danish State Prosecutor who will confiscate over $600,000. The settlement with the SEC reflected the cooperation of AGCO. See also Litig. Rel. 21229 (Sept. 30, 2009).