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Prompt Self-Reporting & Full Cooperation in Foreign Corrupt Practices Act Case Persuade SEC and DOJ to Exercise Leniency

by on Financial Services. Published September 16th, 2020
Prompt Self-Reporting & Full Cooperation in Foreign Corrupt Practices Act Case Persuade SEC and DOJ to Exercise Leniency

The Securities and Exchange Commission and the Department of Justice recently resolved an egregious Foreign Corrupt Practices Act case involving blatant bribery and accounting irregularities. The matter is significant because SEC and DOJ elected not to prosecute the target company. This decision reflects the SEC’s and DOJ’s commitment to fulfill promises made over the last several years to exercise prosecutorial leniency for companies that self-report, cooperate, and agree to remediation policies and changes.

The case involved a South Carolina-based consumer loan company called World Acceptance Corporation and its former Mexican subsidiary. Then and now, WAC specialized in individual consumer loans. For years starting in 2010, the subsidiary had bribed Mexican government and union officials to obtain help in making consumer loans to Mexican government employees and collecting timely payments. Subsidiary employees arranged for intermediaries to deliver the bribes in the form of “large bags of cash,” exceeding $4 million.

To make matters worse, the then-CEO of the company caused WAC to account for the bribes as legitimate business expenses. When the company’s audit and compliance officer voiced concerns about the lack of oversight at the subsidiary, the CEO summarily fired him. Worse still, the CEO encouraged the new audit and compliance officer to gut the audit department—only to fire her summarily when she also expressed misgivings. See SEC Press Release here.

Eventually, in 2017, the bribery scheme was uncovered. WAC then began a series of corrective actions and remediation policy efforts. WAC terminated the CEO, its general counsel, and the Mexican subsidiary’s senior management. WAC also self-reported the scheme on its Form 10-K acknowledging “material weaknesses’” in its internal audit controls. The company retained a new independent audit firm and the internal audit department was brought back into compliance. WAC eventually divested itself of the Mexican subsidiary and made significant efforts to cooperate with the SEC and DOJ investigations. As part of the SEC investigation, WAC agreed to disgorge about $18 million in profits related to its Mexican business operations and agreed to pay another $4 million in prejudgment interest and penalties.

Because of WAC’s self-disclosures and cooperation, on August 6, 2020, DOJ and SEC officially declined to criminally prosecute the company for FCPA violations (although criminal charges could still be brought against individuals). DOJ specifically noted that it based the declination on WAC’s self-disclosure of misconduct, its cooperation, its remediation efforts, and its decision to disgorge profits.

This is an encouraging case for companies considering the need to self-report statutory and regulatory violations, as well as failures with respect to auditing and compliance requirements. As counsel to regulated companies, we often get presented with the question: to disclose or not disclose? Results like this may tip the balance in favor of self-disclosure, full cooperation, and vigorous self-remediation efforts.

Contact Johnston Clem Gifford PLLC Today

For more information, contact Johnston Clem Gifford PLLC. Our attorneys have extensive experience with independent internal investigations and compliance. You may reach us online or by calling 214-974-8000.