SEC hits Smith and Wesson with USD2m FCPA settlement

The US Securities and Exchange Commission (SEC) has agreed to accept a USD2m payment from gun manufacturer Smith and Wesson to settle charges of violating the Foreign Corrupt Practices Act (FCPA).  As per the SEC’s investigations, the firm made slightly more than USD100,000 on one deal, and lost other sums when deals they had set up fell through and the recipients took the gifts but never signed a contract. The deals happened in various Asian countries. It is worth noting that by accepting this deal, the firm has consented to the settlement without admitting or denying the findings of the inquiry. In the breakdown, Smith and Wesson – described as a medium sized firm taking high risks – paid USD1.96m to the SEC in a penalty, with the remainder repaid in the profit they made (known as disgorgement) and in prejudgement interest. FCA - Smith and Wesson

According to the SEC statement, the firm:

  • Profited by more than $100,000 from the one contract that was completed
  • Sought to break into new markets overseas starting in 2007 and continuing into early 2010.
  • International sales staff engaged in a pervasive effort to attract new business by offering, authorizing, or making illegal payments or providing gifts meant for government officials in Pakistan, Indonesia, and other foreign countries.
  • Retained a third-party agent in Pakistan in 2008 to help the company obtain a deal to sell firearms to a Pakistani police department.
  • Authorized the agent to provide more than $11,000 worth of guns to Pakistani police officials as gifts, and then make additional cash payments.  Smith & Wesson ultimately won a contract to sell 548 pistols to the Pakistani police for a profit of $107,852.
  • Lost their bribe money in Indonesia when a deal brokered with a third-party agent and the Indonesia police department fell through.
  • Authorized improper payments to third-party agents who indicated that portions would be provided to foreign officials in Turkey, Nepal, and Bangladesh.  The attempts to secure sales contracts in those countries were ultimately unsuccessful.

A quick note on arms brokers 

I cannot be sure that arms deal brokers, or third parties, all share a defining set of characteristics which may provide enough data to make a meaningful profile in a transaction monitoring system, but here is an account from my experience. I met one arms broker in Asia a few years ago who freely admitted to acting as a mediator between arms companies and several African countries. As an ex-armed forces officer, his support on a deal carried weight. His job was to attend lavish parties, socialise with and befriend embassy officials to make a pathway for the eventual deal. He declined to let me meet his boss, who was under investigation back then and was arrested along with his wife not so long ago on bribery related charges. While boss and his wife are still languishing in one of Asia’s most notorious jails, I am not sure what happened to the befriending broker.

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