US Securities and Exchange Commission

What messages are bribery settlements sending out to would be briber givers and receivers?

Influential, wealthy and ‘lawyered-up’ entities are settling bribery cases with prosecutors by throwing money at the case in order to avoid admitting guilt or proving innocence. What message does this send out to the world?

Smith & Wesson, a US handgun manufacturer, agreed to pay a USD2m fine to the Securities and Exchange Commission this week to settle FCA- cartoonsmoking gunallegations of bribery. The SEC charged Smith & Wesson with breaching the Foreign Corrupt Practices Act when employees and representatives made improper payments to foreign officials in Indonesia and Pakistan to secure contracts. Further alleged attempts at the same in Bangladesh, Nepal and Turkey, failed. S&W has neither admitted nor denied the allegations, it just paid to make it go away.

In a non-Asian related case, reports in the press claim that Bernie Ecclestone’s legal team is trying to settle a bribery case by paying GBP20m in return for the charges to be dropped, reported The Telegraph.

Meanwhile in Laos, where corrupt politicians are accepting bribes from Vietnamese‘land-grabbers’ to uproot communities whose homes are on the land.  The Laotian communities have no resources to fight a case, so they deal with the awful consequences of losing their homes.

Over in Australia, a court issued a suppression order (aka a super-injunction) prohibiting anyone in the country from mentioning details related to a multi-million dollar bribery probe implicating public officials from Indonesia, Malaysia and Vietnam. Wikileaks chose to publish the order which reveals how the case reaches to the highest echelons of Asia-Pacific’s leadership. The order follows the indictment of seven employees from the Reserve Bank of Australia, who, by nature of their work are politically exposed persons. ‘National security’ is cited as the reason for the blanket ban.

Australia and the US are in the top 20 group of least corrupt countries in the world, as per Transparency International’sCorruption Perceptions Index 2013. Malaysia and Turkey linger mid table while Bangladesh, Indonesia, Nepal and Pakistan are all between 100-150 out of 175. Laos is in the same group. The jurisdictions who are perceived to be the most corrupt have fewer defences available to protect themselves from unscrupulous bribe offerers. Sure, the public officials offered money in exchange for using their political clout could always say no, but why should they when the messages coming from their less corrupt peers is to buy your way out of it?

There is always time to celebrate anti-corruption efforts. The Global Organisation of Parliamentarians Against Corruption (GOPAC) has launched an award for anti-corruption action. Cast your votes before October 31st here.

This article first appeared on the International Compliance Association blog.


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.

Regulators Step Up Probe Into Bank Hiring Overseas

The US Securities and Exchange Commission is widening its investigation into whether banks in Asia have cropped-fca-singapore.jpgbreached anti-bribery laws by employing the relatives of high-ranking public officials.

The SEC sent letters in March to Credit Suisse Group, Goldman Sachs Group, Morgan Stanley, Citigroup Inc and UBS AG requesting more information on hiring practices, according to reports. The regulator started to investigate JP Morgan‘s hiring history in 2013.

None of the insitutions have been accused of wrongdoing.

Investigators are examining possible connections between employees hired as a result of referrals from foreign officials and clients, the Wall Street Journal reported, and consequently whether there were connections between hiring  “an unsuitable employee to the bank’s winning a contract or other new business.”

Attempting to influence a foreign official with a view to winning business is a breach of the US Foreign Corrupt Practices Act.

Source: WSJ


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China’s whistle-blowers cashing in on SEC hotline

Reports on the GSK corruption scandal in China, Iraq and Poland have now extended to Jordan and cropped-fca-whistle-knives.jpgLebanon. According to reports, the allegations concerning Jordan and Lebanon are similar to those made about bribery in Poland. account, GSK allowed doctors to bring family members on paid business trips and in some instances swap business-class airline tickets for economy, with the doctor pocketing the difference, according to a Wall Street Journal report. It is further alleged that GSK staff paid certain doctors to attend lecture and presentations that may not have taken place.”  I asked GSK to confirm if the initial reports to the US government were made by a whistle-blower but they have so far declined to comment. I imagine they are rather busy at the moment. Anyhoo, it look like those with inside knowledge of how GSK operates in the jurisdictions named above did indeed take advantage of the US Securities and Exchange Commission‘s whistle-blower hotline to expose their employers and lift the lid on commonplace corrupt practices. The business of whistle-blowing is taking off in China, with one specialist law firm offering people the chance to “uphold justice and win a huge bounty too.” The rewards may be long in coming, one woman who exposed alleged wrong-doing at JP Morgan Chase has been dealing with ‘a morass of  lawsuits‘ with her former employer since 2009. That said, a man who exposed dodgy loan schemes at the same bank received a USD64m reward for his efforts in March this year. That is ten per cent of the USD614m fine the bank had to pay out.

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SEC warning on agents and controls in HP bribery case

The computer giant Hewlett Packard has come under fire from the US Securities and Exchange Commission for breaches of the Foreign Corrupt Practices Act, related to payments made by company subsidiaries in Mexico, Poland and Russia. Issuing a USD108m penalty to HP, the SEC took the opportunity to issue a reminder of its FCA - Magnifying glass womanexpectations and requirements under the FCPA.

(On a personal note, I bought a new HP laptop a few months ago, had I known about the bribery case then, I probably would not have gone with them. I doubt losing my sale is anything more than a speck of dust on the HP magnifying glass, but imagine if everyone thought like that?)..

Back to the story…

Commissions paid for services are under scrutiny by the SEC and abuses or attempts to hide bribes under ‘commissions’ in company accounts will be penalised.

Internal controls – including anti-bribery policies, procedures and training should be implemented across firms, including in subsidiaries. This post from yesterday has some useful resources on internal controls.

Agents used to facilitate operations and conduct business on behalf of the firm should be subjected to due diligence.

“The company’s books and records reflected the payments as legitimate commissions and expenses. Companies have a fundamental obligation to ensure that their internal controls are both reasonably designed and appropriately implemented across their entire business operations, and they should take a hard look at the agents conducting business on their behalf.” Karen Brockmeyer, SEC Enforcement

The FCPA is not the only extra-territorial legislation that firms need to be on alert for. The UK Bribery Act 2010 affects UK citizens and companies globally, as well as foreign firms that are carrying on business in the UK.

More information in this report from The Guardian.

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The gift that keeps on giving: former ChinaCast execs charged with fraud and insider dealing


inside (Photo credit: ribarnica)

It seems like not a day goes by without some insider trading related charge hitting the newswires, much to the amusement of us observers. Hopefully the message is getting through to the practitioners – insider trading is a bad thing. Or perhaps I am a little naive. Perhaps insider trading deals and market manipulation is going on throughout the financial system. For each one successfully pursued by ever more aggressive regulators, there are a thousand more undetected cases of manipulation, collusion and sensitive information sharing flying under the radar.

Today’s insider story comes from the US Securities and Exchange Commission, which has charged the ex CEO of a Chinese firm with stealing tens of millions of dollars from US investors after the firm’s Initial Public Offering in and another executive with illegally dumping stock.

SEC allegations

Chan Tze Ngon, the former CEO and board chairman of ChinaCast Education Corporation allegedly ‘transferred $41 million out of the $43.8 million raised from investors to a purported subsidiary in which he secretly held a controlling 50 percent ownership stake.  From there, Chan transferred investor funds to another entity outside ChinaCast’s control.  Chan also secretly pledged $30.4 million of ChinaCast’s cash deposits to secure the debts of entities unrelated to ChinaCast.  None of the transactions were disclosed in the periodic and other reports signed by Chan and filed with the SEC.’

As for the insider trading charges Jiang Xiangyuan, ChinaCast’s former president for operations in China, allededly ‘avoided more than $200,000 in losses by illegally selling approximately 50,000 ChinaCast shares after participating in the ownership transfer of one of company’s revenue-generating colleges before it was publicly disclosed by a new management team.  ChinaCast had a market capitalization of more than $200 million before these alleged frauds came to light.  After Chan and Jiang were terminated and their misconduct was publicly disclosed by new management, ChinaCast’s market capitalization dropped to less than $5 million.’

The SEC has charged Chan  breaching Section 17(a) of the Securities Act of 1933 – dealing with fraudulent interstate transactions -, Section 10(b) – position limits and accountability – of the Securities Exchange Act of 1934 and Rule 10b-5 –  as well as violations of various corporate reporting, record-keeping, and internal controls provisions.  Jiang faces illegal insider trading charges under the same statutes.

The SEC’s investigation continues.