On February 24, 2015, the US Securities and Exchange Commission announced a settlement with The Goodyear Tire and Rubber Company (Goodyear) pursuant to which Goodyear will pay more than US$16 million in disgorgement and prejudgment interest to resolve alleged violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA). The enforcement action underscores the importance of conducting appropriate anti-corruption due diligence prior to an acquisition and integrating new assets into the compliance program, while the fact that Goodyear resolved the matter without paying any civil or criminal penalties, admitting any liability or being saddled with an independent monitor will be touted by law enforcement as an example of the benefits for corporations that elect to self disclose and cooperate.
The SEC’s order instituting a settled administrative proceeding alleges that between 2007 and 2011, Goodyear’s subsidiaries in Kenya and Angola paid over US$3.2 million in bribes to employees of government-owned entities and private companies to obtain tire sales. Goodyear first acquired a minority interest in the Kenyan subsidiary in 2002, and by 2006 Goodyear owned a majority interest. The SEC alleges that “Goodyear did not detect or prevent these improper payments because it failed to conduct adequate due diligence when it acquired Treadsetters, and failed to implement adequate FCPA compliance training and controls after the acquisition.” By squarely attributing the problems to failures in pre-acquisition diligence and post-acquisition implementation of compliance practices, the settlement highlights an important category of anti-corruption risk that should be taken seriously by companies pursuing foreign acquisitions. This will not come as a surprise, since the topic of anti-corruption due diligence in the M&A context has already received significant attention and was specifically addressedin the November 2012 FCPA Guidance from the Department of Justice and SEC. Nonetheless, an eight-figure settlement serves as a powerful reminder to drive home the point.
While the US$16 million amount is substantial, Goodyear’s settlement appears relatively modest when compared with the US$135 million overall settlement amount paid by Avon Products, Inc. and Avon Products (China) Co. Ltd. in December of last year. The difference is likely the result of several factors, but one that the SEC emphasizes in the Goodyear resolution is credit given for Goodyear’s prompt self-disclosure, remediation, and cooperation. The SEC’s order states “the Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff. After receiving information about the bribes, Goodyear promptly halted the improper payments and reported the matter to Commission staff. Goodyear also provided significant cooperation with the Commission’s investigation.”
By contrast, in the Avon settlements, the SEC and DOJ made a point of noting that the companies initially sought to cover up the issues when they were reported internally. Though it is always difficult to specifically quantify cooperation credit, and the question of whether to self-disclose a potential violation must be decided on a case-by-case basis, the Goodyear settlement will surely be cited by the SEC and DOJ as evidence that companies do receive real credit for disclosure and cooperation. Beyond the total dollar amount, other features of the Goodyear settlement that will be cited to support this position are the absence of admissions, an independent compliance monitor or monetary penalties apart from disgorgement and interest. That said, it is important to keep in mind that the underlying facts and circumstances of each case are unique, and a comparison of the respective disgorgement amounts suggests that in the Avon case, the alleged ill-gotten gains (US$52.8 million disgorgement before interest) were much greater than in Goodyear (US$14.1 million disgorgement before interest).
While the issues regarding credit for cooperation and disclosure provide valuable food for thought, the primary lesson from the Goodyear settlement is that it serves as yet another reminder of the importance of taking preventative action to minimize FCPA risk, both generally as part of an overall anti-corruption compliance program, and specifically in the context of pre-acquisition due diligence.