Goodyear Tire & Rubber Co. recently agreed to pay $16.2 million to settle Foreign Corrupt Practices Act (“FCPA”) charges for conduct related to two subsidiaries in sub-Saharan Africa. Goodyear’s settlement highlights the government’s expansive interpretation of the books and records provision under the FCPA. Companies should be aware of this interpretation and evaluate whether their internal accounting controls are sufficient to “prevent and detect” corrupt activities at operations worldwide, including processes at acquired subsidiaries.
The books, records, and internal control provisions of the FCPA require issuers to, among other things, adopt accounting controls that “provide reasonable assurances that . . . transactions are executed in accordance with management’s authorization.” Enforcement agencies have interpreted this provision to require that companies adopt robust anti-corruption compliance programs. In its action last week, the SEC charged Goodyear for failing to implement adequate FCPA compliance and controls sufficient to prevent and detect more than $3.2 million in bribes at two subsidiaries in sub-Saharan Africa.
Two FCPA Enforcement Trends
The Goodyear enforcement action highlights two primary trends: First, the Goodyear settlement highlights the benefits of cooperation and self-disclosure. Goodyear learned of the bribery through its ethics hotline and quickly took steps to conduct an internal investigation, self-report the violations to the SEC and Justice Department, and divest itself of the offending subsidiaries. Following a trend of other recent FCPA settlements, these actions appear to have staved off criminal prosecution and resulted in a comparatively modest civil penalty.
Second, the action involves successor and parent company liability and highlights the need for due diligence prior to, and implementation of controls after, company acquisitions. The bribes allegedly occurred at subsidiaries in Kenya and Angola that Goodyear acquired in 2006 and 2007, respectively. These entities routinely paid bribes to employees of government-owned entities and private companies to secure contracts for tire sales. Allegedly, the bribery scheme began prior to Goodyear’s acquisition of the entities and continued through 2011. In a recent DOJ opinion, the agency affirmed that parent companies in mergers or acquisition transactions can inherit liability for the past and continuing corrupt activities of their target companies. Successor liability, however, would not attach if the target company’s pre-acquisition conduct had no nexus to the United States and would not have been subject to an FCPA violation at the time. See our recent coverage on successor liability here and the DOJ opinion here. The SEC alleged in the Goodyear settlement that the company failed to conduct adequate due diligence in an acquisition of one subsidiary and failed to implement adequate internal controls and compliance training at both of the African subsidiaries.
Companies should carefully conduct due diligence in all acquisitions and promptly incorporate the target into the parent’s control system following acquisition. In Goodyear’s case, after acquiring its two subsidiaries in Kenya and Angola, Goodyear’s alleged “lax compliance controls” failed to uncover the companies pre-existing bribery scheme, facilitating its continued existence. Further, to ensure compliance with the FCPA and other anti-bribery laws worldwide, companies should review their anti-corruption policies and consider whether the processes and controls in place are sufficient to “prevent and detect” illicit payments to foreign officials. Finally, when corruption is suspected, companies should quickly and thoroughly investigate, and if corruption occurred, carefully consider the benefits of early self-disclosure and cooperation. A copy of Goodyear’s FCPA settlement can be found here.