U.S. manufacturer Tyson Foods agreed last week to pay fines of $5.2 million in order to resolve Foreign Corrupt Practices Act charges stemming from payments made by its Mexican subsidiary to government veterinarians responsible for certifying certain products for export. The Tyson settlement underscores the need for companies to conduct meaningful due diligence before acquiring even a relatively small business entity whose operations are steeped in the local culture of government-business relations, and to deal promptly with any FCPA problem before it multiplies in size.
Tyson acquired a controlling stake in its eventual Mexican subsidiary, Tyson de Mexico, in approximately 1994. At the time of the acquisition, the Mexican operations already had been participating in a practice of paying improper fees to on-site government veterinarians, and had even put the wives of veterinarians on the company payroll. When Tyson attempted to stop these practices, the veterinarians threatened to interfere with a particular export shipment, and the payments continued in some fashion for a number of years. Ultimately, U.S. enforcers allege that Tyson de Mexico made improper payment of approximately 260,000 from 1994 to 2004, and another $90,000 from 2004 to 2006.
Although the operations at issue comprised less than 1% of Tyson’s overall business, this once small-scale compliance issue mushroomed into a more significant problem. Tyson – after receiving reports in 2004 from a Tyson de Mexico manager that improper payments continued in an off-the-books fashion – undertook an internal investigation, voluntarily disclosed the results of its investigation to the U.S. government, and then took certain remedial measures. This expensive effort allowed Tyson to resolve the matter by entering into a deferred prosecution with the U.S. Department of Justice in which it agreed to pay a $4 million criminal fine, and by agreeing to settle an SEC complaint for $1.2 million.