On July 28, the SEC announced that Smith & Wesson Holding Corporation agreed to pay $2 million to settle charges that the United States-based firearms manufacturer had violated the FCPA by making or authorizing improper payments to foreign officials in Pakistan and other countries in an effort to win contracts to sell weapons to overseas military and police forces.  The settlement comes just weeks after Smith & Wesson announced in a June 19 securities filing with the SEC that the DOJ had abandoned its own related investigation without pursuing FCPA criminal charges.

The claims against Smith & Wesson were filed in the SEC’s administrative court.  In the orderinstituting the settled administrative proceeding, the SEC alleged that Smith & Wesson from 2007 to 2010 engaged in a “pervasive effort” of making the improper payments in order to generate new overseas business.  According to the SEC the only contract that was successfully consummated under the scheme arose after Smith & Wesson officials in 2008 authorized a third party agent to make cash payments and provide firearms to Pakistani police officials as gifts.  The resulting agreement to sell more than 500 pistols yielded a profit to Smith & Wesson of more than $100,000, the SEC found.  Similar improper payments and gifts that did not ultimately result in contracts for Smith & Wesson were allegedly made to foreign officials in Indonesia, Turkey, Nepal, and Bangladesh.  As described in the SEC’s order, Smith & Wesson failed to account for the improper payments and instead characterized them as legitimate commissions and business expenses.  The order also found the illegal conduct was allowed to continue undetected for years because Smith & Wesson failed to establish an appropriate compliance program or adequate internal accounting controls in connection with its expanding business in “new and high risk” overseas markets.

In addition to the $2 million settlement, which consists of disgorgement, prejudgment interest, and a civil penalty of more than $1.9 million, Smith & Wesson also agreed for the next two years to report to the SEC on its FCPA compliance efforts.  In its press release, the SEC praised Smith & Wesson’s cooperation with the investigation and its other remedial efforts following discovery of the bribery scheme, including the termination of the company’s entire international sales staff and the implementation of “a series of significant measures to improve its internal controls and compliance process.”  Smith & Wesson consented to the settlement without admitting or denying the SEC’s findings.