Yet another Iraqi Oil-For-Food enforcement action.
Yesterday, the DOJ and SEC announced resolution of an enforcement action against AGCO Corp. (a Georgia-based manufacturer and supplier of agricultural machinery and equipment) as well as AGCO Limited (AGCO's a wholly-owned subsidiary headquartered in the United Kingdom responsible for AGCO's business in Europe, Africa, and the Middle East)(see here, here, here, here, and here).
Big picture, AGCO acknowledged responsibility for improper payments made by its subsidiaries and agents to the former government of Iraq in order to obtain contracts with the Iraqi Ministry of Agriculture under the United Nations Oil-For-Food program.
DOJ filed a criminal information against AGCO Limited charging one count of conspiracy to commit wire fraud and to violate the FCPA's books and records provisions.
According to the DOJ, AGCO Limited paid approximately $550,000 to the former government of Iraq to secure three contracts. DOJ and AGCO entered into a three-year deferred prosecution agreement under which DOJ will defer prosecution upon, among other things, AGCO's payment of a $1.6 million penalty. According to the DOJ, the basis for the deferred prosecution agreement was, among other things, AGCO's cooperation in the DOJ's investigation, its implementation of remedial measures, and its settlement with the SEC (see below).
Why no substantive FCPA anti-bribery charges in this case and other Iraqi Oil-For-Food cases (Novo Nordisk, Fiat, AB Volvo, etc.)? The anti-bribery provisions apply to payments to "foreign officials," not foreign governments. Thus, in this and the other cases, conspiracy to commit wire fraud and to violate the FCPA books and records provisions were charged.
Because AGCO is an issuer, the SEC also played a role in the enforcement action. The SEC filed a settled civil complaint charging AGCO with violating the FCPA's books and records and internal control provisions.
According to the SEC, certain AGCO subsidiaries made - through a Jordanian agent - approximately $5.9 million in kickback payments to Iraq in the form of "after-sales service fees" to secure contracts worth approximately $14 million. These payments were disguised or improperly recorded in the subsidiaries' books and records which were consolidated with AGCO's for SEC filing purposes. According to the SEC, "AGCO knew or was reckless in not knowing that kickbacks were paid in connection with its subsidiaries' transactions."
The SEC ordered AGCO to pay $18.3 million in combined disgorgement, interest, and penalties.
In a previous post (see here), it was noted that FCPA compliance is a task that not just company lawyers need to be concerned with, but rather a task that internal audit and finance should also be concerned with and actively involved in as well. It was noted that internal audit and finance personnel must be specifically trained to approach their specific job functions with "FCPA goggles" on.
Reading the SEC complaint against AGCO, it is clear that various AGCO personnel could have used a pair of "FCPA goggles" as the complaint is an indictment of the entire company's control function.
In para 23, the SEC charges, among other things, that:
the "accrual account [where the kickback payments were recorded] was created by AGCO Ltd.'s marketing staff with virtually no oversight from AGCO Ltd.s' finance department;"
"no one questioned the existence of the dual accounts;"
"no one questioned why the [accrual account] contained approximately ten percent of the contract value despite the fact that there was no contract in place requiring that such ten percent be paid to the ministry or anyone else;"
"when the finance department authorized payments from the [accrual account], it did not ask for or receive any proof of service to warrant the payments;" and
an employee cautioned the business manager for Iraq and his supervisor that "we don't want the auditors raising any questions on Iraq Business!"
Further, in para 25, the SEC charges, among other things, that:
"Sales and marketing personnel were able to enter into contracts without review from the legal or finance departments;"
"an accounting employee described the Finance Department employees as 'blind loaders' who input information into AGCO's books without any adequate oversight role;" and
"marketing personnel were able to create accrual accounts [...] without any oversight and caused accounts to be created and payments to be made without proper documentation."
In para. 26, the SEC charges, among other things, that:
"AGCO Ltd.'s structure at the time allocated inappropriate accounting and finance responsibilities to the marketing department;" and
"turnover in the marketing department [...] was high and employees were forced to shoulder a great deal of the accounting burden."
AGCO's management and legal department did not fare much better.
In para. 27, the SEC charges, among other things, that:
"AGCO did not conduct any due diligence on the [Jordanian] agent or require that the agent undergo FCPA training;" and
the "agent's contract with AGCO did not accurately explain the agent's services and payments, and lacked any FCPA language."
What would the results look like if your company or your client's company was "put under the internal controls microscope" in an FCPA enforcement action?