Even though it’s illegal, U.S. companies working abroad sometimes bribe local officials to grease the wheels of business.
If the SEC catches on to a violation of the Foreign Corrupt Practices Act, it’s not typically a big deal for the corporate officials only indirectly tied to the bribe. Personal culpability is usually hard to prove and so the company as a whole ends up settling with regulators by paying a fine. Management will usually argue that a bad apple made the decision, so they’re not responsible.
A new SEC case is changing that.
The CEO and CFO of Nature’s Sunshine Products Inc., a nutritional supplement manufacturer from Utah, each agreed to pay a $25,000 fine to the SEC for bribing customs officials in Brazil (the company is also paying $600,000).
The case shows that the SEC is going after executives who controlled specific areas of their business under review — like a Brazilian operation — but were not directly responsible for authorizing the bribe.
Observers say that’s welcome news. Philip Urofsky, a former federal prosecutor of FCPA claims and now a partner at Shearman & Sterling says this case shows a new willingness to hold individuals within companies responsible for their actions:
It’s an indication of the SEC’s willingness to use all the tools at its disposal to hold individuals liable for acts within the corporation. Up until now, they usually would allege some knowledge, direct knowledge, and involvement of an individual. That is limiting because sometimes they don’t have the evidence, don’t have the last link…So there’s potential where the directors are very active and involved in the operations of the company. In those circumstances, the SEC might very well look and see if there are facts to justify holding that person responsible.
Toby Webb, founder of Ethical Corporation, adds this: “It means your corporate executives, if cutting a deal with the SEC in the US on bribery accusations, may have to pay up out of their own money, in some cases. There’s a good argument to get a bigger budget for your ethics training programmes.”
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.