Washington D.C., USA: The U.S.Securities and Exchange Commission today announced that Credit Suisse Group AG will pay approximately $30 million to resolve SEC charges that it obtained investment banking business in the Asia-Pacific region by corruptly influencing foreign officials in violation of Foreign Corrupt Practices Act (FCPA).
Credit Suisse also agreed to pay a $47 million criminal penalty to the U.S. Department of Justice.
According to the SEC’s order, several senior Credit Suisse managers in the Asia-Pacific region sought to win business by hiring and promoting individuals connected to government officials as part of a quid pro quo arrangement. While this practice bypassed the firm’s normal hiring process, employees in other Credit Suisse subsidiaries and affiliates were aware of it and in some instances approved these “relationship hires” or “referral hires.” The SEC’s order found that in a seven-year period, Credit Suisse hired more than 100 employees at the request of foreign government officials, resulting in millions of dollars of business revenue.
“Bribery can take many forms, including granting employment to friends and relatives of government officials. Credit Suisse’s practice of engaging in these hiring practices violated the law, and it is now being held to account for having done so,” said Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit.
The SEC’s order finds that Credit Suisse violated the anti-bribery and internal accounting controls provisions of the Securities Exchange Act of 1934. Credit Suisse agreed to pay disgorgement of $24.9 million plus $4.8 million in interest to settle the SEC’s case.
The SEC’s investigation was conducted by Eric Heining and Paul G. Block of the FCPA Unit and Rory Alex and Alfred Day of the Boston Regional Office. The SEC appreciates the assistance of the Fraud Section of the Department of Justice, the U.S. Attorney’s Office for the Eastern District of New York, and the Federal Bureau of Investigation, the statement said.
The Foreign Corrupt Practices Act FCPA
The Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. (“FCPA”), was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.
The FCPA contains both anti-bribery and accounting provisions. The anti-bribery provisions prohibit U.S. persons and businesses (domestic concerns), U.S. and foreign public companies listed on stock exchanges in the United States or which are required to file periodic reports with the Securities and Exchange Commission (issuers), and certain foreign persons and businesses acting while in the territory of the United States (territorial jurisdiction) from making corrupt payments to foreign officials to obtain or retain business.
The accounting provisions require issuers to make and keep accurate books and records and to devise and maintain an adequate system of internal accounting controls. The accounting provisions also prohibit individuals and businesses from knowingly falsifying books and records or knowingly circumventing or failing to implement a system of internal controls.
Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.
Since 1977, the anti-bribery provisions of the FCPA have applied to all U.S. persons and certain foreign issuers of securities. With the enactment of certain amendments in 1998, the anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.
The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions. See 15 U.S.C. § 78m. These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to (a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls.
The Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) share FCPA enforcement authority.
FCPA: What Is Covered? —The Business Purpose Test
The FCPA applies only to payments intended to induce or influence a foreign official to use his or her position “in order to assist … in obtaining or retaining business for or with, or directing business to, any person.”
This requirement is known as the “business purpose test” and is broadly interpreted. Not surprisingly, many enforcement actions involve bribes to obtain or retain government contracts.
The FCPA also prohibits bribes in the conduct of business or to gain a business advantage.67 For example, bribe payments
made to secure favorable tax treatment, to reduce or eliminate customs duties, to obtain government action to prevent competitors from entering a market, or to circumvent a licensing or permit requirement, all satisfy the business purpose test.
FCPA: Examples of Actions Taken to Obtain or Retain Business
- Winning a contract
- Influencing the procurement process
- Circumventing the rules for importation of products
- Gaining access to non-public bid tender information
- Evading taxes or penalties
- Influencing the adjudication of lawsuits or enforcement actions
- Obtaining exceptions to regulations Avoiding contract termination
FCPA: The Costs of Corruption
Corruption is a global problem. In the three decades since Congress enacted the FCPA, the extent of corporate bribery has become clearer and its ramifications in a transnational economy starker.
Corruption impedes economic growth by diverting public resources from important priorities such as health, education, and infrastructure.
Corruption undermines democratic values and public accountability and weakens the rule of law. And it threatens stability and security by facilitating criminal activity within and across borders, such as the illegal trafficking of people, weapons,and drugs.
International corruption also undercuts good governance and impedes U.S. efforts to promote freedom and democracy, end poverty, and combat crime and terrorism across the globe.
FCPA: Corruption is bad for business
Corruption is also bad for business. Corruption is anti-competitive, leading to distorted prices and disadvantaging honest businesses that do not pay bribes. It increases the cost of doing business globally and inflates the cost of government contracts in developing countries.
Corruption also introduces significant uncertainty into business transactions:
Contracts secured through bribery may be legally unenforceable, and paying bribes on one contract often results in corrupt officials making ever-increasing demands.
Bribery has destructive effects within a business as well, undermining employee confidence in a company’s management and fostering a permissive atmosphere for other kinds of corporate misconduct, such as employee self-dealing, embezzlement, financial fraud, and anti-competitive behavior.
Bribery thus raises the risks of doing business, putting a company’s bottom line and reputation in jeopardy.Companies that pay bribes to win business ultimately undermine their own long-term interests and the best interests of their investors