Last week Tom Fox picked his top ten FCPA enforcement actions for 2010. Today he gives his choices for the top ten investigations disclosed or making news this year:
Entries in Team Inc. (2)
After a public company finds evidence of illegal payments overseas, there are decisions to make. Should the board launch an internal investigation? Should the company self-report its findings to the DOJ and SEC? What about a public disclosure? Before those decisions are made, though, there's usually a discussion about "materiality." It's a common subject in this setting. But it shouldn't be.
As we've said before, the measure for compliance under the Foreign Corrupt Practices Act's books and records and internal control provisions isn't materiality but reasonableness. Issuers must "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer." They must "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly executed and recorded."
Reasonableness, not materiality, explains a disclosure this week by Team Inc. The Alvin, Texas-based pipeline and valve repair specialist is investigating what it thinks are $50,000 of illegal payments in Trinidad over a five-year period. Just $10,000 a year. Not much by most measures, and impacting sales equivalent to just one-half of one percent of Team's global revenues.
But lots of small bribes that go undetected for several years (if that's what happened) might mean lapses in accounting standards and gaps in internal controls -- and violations of the FCPA. That can be a big deal.
Here's Team's disclosure from its August 4th Form 8-K:
During a recent internal management review of one of our branch operations in Trinidad, we were informed of allegations of improper payments, made by our local employees, to employees of certain customers, including foreign government owned enterprises. Consequently, the Audit Committee of our Board of Directors initiated an investigation of those allegations with the assistance of independent outside counsel.Team Inc.'s common stock trades on the NASDAQ Global Select Market under the symbol TISI.
The investigation has found evidence suggesting that payments, which may violate the Foreign Corrupt Practices Act (FCPA), were made to employees of foreign government owned enterprises. While the investigation is ongoing, there has been no indication that the improper payments extend beyond the one Trinidad branch. Based upon the evidence obtained to date, we believe that the total of these improper payments over the past five years did not exceed $50,000. The total annual revenues from the impacted Trinidad branch represent approximately one-half of one percent of our annual consolidated revenues.
We have voluntary disclosed information relating to the initial allegations, the investigation and the initial findings to the U.S. Department of Justice and to the Securities and Exchange Commission, and we will cooperate with the DOJ and SEC in connection with their review of this matter. The outcome of this investigation cannot be predicted at this time; however, the FCPA and related statutes and regulations do provide for potential monetary penalties as well as criminal and civil sanctions in connection with FCPA violations.
Download Team Inc.'s August 4, 2009 Form 8-K here.
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From William Jefferson's Trial. The jury convened for the last time Thursday and decided the former congressman must forfeiture close to $470,000. He was convicted Wednesday on 11 of 16 corruption charges, including conspiracy to violate the Foreign Corrupt Practices Act, soliciting and taking bribes, depriving citizens of honest services, money laundering and racketeering, and conspiracy to solicit bribes. Jefferson was acquitted of a substantive charge of violating the FCPA. He's now free pending his October 30 sentencing, when he faces a maximum penalty of 150 years in prison.