Commercial Bribery on the Table in Diebold FCPA Actions

October 31, 2013

Last week the SEC and Justice Department brought parallel FCPA enforcement actions charging Ohio-based Diebold, Inc., a global provider of ATMs and bank security systems.

From the SEC’s press release: “[S]ubsidiaries of Diebold Inc. in China and Indonesia spent approximately $1.8 million on travel, entertainment, and other improper gifts for senior officials with the ability to influence the banks’ purchasing decisions.  Government-owned bank officials in China and Indonesia were rewarded with free trips to popular tourist destinations in the U.S. and Europe, and Diebold’s expenditures were falsely recorded in the company’s books and records as legitimate training expenses.  Diebold’s subsidiary in China also provided dozens of government bank officials with annual cash gifts ranging from less than $100 to more than $600.”  Pretty standard stuff, right?

But the SEC’s complaint also included this sentence: “During that same period, Diebold, through its Russian subsidiary, paid bribes in connection with the sale of ATMs to private banks in Russia.”  Wait a minute.  Private banks in Russia?  Who cares?  The FCPA prohibits bribes of foreign public officials, not private ones.

Of course, it turns out the law enforcement authorities don’t love foreign commercial bribery either.  The SEC’s case didn’t charge Diebold with violating the FCPA’s anti-bribery provisions in Russia, which would have required a government official on the receiving end.  But it did charge Diebold with violations of the accounting provisions arising from conduct there, the ones related to internal controls as well as books-and-records.  If you’re a public company, it isn’t fun to report paying bribes overseas.  The payments probably violate local law, and shareholders find it unseemly.  Stanley Sporkin knew that in the 1970s, when he essentially conceived of the law.  As he told Irv Pollack in 2003, “I advised . . . Senator [Proxmire] that all that was really necessary was a law that required all corporations to maintain accurate books and records, basically because not one of these companies booked these bribes and these other illegal payments correctly.”

Companies trying to draw lessons here should obviously remember the FCPA’s accounting provisions.  They should also consider their compliance cultures more generally.  When defending conduct that’s already happened, companies should absolutely draw sharp lines between what is prohibited and not prohibited by statute.  When considering how to define a company’s culture prospectively, they ought to think a bit more broadly.  Maybe illicit payments of any stripe ought to be off the table.

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