General Cable, a manufacturer and distributor of cable and wire, today agreed to pay more than $75 million to resolve parallel investigations with the SEC and Department of Justice related to violations of the Foreign Corrupt Practices Act. The company agreed to pay an additional $6.5 million penalty to the SEC to settle separate accounting-related violations.
As Compliance Week previously reported, General Cable’s overseas subsidiaries made improper payments to foreign government officials for a dozen years to obtain or retain business in Angola, Bangladesh, China, Egypt, Indonesia, and Thailand. According to General Cable’s admissions, some parent-level and subsidiary-level employees, including executives, knew that some of its foreign subsidiaries used third-party agents and distributors to make corrupt payments to foreign officials in order to obtain and retain business.
In one case, the foreign subsidiary made corrupt payments directly to foreign officials. The corrupt conduct began in 2002. In 2011, when employees from a General Cable subsidiary expressed concerns to regional and parent-level executives that commission payments were being used for improper purposes, including potentially bribery, General Cable nevertheless failed to implement and maintain a system of internal accounting controls designed to detect and prevent such corruption and otherwise illegal payments.
Between 2002 and 2013, General Cable subsidiaries paid approximately $13 million to third-party agents and distributors, a portion of which was used to make unlawful payments to obtain business, ultimately netting the company approximately $51 million in profits.
According to the SEC order, General Cable’s weak internal controls also failed to detect improper inventory accounting at its Brazilian subsidiary, causing the company to materially misstate its financial statements from 2008 to the second quarter of 2012.
“General Cable operated globally without the effective compliance programs and internal controls necessary to proactively address corruption risks and accounting errors,” Stephanie Avakian, Acting Director of the SEC Enforcement Division, said in a statement.
General Cable must self-report its FCPA compliance efforts for the next three years. General Cable neither admitted nor denied the SEC’s findings while agreeing to pay the $6.5 million penalty to settle the accounting violations. The SEC said it considered General Cable’s self-reporting, cooperation, and remedial acts when determining the settlements.
In the FCPA case, General Cable agreed to pay more than $55 million in disgorgement and interest to the SEC. It also entered into a non-prosecution agreement with the Justice Department and agreed to pay a $20.5 million penalty, reflecting a 50 percent reduction off the bottom of the U.S. Sentencing Guidelines fine range. The combined penalties and disgorgement paid by General Cable is approximately $75.75 million.
Under the terms of the NPA, General Cable has agreed to continue to cooperate with the Department in any ongoing investigations and prosecutions relating to the conduct, including of individuals, to enhance its compliance program and to report to the Department on the implementation of its enhanced compliance program.
The Justice Department said it took into consideration a number of factors, including that General Cable voluntarily and timely disclosed the conduct at issue, fully cooperated in the investigation, and fully remediated.
General Cable’s cooperation included:
Conducting a thorough internal investigation;
Making regular factual presentations and proactively providing updates to the Fraud Section;
Voluntarily making foreign-based employees available for interviews in the United States;
Producing documents, including translations, to the Fraud Section from foreign countries in ways that did not implicate foreign data privacy laws;
Collecting, analyzing, and organizing voluminous evidence and information for the Fraud Section;
Identifying, investigating, and disclosing conduct to the Fraud Section that was outside the scope of its initial voluntary self-disclosure; and
By the conclusion of the investigation, providing to the Fraud Section all relevant facts known to it, including information about individuals and third parties involved in the misconduct.
General Cable also took extensive remedial measures, including taking employment action against 13 employees who participated in the misconduct, resulting in their departure from the company, and terminating its relationships with 47 third-party agents and distributors who participated in the misconduct.
“Based on these actions and other considerations, the company received a non-prosecution agreement and an aggregate discount of 50 percent off of the bottom of the U.S. Sentencing Guidelines fine range,” the Justice Department stated.
The SEC also charged Karl Zimmer, General Cable’s then-senior vice president responsible for sales in Angola. Zimmer agreed to pay a $20,000 penalty without admitting or denying the SEC’s findings that he knowingly circumvented internal accounting controls and caused FCPA violations when he approved certain improper payments.
The SEC’s investigation found no personal misconduct by General Cable’s former CEO Gregory Kenny and former CFO Brian Robinson, who returned $3.7 million and $2.1 million in compensation received from the company during the period when the accounting violations occurred. Therefore, the SEC said it wasn’t necessary to pursue a claw-back action under Section 304(a) of the Sarbanes-Oxley Act.
The SEC’s investigation remains ongoing.