Late September saw the release of the Alere Inc. (Alere) SEC enforcement action which contained an FCPA component as well as penalties related to the company’s failures around revenue recognition. Alere agreed to pay more than $13MM to settle charges that it bribed foreign officials and committed accounting fraud to meet revenue targets. Of that $13MM, the company agreed to disgorge $3.3MM, interest of about $495,000 and pay a penalty of $9.2MM. It was at the opposite end of a spectrum from the Telia settlement of $965MM.
The Man From FCPA sees several key issues in the Alere FCPA enforcement action. First is the increasing interplay of revenue recognition and compliance programs. There will no doubt be more overlap under the new revenue recognition rules which become effective in December. It is unsurprising that a company which would play fast and loose with such basic revenue recognition rules as payments to distributors and hold backs by customers would also do the same around illegal bribery schemes. Further, the lack of effective financial internal controls may well be some indicia of the lack of effective compliance controls. The SEC might do well to investigate such situations more often.
Also, it points up once again the need to perform thorough pre-acquisition due diligence prior to the time a company purchases an entity and then move to integrate, perform a forensic FCPA audit and remediate a target after the purchase. Once again, if a company was engaging in bribery and corruption before you purchase them and they continue to do so after you purchase them, it is now you who are engaging in bribery and corruption, not them.
There has not yet been a resolution of the Department of Justice (DoJ) investigation into Alere so there may well be criminal charges brought or some other type of DoJ resolution. Yet, when you contrast Alere with Telia one is struck by both the quantitative and qualitative difference in the enforcement actions. It is if there is almost a spectrum of FCPA enforcement actions leading down a chain. The SEC resolution with Alere could almost be seen as an administrative resolution which the SEC is well-suited to provide. Perhaps this could be a model for a more regulatory approach to FCPA enforcement going forward.