American multinational healthcare product company Baxter International on Tuesday agreed to pay $18 million as part of a settlement with the Securities and Exchange Commission (SEC) for accounting violations related to the recording of foreign currency transactions.

Baxter neither admitted nor denied the SEC’s findings. The company was found to have violated the negligence-based anti-fraud, reporting, books and records, and internal accounting controls provisions of the federal securities laws.

The SEC also announced settled charges with former Baxter Treasurer Scott Bohaboy and Assistant Treasurer Jeffrey Schaible for their alleged roles in the company’s misconduct. Bohaboy consented to pay a $125,000 civil penalty, while Schaible will pay a $100,000 civil penalty, disgorgement of $76,404, and prejudgment interest of $12,955.

The details: Though Baxter is based in the United States, most of its revenue is generated through subsidiaries outside the country, the SEC noted in its order. The company reports its financial results in U.S. dollars.

From at least 2009 through July 2019, employees in Baxter’s treasury department allegedly leveraged the company’s foreign exchange rate convention used to convert non-U.S. dollar denominated transactions and assets and liabilities in a manner to create gains and avoid losses. During the period, the convention was not compliant with generally accepted accounting principles (GAAP), in that it measured foreign currency transactions using exchange rates from a specified date near the middle of the previous month as opposed to the exchange rate on the date of the transaction.

Using this to their advantage, the employees allegedly engaged in intracompany foreign exchange transactions for the purposes of controlling reported foreign exchange gains and losses. Their actions led to Baxter inflating net income and earnings per share in its financial statements.

The alleged scheme ended in 2019 following an inquiry from Baxter’s tax department. The company in October 2019 launched an internal investigation into the matter, announcing in February 2020 its financial statements for the years ended 2016-18 and quarters ended March 31, 2017, through June 30, 2019, should no longer be relied upon “because of misstatements to the company’s previously reported foreign exchange gains and losses.”

Baxter subsequently restated its financials, reducing its total reported foreign exchange gains and losses from 2010 through the second quarter of 2019 by $517 million, according to the SEC.

Schaible, who served as Baxter’s assistant treasurer from 2010 until his resignation in March 2020, and his staff were primarily responsible for executing the FX transactions, the SEC stated. Bohaboy, who became treasurer in 2015 until resigning from the post in October 2019 before ultimately being fired, was faulted for failing to investigate the alleged scheme and take corrective action.

Baxter’s remediation and response: The company was lauded for its substantial cooperation during the SEC’s investigation, including self-reporting the 2019 internal probe into its foreign exchange transactions. Baxter has since adopted a GAAP-compliant foreign exchange rate convention, created two new roles to provide additional oversight over treasury matters, improved its approval process for intracompany transactions, and recouped executive bonuses related to the improperly reported financial gains.

“As noted by the SEC, Baxter proactively investigated the issue, reported it to the SEC, and provided substantial cooperation throughout the investigation,” the company said in an emailed statement. “We are pleased to have resolved this matter.”