World Acceptance Corp. to pay $21.7M to resolve SEC FCPA case

As previously disclosed, World Acceptance Corp. (WAC) said it retained outside legal counsel and forensic accountants after receiving an anonymous letter “to conduct an investigation of our operations in Mexico.” It immediately forwarded the letter to the audit committee, and the company said it promptly began an investigation under the oversight of the audit committee.

In a 2017 regulatory filing, WAC said the internal investigation addressed “whether and to what extent improper payments, which may violate the FCPA and other local laws, were made approximately between 2010 and 2017 by or on behalf of WAC de México SOFOM, a subsidiary of the company, to government officials in Mexico relating to loans made to unionized employees.” WAC said it voluntarily contacted SEC staff and the Department of Justice in June 2017 “to advise both agencies that an investigation was underway.”

More details emerge

According to the SEC’s administrative proceeding released Thursday, from at least December 2010 through June 2017, WAC’s former Mexican subsidiary, WAC de Mexico, paid more than $4 million in bribes to Mexican government officials and union officials to secure the ability to make loans to government employees and ensure those loans were repaid in a timely manner. “WAC Mexico paid the bribes in a variety of ways, including by depositing money into bank accounts linked to the officials and by hiring an intermediary to distribute large bags of cash among the officials,” the SEC said.

The SEC administrative proceeding described many internal audit, compliance, and culture failings demonstrated by WAC, as described below.

Inaccurate books and records. According to the SEC order, WAC inaccurately recorded the bribes in the company’s books and records as legitimate business expenses. “WAC did not identify the high risk of bribery and corruption in Mexico and did not implement sufficient internal accounting controls to address that risk,” the SEC stated.

No effective monitoring or internal controls. Although starting sometime in 2013 WAC had an FCPA policy in its corporate compliance manual, it didn’t have “effective formal monitoring, or internal controls in place, to ensure that WAC Mexico was adhering to that policy,” the administrative proceeding stated.

No FCPA training. Neither WAC nor WAC Mexico provided FCPA training to its personnel from at least December 2010 through October 2017. “WAC also lacked entity level controls over WAC Mexico as a result of the lack of oversight over personnel in Mexico,” the administrative order stated.

Culture not supported by management. WAC management did not support robust internal audit and compliance functions and undermined the effectiveness of those functions, the SEC said. “For example, in October 2015 the then-CEO of WAC terminated the vice president of internal audit after he raised compliance concerns, including concerns about the lack of internal accounting controls at WAC Mexico,” the administrative proceeding stated.

Furthermore, the then-CEO then “combined the internal audit function and the compliance function into one department under one VP, had the VP report to her, and pressured the VP to eliminate staffing and become more ‘bare-bones,’ according to the VP,” the order stated. “Prior to this change, both vice presidents of internal audit and compliance had reported directly to the board of directors and the audit committee.”

When the VP voiced concerns the internal audit and compliance functions were not sound, she was terminated. “The then-general counsel took over as the head of internal audit and compliance, even though the general counsel had no prior audit or accounting experience.”

Material weaknesses identified. WAC’s then-CEO allegedly told the then-general counsel and an internal audit director she did not care whether WAC had a ‘world class [internal] audit function.’ Once the bribery allegations surfaced in March 2017, WAC’s management and its independent audit firm reported in its 2017 year-end report that WAC had material weaknesses in its internal control over financial reporting (ICFR), according to the SEC.

“This long-running bribe scheme did not happen in a vacuum,” said Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit, in a press release. “Through a lack of adequate internal accounting controls and a culture that undermined its internal audit and compliance functions, World Acceptance Corporation created the perfect environment for illicit activity to occur for nearly a decade.”

Without admitting or denying the SEC’s findings, WAC consented to the entry of an order requiring that the company cease and desist from violating the anti-bribery, books and records, and internal controls provisions of the FCPA and pay $17.8 million in disgorgement, $1.9 million in prejudgment interest, and a $2 million penalty.