The Securities and Exchange Commission has charged Smith & Wesson, a Massachusetts-based firearms manufacturer with violating the Foreign Corrupt Practices Act. It alleges that employees and representatives of the U.S.-based parent company authorized and made improper payments to foreign officials while trying to win contracts to supply firearm products to military and law enforcement overseas.
Smith & Wesson, which the SEC says profited by more than $100,000 from the one contract that was completed before the unlawful activity was identified, agreed to pay $2 million to settle the charges. The company must also report to the SEC on its FCPA compliance efforts for a period of two years.
According to the SEC’s order instituting a settled administrative proceeding, Smith & Wesson sought to break into new markets overseas starting in 2007 and continuing into early 2010. During that period, its international sales staff engaged in “a pervasive effort” to attract new business by authorizing and making illegal payments, and providing gifts, for government officials in Pakistan, Indonesia, and other foreign countries.
According to the SEC, Smith & Wesson retained a third-party agent in Pakistan in 2008 to help the company obtain a deal to sell firearms to a Pakistani police department. Company officials authorized the agent to provide more than $11,000 worth of guns to Pakistani police officials as gifts, and then make additional cash payments. Smith & Wesson ultimately won a contract to sell 548 pistols to the Pakistani police for a profit of $107,852.
In 2009, Smith & Wesson attempted to win a contract to sell firearms to an Indonesian police department by making improper payments to its third-party agent in Indonesia, the SEC charges. The agent indicated he would provide a portion of that money to Indonesian officials under the guise of legitimate firearm lab testing costs. Smith & Wesson officials authorized and made the inflated payment, but a deal was never consummated.
The SEC’s order also claims that Smith & Wesson authorized improper payments to third-party agents who indicated that portions would be provided to foreign officials in Turkey, Nepal, and Bangladesh. The attempts to secure sales contracts in those countries were ultimately unsuccessful.
“This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales,” Kara Brockmeyer, chief of the SEC Enforcement Division’s FCPA Unit, said in a statement. “When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”
Smith & Wesson agreed to pay $107,852 in disgorgement, $21,040 in prejudgment interest, and a $1.9 million penalty. The company consented to the order without admitting or denying the findings. The SEC says it considered Smith & Wesson’s cooperation with the investigation, as well as remedial acts taken after the conduct came to light. Those actions included halting the impending international sales transactions before they went through, and implemented a series of significant measures to improve its internal controls and compliance process. The company also terminated its entire international sales staff.
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