The DOJ and the SEC announced criminal and civil Foreign Corrupt Practices Act ("FCPA") related settlements with General Cable Corporation ("General Cable"), a Kentucky-based manufacturer and distributor of copper, aluminum, and fiber-optic cable and wire. The two enforcement agencies accused the publicly traded company of paying bribes to government officials in Angola, Bangladesh, China, Egypt, Indonesia and Thailand. The company also settled separate civil charges with the SEC that alleged material misstatements in the company's financial statements due to improper inventory accounting and deficient internal controls at its Brazilian subsidiary. In total, the company agreed to pay approximately $75 million in criminal penalties, disgorgement of profits and prejudgment interest in order to settle the FCPA allegations, and $6.5 million to resolve the Brazil accounting-related violations.
Between 2002 and 2013, General Cable allegedly paid its agents and distributors approximately $13 million, a portion of which was used to make improper payments to obtain business that yielded the company profits of approximately $51 million, which was the same amount that the company agreed to pay the SEC in disgorgement of profits. For example, a Bangladesh-based sales agent emailed the company's Thailand subsidiary in June 2012 to explain that a portion of the monies paid to the agent would be "shared" with government officials. This information was discussed openly in email correspondence with at least one executive from the Thailand subsidiary, who later became an executive of the parent company and, in that role, approved a payment to the same sales agent in May 2013.
The DOJ emphasized that General Cable "fully cooperated" with its investigation, particularly by conducting a thorough internal investigation of its own, sharing its findings, and making employees and relevant documents available. The DOJ also commended the company for taking extensive remedial measures, including employment actions against 13 employees, and the termination of 47 third-party agents and distributors who allegedly participated in the misconduct. As a result of its cooperation, the company received a non-prosecution agreement from the DOJ and an aggregate discount of 50% off the bottom of the U.S. Sentencing Guidelines fine range.
General Cable also settled allegations that its Brazilian subsidiary's inventory accounting resulted in violations of the books and records and internal controls provisions of the Securities Exchange Act, and of the requirement that issuers file accurate annual, current and quarterly reports. When the accounting errors originating in Brazil were brought to the attention of a pair of senior managers of a General Cable regional segment, the SEC reported, the two concealed the overstatement from General Cable's executive management actively by circumventing internal controls, issuing directives to destroy documents concerning missing inventory, and signing false sub-certifications of the segment's financial statements. The SEC noted that General Cable's executive management was unaware of the specific misconduct, but knew that the company used a deficient "highly manual, unevenly implemented" inventory accounting system, which failed to include a reconciliation of physical inventory and lacked an appropriate segregation of duties for making and approving manual journal entries. According to the SEC, the company's improper accounting caused its inventory to be overstated in its financial statements by as much as $43.5 million. These inventory overstatements, in turn, caused General Cable to record a lower cost of sales, and to report net income that was overstated by as much as 29.8% in one period.
Available only to Cabinet Premium subscribers.
Combining regulatory and enforcement news, analysis, and practical work tools on an easy-to-use digital platform.