CEO Falls to SEC FCPA Settlement
Companies have definitely matured in the development and implementation of their ethics and compliance programs. Whether the pace has been rapid enough or is too slow, that is a debatable issue. A good litmus test for a mature ethics and compliance program is whether the company assesses and mitigates its C-Suite risks.
Over and over again, companies fall under government scrutiny because of misconduct in the C-Suite. The latest poster child for this fact is Elon Musk and his misconduct resulting in an SEC enforcement action.
The FCPA enforcement landscape is littered with C-Suite misconduct and bribery schemes. Just this year, Panasonic Avionics suffered a significant FCPA enforcement action as a result of a long-time bribery scheme run by its President, using a CEO account, which was not subject to internal controls to fund a bribery scheme.
In yet another example, the Securities and Exchange Commission settled an FCPA enforcement action against the former CEO of a Chile chemical and mining company, who agreed to pay civil penalty of $125,000. Patricio Contesse Gonzalez was the CEO of Sociedad Quimica y Minera de Chile, S.A. (“SQM”). (Here).
In 2017, SQM settled FCPA violations with DOJ and the SEC. SQM paid DOJ $15.5 million and the SEC $15 million to resolve FCPA criminal and civil charges. SQM made nearly $15 million in improper payments to Chilean politicians and related individuals. SQM entered into a three-year deferred prosecution agreement with the Justice Department.
Contesse was SQM’s CEO from 1990 to 2015. Starting in 2008, SQM paid nearly $15 million to Chilean politicians, candidates and persons connected to the politicians.
Contesse maintained a CEO Account, which was intended to cover travel, publicity and advisory services. In 2014, Chilean tax and criminal authorities initiated an investigation of SQM for improper payments. SQM launched a board-authorized internal investigation and eventually terminated Contesse’s CEO contract.
Contesse was charged with directing and authorizing the bribery payments through a discretionary CEO account. Contesse justified the payments by developing fake deals to hide the bribes. Contesse used fake vendors and invoices to document the improper payments.
Contese’s liability included directing false accounting entries in SQM’s books and records, lied to SQM’s independent auditor, and executed false certification in SQM’s SEC filings.
The SEC cited several examples of improper payments and documentation over five-year period, including: (a) monthly payments over a five year period to the son of a Chilean political party official; (b) purported “financial services” submitted by a relative of a Chilean official which were never provided; (c) purported payments for purported “communications advice” and “consulting services,” which were never provided; (d) purported engineering and statistical services, which were never provided; and (e) a false contract for consulting services, which were never provided.
To cover his tracks, Contesse lied to SQM’s internal auditor that he had ceased making payments to the son, but SQM’s internal auditor discovered that payments were still being made to the politician’s son. SQM’s internal auditor directed SQM’s treasury department to cease making such payments. Nonetheless, Contesse resumed such payments to an aide of the politician.