World Acceptance Corporation (“WAC”), a US-based consumer loan company, agreed to pay the SEC $21.7 million for FCPA violations in Mexico.  WAC’s cited violations covered the full gamut of FCPA violations, including bribery payments to government officials in Mexico, failure to keep accurate books and records and inadequate internal accounting controls.

WAC engaged in an illegal scheme over a seven year period, from December 2010 to June 2017, to further its former Mexico subsidiary (“WAC Mexico”), which paid approximately $4.1 million in bribes directly or through third-party intermediaries, to Mexican government officials and union officials.  WAC sold WAC Mexico in July 1, 2018.  As a result of its bribery scheme, WAC earned approximately $18 million.

Bribery Scheme

WAC Mexico had two lines of business, Avance, consumer loans and Viva, small loans to state and federal government employees.  Viva had less collection risk because government employees had greater job security and loan payments were automatically deducted from the employee’s paycheck, collected by the unions and then sent to WAC Mexico.

WAC Mexico entered into at least 30 Viva contracts, most of which involved government and/or worker unions in the healthcare and education industries.  To secure the contracts and timely payments to WAC Mexico, bribes were paid to government and union officials.

Government officials and/or union officials signed Viva contracts.  WAC Mexico made bribery payments to these officials, known internally as the “glove.”  WAC Mexico also was required to make payments during the performance of these contracts, referred to as “royalty payments, “scholarship,” or “support.”

All of the bribe payments were paid in cash, a bank deposit into a bank account or a bank deposit into the bank account of a relative or friend of the government or union official. WAC Mexico hired third-party intermediaries to assist in making the ongoing payments.  The third-party intermediaries charged a small portion of the payments as their fee.  Keeping with the sinister nature of the conduct, one of the WAC Mexico intermediaries flew to different municipalities with large bags of cash to pay officials.

The SEC calculated that, of the $4.1 million in bribery payments, at least $1.5 million was paid to government officials, $580,000 paid to union officials and $480,000 paid to third parties who transmitted the funds to government and union officials.  Because of a lack of appropriate recordkeeping at WAC Mexico, it is unclear how the remaining $1.5 million in payments were made.

Books and Records and Internal Controls

Along with the pervasive bribery scheme, the SEC cited WAC for books and records and internal controls violations.  The list of deficiencies is interesting in that it covers a variety of topics.

The illegal bribe payments were inaccurately recorded as legitimate “commission” expenses in WAC’s books and records.

WAC failed to implement sufficient internal accounting controls over vendor management and accounts payable at WAC Mexico, failed to provide reasonable assurances that WAC Mexico had implemented an FCPA policy and adhered to it, failed to provide FCPA training at WAC and WAC Mexico, and lacked sufficient entity level controls over WAC Mexico.

WAC Mexico did not maintain a vendor management system, did not maintain a master list of approved vendors, did not conduct formal due diligence on new vendors, and did not have formal procedures or controls in place to approve new vendors.  As a result, WAC Mexico was able to hire third-party vendors for the purpose of paying bribes to government and union officials.

WAC Mexico did not have a sufficient accounts payable system.  Instead, manual checks were used for payment, which resulted in managers pre-signing blank checks, thereby making it impossible to enforce authorization limits over payments.

WAC Mexico manually prepared a monthly spreadsheet that listed the checks paid that month and provided an expense category for each check.  WAC Mexico sent the spreadsheet each month to WAC without invoices or backup support.  WAC then manually coded each expense for recording in WAC’s general ledger.

The WAC Mexico senior vice president approved check payments with or without invoices.  Beginning in July 2014, his authorization limit was increased to $75,000 to make payments related to any Viva contract.

Additionally, the SEC described WAC management’s efforts to diminish the respective roles of internal audit and compliance functions.  In October 2015, the then-CEO of WAC terminated the vice president of internal audit after he raised compliance concerns, including the lack of controls at WAC Mexico.  The then-CEO combined the internal audit and compliance functions into one department under one Vice President, had the Vice President report to her (the then-CEO), and pressured the Vice President to cut the audit and compliance staff to “bare bones.”  Prior to this reorganization, the VP of Audit and Compliance reported directly to the Board and Audit Committee.  The then-CEO directed the Vice President for audit and compliance to report to the then-general counsel.  Once the Vice President of Audit and Compliance complained, the then-CEO terminated the Vice President. 

The then general counsel took over the audit and compliance functions despite the fact that the then-general counsel had no prior audit or accounting experience.  WAC’s then-CEO told the then-general counsel and an internal audit director that she did not care whether WAC had a “world class [internal] audit function.”