United States: SEC FCPA Enforcement Action Against Goodyear And Investigation Of Mondelez International Provide Valuable Lessons For U.S. Companies Seeking To Acquire Foreign Entities

Action Item: The Securities and Exchange Commission's enforcement action against Goodyear Tire & Rubber Company and its investigation of Mondelēz International provide key lessons to U.S. companies seeking to acquire foreign entities. To avoid FCPA exposure, companies must conduct comprehensive due diligence before an acquisition's closing to ensure that the target company is fully compliant with the requirements of the FCPA. They must also ensure that firm internal controls are in place to prevent and detect illicit payments by foreign subsidiaries. In the event that misconduct is uncovered after an acquisition has closed, the acquiring company will be well-served by engaging in immediate and significant remediation activities, which may include a voluntary disclosure.

On February 24, 2015, the Securities and Exchange Commission ("SEC") issued an Order (the "Order") settling an administrative proceeding that charged Goodyear Tire & Rubber Company ("Goodyear") with violating the Foreign Corrupt Practices Act (the "FCPA"). The charges resulted from bribes that Goodyear subsidiaries paid in connection with tire sales in Kenya and Angola. Also, in its 2014 annual report to the SEC, Mondelēz International, Inc., (formerly Kraft Foods), elaborated on a previous disclosure that it is the subject of an ongoing FCPA investigation. The investigation, which has been undertaken by the SEC, concerns potential FCPA violations related to the company's acquisition of Cadbury in February 2010.

Both of these enforcement actions underscore the need for U.S. companies seeking to acquire foreign entities to ensure FCPA compliance by conducting comprehensive due diligence prior to the close of an acquisition and by implementing firm internal control measures to detect improper payments. The Goodyear action in particular also highlights how a company's immediate response to allegations of bribery payments is critical to mitigating the potential imposition of monetary penalties.

Goodyear

According to the Order, from 2007 until 2011, Goodyear failed to "prevent or detect" the payment of approximately $3.2 million in bribes to police, city council officials and employees of government-owned entities, and private companies in Kenya and Angola. In Kenya, the Order alleged that bribes were paid through a retail tire distributor acquired by Goodyear in 2006. Illicit payments were apparently a routine part of the tire distributor's business practices prior to the acquisition. The Order further alleged that a wholly-owned subsidiary of Goodyear that was incorporated in 2007 paid bribes in Angola during the relevant time period.

The Order charged that violations of the FCPA occurred because all of the improper bribery payments were falsely recorded as legitimate business expenses in the books and records of the Goodyear subsidiaries. Moreover, Goodyear violated the FCPA because it did not "prevent or detect" these improper payments by implementing adequate FCPA compliance controls.

Notably, the Order provided a detailed reporting of the remedial steps that Goodyear undertook in the immediate aftermath of becoming aware of the alleged FCPA violations. According to the Order, Goodyear "promptly halted" the illicit payments and reported them to the SEC. Goodyear then engaged in significant cooperation with the SEC's investigation by producing documents and reports from its own internal investigation and by responding promptly to requests for information and documents. Moreover, Goodyear divested its ownership interest in the Kenyan tire company and, at the time the Order was issued, was working to divest its Angolan subsidiary. The SEC said Goodyear has disciplined certain employees, "including executives of its Europe, Middle East and Africa region who had oversight responsibility, for failing to ensure adequate FCPA compliance training and controls were in place at the company's subsidiaries in sub-Saharan Africa."

With respect to Goodyear's compliance program, the Order pointed out that the company had implemented significant improvements. For instance, Goodyear expanded its anti-corruption training in Africa, implemented technology improvements to link subsidiaries in sub-Saharan Africa to its global network, instituted regular internal audits focused on corruption risks, and required each of its subsidiaries to submit quarterly self-assessment questionnaires concerning business with government-affiliated customers. The company further created a new senior position of vice president of compliance and ethics.

Without admitting or denying the SEC's findings, Goodyear settled the SEC's charges by agreeing to pay disgorgement of more than $14 million of the company's profits in Kenya and Angola, plus prejudgment interest of approximately $2 million. Goodyear also agreed to report its FCPA remediation efforts to the SEC for a three-year period. Owing to its prompt disclosure and the remedial measures that the company undertook, the Order stated that a civil fine would not be imposed on the company "based upon its cooperation in a Commission investigation and related enforcement action."

Mondelēz International

In its annual report to the SEC for the fiscal year ending December 31, 2014, Mondelēz International disclosed that after the company acquired Cadbury in February 2010, it began "reviewing and adjusting, as needed, Cadbury's operations in light of applicable standards as well as our policies and practices." The company initially determined that Cadbury's "overall state of compliance was sound"; however, in February 2011, the company received a subpoena from the SEC related to an FCPA investigation into a Cadbury facility in India. According to Mondelēz International's annual report, the subpoena "primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility." The company further disclosed that it was engaging in meetings with the U.S. government to discuss a resolution of the investigation.

Key Takeaways from the Goodyear and Mondelēz International Enforcement Actions

For U.S. companies seeking to acquire foreign entities, the recently resolved enforcement action against Goodyear and the ongoing investigation into Mondelēz International's acquisition of Cadbury offer a number of important lessons.

  1. Comprehensive due diligence is critical to minimizing FCPA exposure for companies seeking to acquire foreign entities. U.S. companies seeking to acquire foreign entities face many potential risks as epitomized by the SEC's investigation into the Cadbury facility in India and Goodyear's purported failure to uncover its Kenyan tire distributor's practice of making bribery payments. However, such risks can be avoided, or at least minimized, by conducting comprehensive due diligence in advance of an acquisition. This level of due diligence includes, but is not limited to, conducting thorough risk-based FCPA and anti-corruption analysis and conducting an FCPA-specific audit of the acquired entity as quickly as practicable.  
  2. Companies can be held liable for failing to "prevent and detect" FCPA violations through internal controls even though such a standard is not expressly provided for under the FCPA statute. Section 13(b)(2)(B) of the Securities Exchange Act of 1934 requires public companies to maintain a system of internal accounting controls sufficient to provide "reasonable assurances" that financial statements are accurate. The SEC's enforcement action against Goodyear serves as notice to public companies seeking to acquire international entities that the SEC views this standard as requiring companies to implement internal controls sufficient to prevent and detect illicit payments. The Order does not elaborate upon what precise level of controls is acceptable; however, the U.S. Department of Justice's Resource Guide to the U.S. Foreign Corrupt Practices Act offers some useful insight into this issue. Specifically, the Guide explains that reasonable internal controls should include, among other things, risk assessments and activities that cover policies and procedures designed to ensure that management directives are carried out.  
  3. If FCPA violations are found to have occurred post-acquisition, an acquiring company may mitigate the potential penalty that will be imposed by undertaking prompt and thorough remedial action. As the Order explained, Goodyear successfully avoided the imposition of a civil penalty due to its cooperation with the SEC's investigation and extensive remediation efforts. The SEC's decision to refrain from imposing a civil penalty sends a clear message to companies who have become aware of potential FCPA violations occurring post-acquisition that they will receive a significant benefit if they undertake aggressive remediation activities and disclose their findings to the SEC.

Conclusion

The enforcement actions against Goodyear and Mondelēz International serve as a reminder to U.S. companies seeking to acquire foreign entities of the need to conduct comprehensive anti-corruption due diligence prior to the close of an acquisition. The actions further demonstrate the need for implementing firm internal control measures post-acquisition to detect improper payments. As demonstrated by the Goodyear settlement, such measures will likely have a substantial impact on the level of monetary penalties that may be imposed in the event that the company discovers improper payments made post-acquisition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions