Anheuser-Busch Inbev Settles Sec Charges That The Company Violated The Foreign Corrupt Practices Act And Dodd-Frank Whistleblower Protection Laws
Print Article- Posted on: Oct 31 2016
On September 28, 2016, one day before the Securities and Exchange Commission (“SEC”) announced its first stand-alone action to enforce Section 21F(h) of the Securities Exchange Act of 1934 (discussed on this Blog here), the SEC settled with Anheuser-Busch InBev SA/NV (“AB InBev”) for its alleged violations of the Foreign Corrupt Practices Act (“FCPA”) and the anti-retaliation provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Pursuant to the settlement, AB InBev agreed to pay $6 million to the SEC in disgorgement ($2.7 million), prejudgment interest ($300,000), and a civil penalty ($3 million).
According to the SEC, AB InBev “used third-party sales promoters to make improper payments to government officials in India to increase the sales and production of [AB] InBev products in that country.” Although employees repeatedly complained about the adequacy of AB InBev’s internal controls to detect and prevent the improper payments, “the company failed to ensure that transactions involving the promoters were recorded properly in its books and records.”
As set forth in the SEC Order, AB InBev: (1) failed to report employee complaints about the wrongful conduct; (2) failed to timely respond to subpoenas; (3) broadly asserted the privilege, causing the SEC to expend additional resources on the investigation; and (4) entered into a separation agreement with a former employee that prevented the employee from communicating directly with the SEC about possible securities law violations.
Regarding the separation agreement, the SEC found that employees were required to maintain information about AB InBev “in strict secrecy and confidence,” and were threatened with a $250,000 liquidated damages penalty if they violated the non-disclosure terms of the agreement. According to the SEC, after signing the separation agreement, the employee, who had previously communicated with SEC about the wrongdoing, stopped doing so. The SEC said that AB InBev’s separation agreement “chilled” employees “from communicating with the SEC” in violation of SEC Rule 21F-17(a).
“Anheuser-Busch InBev recorded improper payments by its sales promoters in India as legitimate expenses in its financial accounting, and then exacerbated the problem by including language in a separation agreement that chilled an employee from communicating with the SEC,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit.
In addition to paying $6 million, AB InBev agreed to cooperate with the SEC and report its compliance with the FCPA, and make “reasonable efforts to notify certain former employees that Anheuser-Busch InBev does not prohibit employees from contacting the SEC about possible law violations.”
Takeaway:
The SEC’s settlement with AB InBev is notable for a few reasons.
First, the settlement evinces the continued effort by the SEC to root out corporate efforts to chill whistleblowing. “Threat of financial punishment for whistleblowing is unacceptable,” said Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower, in the AB InBev announcement. “We will continue to take a hard look at these types of provisions and fact patterns.”
Second, the settlement confirms the SEC’s interest in bringing internal controls cases against companies with inadequate processes and procedures, even when the company at issue is a partner in a venture with less than a controlling interest in the joint operation. As noted in the SEC Order, although AB InBev held less than 50% of the voting power of the joint venture, the SEC required AB InBev to “proceed in good faith to use its influence, to the extent reasonable under the issuer’s circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls.”
Third, nearly 50% of the settlement amount was comprised of the disgorgement of ill-gotten gains. Yet, AB InBev was not charged with violating the anti-bribery provisions of the FCPA. The settlement, therefore, reinforces the SEC’s long-held position that disgorgement is appropriate when there are only violations of the books and records or the internal controls provisions of the FCPA.
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