The Foreign Corrupt Practices Act has always been a law much broader than its name suggests. Sure, the FCPA contains anti-bribery provisions which concern foreign bribery. Sure, the FCPA’s books and records and internal controls provisions can be implicated in foreign bribery schemes.
However, the fact remains that most FCPA enforcement actions (that is enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions) have nothing to do with foreign bribery and these provisions are among the most generic legal provisions one can possibly find.
These so-called non-FCPA FCPA enforcement actions often present a perplexing issue. That is, the same legal violation is generally enforced by the SEC in different ways.
It’s as if speeding tickets in the same jurisdiction involving blue cars are handled differently than a speeding ticket involving red cars.
In the latest example, the SEC recently announced an enforcement action against voxeljet AG (a Germany-based provider of 3D printers and on-demand parts services to industrial and commercial customers with American Depositary Shares registered with the SEC and listed on a U.S. exchange) and Rudolf Franz (voxeljet’c Chief Financial Officer and Chief Operating Officer).
In summary fashion, this administrative order states:
“These proceedings concern voxeljet’s reporting during two quarters in 2019 of its compliance with a Finance Contract it entered into with the European Investment Bank (“EIB”) and the state of its internal accounting controls.”
Under the heading “voxeljet’s Material Weaknesses in Internal Control Over Financial Reporting,” the order finds:
“For several years following voxeljet’s initial public offering—including 2018 to 2021—the Company disclosed material weaknesses in internal control over financial reporting. As a result, the Company’s disclosure controls and procedures were also not effective. For fiscal 2018, voxeljet’s auditor expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
In July 2018, voxeljet’s Internal Audit staff drafted internal controls concerning the financial covenants of the EIB loan. However, the Company had not implemented these internal controls by the time that the Company reported the Q2 and Q3 Financial Statements.
Each year after voxeljet’s IPO, Company management, including Franz, conducted an evaluation of the effectiveness of the design and operation of voxeljet’s disclosure controls and procedures. Each year, Franz and the CEO concluded that voxeljet’s disclosure controls were ineffective.
As an example of voxeljet’s ineffective internal controls, the company’s independent auditor was not appropriately informed of the EBITDA Covenant breach during its reviews of the Q2 and Q3 Financial Statements. Information about the covenant breach was not adequately documented and shared with the auditor at the time of those reviews. voxeljet’s internal processes for the review and tracking of financial reporting and disclosure were not sufficiently formalized, documented, and reviewed by the audit committee and the supervisory board.
As a result of the conduct described above, during the second and third quarters of 2019, voxeljet’s internal accounting controls were not designed or maintained to provide reasonable assurance that the Company’s financial statements would be presented in conformity with International Financial Reporting Standards (IFRS).”
Based on the above, the order finds that voxeljet violated, among other things, the FCPA’s books and records and internal controls provisions. In addition, the order finds that Franz caused the violations.
Without admitting or denying the SEC’s findings, voxeljet agreed to pay a $175,000 civil monetary penalty and Franz agreed to pay a $50,000 civil monetary penalty.
In other words, an FCPA books and records and internal controls enforcement action involving high-level executive conduct and material weaknesses in internal controls over financial reporting was resolved by the company for $175,000.
Yet other FCPA books and records and internal controls enforcement actions not involving high-level executive conduct and not involving material weaknesses in internal controls over financial reporting – but rather pedestrian issues such as corporate hospitality – are resolved for $25 million. (See here for the BHP Billiton enforcement action).
It makes no sense.
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