An Unhappy Ending for John Deere
Most people watching the Watergate hearings in the early 1970s just saw the slow-motion immolation of a president. Stanley Sporkin, then director of the SEC’s Enforcement Division, heard tales of illegal corporate contributions to Richard Nixon’s campaign and wondered, “How do these companies book those?” It turns out lots of companies had slush funds to make those campaign contributions and to pay bribes. It’s just what you did! At the time, somehow, making up an accounting story about what the payments actually were wasn’t against the law. So Sporkin set about changing that.
He told the chair of the Senate Banking Committee, Sen. William Proxmire, “that all that was really necessary was a law that required all corporations to maintain accurate books and records.” That is, he figured the underlying bad behavior would become less likely because no companies would want to say out loud what they were actually doing. Anyway, Sporkin’s and others’ suggestions resulted in the books-and-records and internal controls provisions of the FCPA. Sen. Proxmire himself added the anti-bribery provisions to the new law, but maybe they weren’t crucial.
John Deere
They weren’t necessary to catch John Deere, the agricultural machinery maker that last week settled SEC charges under the accounting provisions and not the anti-bribery ones. The SEC says (and maybe this is true, maybe it’s not, we don’t know) that from 2017 through 2020:
[Deere’s] wholly owned subsidiary, Wirtgen Thailand, made improper payments to foreign officials at multiple government entities, including the Royal Thai Air Force and the Department of Highways, to win business, and during the same period also engaged in commercial bribery. The improper payments took various forms, including cash, sham consulting fees, extravagant “factory visit” trips to foreign countries, meals, entertainment at massage parlors, and others.
Three Points
Massage Parlors
This one is silly but our favorite. Honestly, we saw “massage parlors” in there and laughed and figured the investigators found a single receipt in one of the documents and was excited to include it in the press release. But no, this was a LOT of massage parlors. One Royal Thai Air Force official made two Wirtgen-sponsored trips to a massage parlor, and another made two more. Wirtgen brought a gang of 15 Department of Highways guys (I’m assuming guys) to a massage parlor in March 2017, and the group returned three more times in 2018. The Department of Rural Roads got in on it, too, but the order sheds less light on their visits. I guess I’m wondering, if you’re one of those 15 guys, do you just think, “This is what we worked so hard for, we made it”? You are so exposed from every angle and it wouldn’t take very much scrutiny for the whole thing to come crashing down.
Commercial Bribery
The SEC’s order also describes Wirtgen’s commercial bribery of personnel at “Customer A”, actionable under the FCPA’s accounting provisions because those provisions don’t really care what the underlying conduct is. FCPA cases that involve commercial bribery aren’t all that common but they do happen. Here, the payments were less massages (though still some massages!) and more straight cash and “factory visits” that were really tourist boondoggles. Here are some of the improper payments to Customer A employees and what Wirtgen called them:
$35,000 in cash / “brokerage payments” and “sales commissions”
8-day sightseeing trip in Germany and Switzerland / “factory visit”
Several days of sightseeing in France and Germany / “factory visit”
9-day tour of Germany, Austria, and the Czech Republic / “factory visit”
$2,000 in cash / “touring cost”
The order also describes some massage parlors for a Customer A parts manager but doesn’t indicate what Wirtgen called them for accounting purposes.
The Acquisition
John Deere acquired Wirtgen in December 2017 and unfortunately didn’t rush to incorporate the new subsidiary into its internal controls. Some of the alleged misconduct here predated the acquisition but most of it was after. This seems like a fairly big miss? Did they just assume everything was fine? It’s hard for us to imagine Deere not having a checklist of items that included something along the lines of, “Be sure we’re not doing massage parlors in Thailand.” Maybe just assume that you are doing massage parlors in Thailand and see what you can do to check up on it promptly. At any rate, don’t wait around on that. You might regret it if you do.
In re Deere & Co. (Sept. 10, 2024)
Interview with Stanley Sporkin (SEC Historical Society) (Sept. 23, 2003)