World Acceptance Corp. shows FCPA cases are sometimes really easy
FCPA cases can be complex, or at least elaborate. Sometimes companies put all manner of ghost entities and sleights of hand in between themselves and government officials overseas when they’re delivering illicit payments. In the end it might look bad to investigators, but the fancy architecture probably buys a few years of fun.
World Acceptance Corporation, a consumer loan company based in Greenville, South Carolina, dispensed with all of that and went straight to bags of cash, at least according to the SEC’s administrative order issued last Thursday. Here are the SEC’s allegations, which might not be true.
Once Upon a Time in Mexico
The short version is: World Acceptance had a subsidiary in Mexico, which we’ll call WAC Mexico, that paid about $4.1 million in bribes to government and union officials in connection with its Préstamos Viva business line.
Préstamos Viva offered small loans to state and federal government employees. WAC Mexico entered into at least 30 Viva contracts with government entities or worker unions representing government employees, most of whom worked in healthcare and education. WAC Mexico paid bribes to Mexican government officials and union officials both to set up the contracts and to ensure that loan repayments would be automatically deducted from employees’ paychecks and sent directly to WAC Mexico. The bribes were paid in cash and bank deposits, either directly into the officials’ accounts or accounts of friends or relatives. WAC Mexico also hired third-party intermediaries to assist with the scheme, and one of them flew to different Mexican cities with large bags of cash to pay officials. Who can argue with the tried and true? Naturally, World Acceptance called these payments “commissions” and didn’t require documentation from WAC Mexico to back them up. The bags of cash are so great. They have a comic strip quality that’s hard to deny. And unless there’s a hidden camera, cash bag transfers aren’t going to show up on some meddlesome ledger or spreadsheet.
The Tone at WAC’s Top
The SEC’s order spends Paragraph 14 addressing the compliance tone at the top of World Acceptance Corp. We’re going to quote the whole thing, with four pieces of commentary:
“Lastly, the tone at the top from WAC management did not support robust internal audit and compliance functions, and undermined the effectiveness of those functions.” The compliance-industrial complex talks about a company’s “tone at the top” all the time. Ditto for senior SEC staff and Commissioners in their speeches and press releases. But the SEC itself doesn’t speak that way in charging documents all that often. It did in 2003 when it sued Xerox executives or accounting issues and again in 2008 when it brought an FCPA case against Siemens. After all, the statute doesn’t explicitly require any sort of “tone at the top.” It’s interesting to see the SEC explicitly addressing this in the order.
“For example, in October 2015 the then-CEO of WAC terminated the vice president of internal audit after he raised compliance concerns, including concerns about the lack of internal accounting controls at WAC Mexico.” I mean, maybe this vice president wasn’t good at being vice president of internal audit, but by itself, this is not a great fact to emerge in an FCPA investigation. But if your vice president of internal audit is raising compliance concerns, think twice about how getting rid of them is going to look when the dust settles.
“The then-CEO then combined the internal audit function and the compliance function into one department under one VP, had the VP report to her, and pressured the VP to eliminate staffing and become more ‘bare-bones,’ according to the VP. Prior to this change, both vice presidents of internal audit and compliance had reported directly to the Board of Directors and the Audit Committee.” I mean, you don’t have to separate internal audit from compliance. And if you have to combine the two, Matt Kelly’s article here links to some guidance that will help prevent missteps along the way. But don’t do that while talking about making the combined department more “bare bones”. Come on.
“In November 2016, the then-CEO told the internal audit and compliance VP that she would now report to the then-general counsel. Shortly thereafter, the VP voiced concerns that the internal audit and compliance functions were not sound, and the then-CEO terminated her. The then-general counsel took over as the head of internal audit and compliance, even though the general counsel had no prior audit or accounting experience. WAC’s then-CEO also told the then-general counsel and an internal audit director that she did not care whether WAC had a “world class [internal] audit function.” Again with the firing! Also, you can’t combine every non-revenue-generating function into a single role while also saying out loud that you don’t care if the internal audit function is world class.
The Upshot
The SEC’s order requires World Acceptance to cease and desist from violations of the FCPA’s anti-bribery and accounting provisions, and to pay disgorgement of $17,826,000, prejudgment interest of $1.9 million and civil penalties of $2 million for a total of $21,726,000.