U.S. Firm/Principals Receive FCPA Penalties for Subsidiary's Bribes to Foreign Customs Officials, Etc.
The Securities and Exchange Commission has announced that Nature's Sunshine Products Inc. (NSP) and two of its principals will pay civil penalties to settle allegations that NSP's Brazilian subsidiary made illegal cash payments to Brazilian customs officials in violation of the Foreign Corrupt Practices Act (FCPA).
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The SEC has also announced plans to create a specialized FCPA unit, in order to speed and expand its FCPA investigations.
(The FCPA prohibits U.S. companies from bribing foreign officials for government contracts and other business.)
Subsidiary Bribery Case
Subsidiary Paid Brazilian Customs Brokers & Officials to Avoid Changes in Brazilian Law
The SEC's complaint states that around 1999-2000, the Brazilian government reclassified certain vitamins, herbal products, and nutritional supplements being sold in Brazil as medicines. The re-classification required NSP, a manufacturer of nutritional and personal care products, to register many of the products its subsidiary sold in Brazil as medicines.
The SEC alleges that as NSP's subsidiary was unable to register some of these products, it made undocumented cash payments to Brazilian customs brokers, some of which were later paid to Brazilian customs officials to allow unregistered products to be imported then sold in Brazil.
In so doing, the subsidiary allegedly falsified its books, records and accounts to hide the nature of the payments and failed to disclose the payments to Brazilian customs agents in its filings with the SEC.
Company Violated FCPA, Etc, Principals Violated "Internal Controls" Provisions
The SEC states that the company's conduct violated the FCPA, and the antifraud, issuer reporting, books and records and internal controls provisions of the federal securities laws.
The SEC also alleges that NSP's Chief Executive Officer Faggioli and its former Chief Financial Officer Huff, in their capacities as control persons, violated the books and records and internal controls provisions of the SEC's securities laws in connection with the Brazilian cash payments.
Company to Pay $600,000 in Civil Penalties, Principals to Pay $25,000 Each
NSP, Faggioli and Huff, without admitting or denying the allegations of the complaint, have consented to pay civil penalties as follows: $600,000 for NSP and $25,000 each for Faggioli and Huff.
New FCPA Enforcement Unit
SEC to Create New Specialized FCPA Enforcement Unit, Expedite Investigations
A few days after the above settlement was reached, the SEC's Director of Enforcement Robert Khuzami also announced that the SEC would create five specialized units in order to attack problems systemically, swiftly and thoroughly and on an industry-wide basis where appropriate.
One of these, the FCPA unit, will focus on new and proactive approaches to identifying violations of the FCPA. Khuzami stated that while SEC has already been active in this area, more needs to be done, including being more proactive in investigations, working more closely with foreign counterparts, and taking a more global approach to these violations.
Khuzami also outlined various SEC-wide efforts to streamline decision making and expedite its investigative processes.
SEC press release on the bribery settlement (dated 07/31/09) available at http://www.sec.gov/litigation/litreleases/2009/lr21162.htm
SEC v. Nature's Sunshine Products, Inc., Douglas Faggioli and Craig D. Huff (Case No. 09CV672, Filed 07/31/09) available at http://www.sec.gov/litigation/complaints/2009/comp21162.pdf
SEC Director of Enforcement speech on specialized units, etc. (dated 08/05/09) available at http://www.sec.gov/news/speech/2009/spch080509rk.htm