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41 funds, off-the-books accounts, and systematic payments to business consultants and other intermediaries—to facilitate bribery. Payments were made in ways that obscured their purpose and the ultimate recipients of the money. In some cases, employees obtained large amounts of cash from cash desks and then transported the cash in suitcases across inter- national borders. Authorizations for some payments were placed on sticky notes and later removed to avoid any perma- nent record. The company made payments totaling approxi- mately $1.36 billion through various mechanisms, including $805.5 million as bribes and $554.5 million for unknown purposes.””> The company was charged with internal controls and books and records violations, along with anti-bribery violations, and paid over $1.6 billion to resolve the case with authorities in the United States and Germany.” The types of internal control failures identified in the above example exist in many other cases where companies were charged with internal controls violations.” A 2010 case against a multi-national automobile manufacturer involved bribery that occurred over a long period of time in multiple countries.** In that case, the company used doz- ens of ledger accounts, known internally as “internal third party accounts, to maintain credit balances for the ben- efit of government officials.” The accounts were funded through several bogus pricing mechanisms, such as “price surcharges, “price inclusions, or excessive commissions.”*° The company also used artificial discounts or rebates on sales contracts to generate the money to pay the bribes.””! The bribes also were made through phony sales intermedi- aries and corrupt business partners, as well as through the use of cash desks.” Sales executives would obtain cash from the company in amounts as high as hundreds of thousands of dollars, enabling the company to obscure the purpose and recipients of the money paid to government officials”? In addition to bribery charges, the company was charged with internal controls and books and records violations. Good internal controls can prevent not only FCPA violations, but also other illegal or unethical conduct by the company, its subsidiaries, and its employees. DOJ and SEC have repeatedly brought FCPA cases that also involved other types of misconduct, such as financial fraud,’ 235 6 commercial bribery,’” export controls violations,” and embezzlement or self-dealing by company employees.” Potential Reporting and Anti-Fraud Violations Issuers have reporting obligations under Section 13(a) of the Exchange Act, which requires issuers to file an annual report that contains comprehensive information about the issuer. Failure to properly disclose material infor- mation about the issuer’s business, including material rev- enue, expenses, profits, assets, or liabilities related to bribery of foreign government officials, may give rise to anti-fraud and reporting violations under Sections 10(b) and 13(a) of the Exchange Act. For example, a California-based technology company was charged with reporting violations, in addition to viola- tions of the FCPA’s anti-bribery and accounting provisions, when its bribery scheme led to material misstatements in its SEC filings.” The company was awarded contracts procured through bribery of Chinese officials that generated material revenue and profits. The revenue and profits helped the com- pany offset losses incurred to develop new products expected to become the company’s future source of revenue growth. The company improperly recorded the bribe payments as sales commission expenses in its books and records. Companies engaged in bribery may also be engaged in activity that violates the anti-fraud and reporting provi- sions. For example, an oil and gas pipeline company and its employees engaged in a long-running scheme to use the company’s petty cash accounts in Nigeria to make a vari- ety of corrupt payments to Nigerian tax and court officials using false invoices.” The company and its employees also engaged in a fraudulent scheme to minimize the company’s tax obligations in Bolivia by using false invoices to claim false offsets to its value-added tax obligations. The scheme resulted in material overstatements of the company’s net income in the company’s financial statements, which vio- lated the Exchange Act’s anti-fraud and reporting provi- sions. Both schemes also violated the books and records and internal controls provisions. HOUSE_OVERSIGHT_022543