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45 he had a personal friendship. The former managing director repeatedly made false representations to his employer about the transaction and the ownership interests involved. Conspiracy and Aiding and Abetting Liability As with the FCPA’s anti-bribery provisions, compa- nies (including subsidiaries of issuers) and individuals may face criminal liability for conspiring to commit or for aid- ing and abetting violations of the accounting provisions. For example, the subsidiary of a Houston-based company pleaded guilty both to conspiring to commit and to aiding and abetting the company’s books and records and anti-bribery violations.*” The subsidiary paid bribes of over $4 million and falsely characterized the payments » « as “commissions, “fees, or “legal services,” consequently causing the company’s books and records to be inaccurate. Although the subsidiary was not an issuer and therefore could not be charged directly with an accounting violation, it was criminally liable for its involvement in the parent company’s accounting violation. Similarly, a U.S. subsidiary of a Swiss freight for- warding company that was not an issuer was charged with conspiring to commit and with aiding and abetting the books and records violations of its customers, who were issuers and therefore subject to the FCPA’s accounting provisions.’ The USS. subsidiary substantially assisted the issuer-customers in violating the FCPA’s books and records provision by masking the true nature of the bribe payments in the invoices it submitted to the issuer-customers.””! The subsidiary thus faced criminal liability for its involvement in the issuer-customers’ FCPA violations even though it was not itself subject to the FCPA’s accounting provisions. Auditor Obligations All public companies in the United States must file annual financial statements that have been prepared in conformity with U.S. Generally Accepted Accounting Principles (US. GAAP). These accounting principles are among the most comprehensive in the world. US. GAAP requires an accounting of all assets, liabilities, revenue, and expenses as well as extensive disclosures concerning the company’s operations and financial condition. A company’s financial statements should be complete and fairly repre- sent the company’s financial condition.”” Thus, under USS. GAAP, any payments to foreign government officials must be properly accounted for in a company’s books, records, and financial statements. US. laws, including SEC Rules, require issuers to undergo an annual external audit of their financial statements and to make those audited financial statements available to the public by filing them with SEC. SEC Rules and the rules and standards issued by the Public Company Accounting Oversight Board (PCAOB) under SEC oversight, require external auditors to be independent of the companies that they audit. Independent auditors must comply with the rules and standards set forth by the PCAOB when they perform an audit of a public company. These audit standards govern, for example, the auditor’s responsibility concerning material errors, irregularities, or illegal acts by a client and its officers, directors, and employees. Additionally, the auditor has a responsibility to obtain an understanding of an entity's inter- nal controls over financial reporting as part of its audit and must communicate all significant deficiencies and material weaknesses identified during the audit to management and the audit committee.” Under Section 10A of the Exchange Act, indepen- dent auditors who discover an illegal act, such as the pay- ment of bribes to domestic or foreign government officials, have certain obligations in connection with their audits of public companies. ’”* Generally, Section 10A requires audi- tors who become aware of illegal acts to report such acts to appropriate levels within the company and, if the company fails to take appropriate action, to notify SEC. HOUSE_OVERSIGHT_022547