SEC Settles Another FCPA Internal Controls Action

SEC Settles Another FCPA Internal Controls Action

Posted on March 26, 2018 by T. Gorman Posted in SECActions

The Commission filed another settled FCPA internal controls actions. The case involved a Canadian mining firm that acquired subsidiaries in Mauritania and Ghana with little to no internal controls that received repeated warnings about those deficiencies but failed to take adequate corrective steps. In the Matter of Kinross Gold Corporation, Adm. Proc. File No. 3-18407 (March 26, 2018).

Kinross is a Canadian gold mine company, based in Toronto. Its shares are traded on the New York Stock Exchange. In 2010 the company acquired two firms which became indirect, controlled subsidiaries, Tasiast Mauritanie Limited S.A. and Chirano Gold Mines Ltd. Tasiast owns and operates a mine in Mauritania. Chirano owns and operates a mine in Ghana. At the time the two subsidiaries were acquired Kinross understood that neither had adequate internal controls or FCPA systems.

Little changed in terms of the internal controls at the two subsidiaries despite repeated reports of deficiencies and promises of improvements. In April 2011, for example, Kinross’ internal audit group concluded that the internal accounting controls surrounding vendor selection and disbursement for goods and services at each subsidiary were not adequate. A report issued by internal audit one year latter came to the same conclusion.

The internal audit reports for Tasiast and Chirano contained a series of recommendations for improving the internal controls. Management agreed to swiftly implement the recommendations. It largely failed to follow through. An October 2012 internal audit report on Tasiast found significant deficiencies. A July 2013 internal audit report on Chirano found significant deficiencies. As a result payments were made for a number of years without reasonable assurances that they were being undertaken for the stated purpose or with management’s approval.

In 2013 Kinross took steps to enhance the internal accounting controls regarding the procurement and payment of goods and services. The controls were designed in part to provide reasonable assurances that transactions did not violate the FCPA and the firm’s code of conduct. That code prohibited providing improper inducements to government officials.

In 2014, however, the firm failed to maintain the controls in two critical instances. First, the firm was about to award a three year logistical supply contract to an international shipping company with the lowest bid and best ability to fulfill certain technical requirements. Kinross personnel learned that a high-level Mauritanian government official was unhappy with the choice. In July 2014 the firm’s management in West Africa made a presentation to senior management demonstrating that the initial choice was correct and far superior to the one favored by the official. Nevertheless, the firm favored by the official was selected – senior management failed to maintain the controls which dictated that the superior firm be selected.

Second, Kinross learned that a person who had high-level government contacts wanted a position with the government relations department. That individual offered to work for Kinross in a semi-formal liaison relationship between senior firm executives and a particular government official who was influential in key areas. Initially the firm considered the person. Minimal due diligence was conducted. Since an excessive salary was demanded the person was retained as an independent consultant. Kinross did not conduct the required due diligence on the person and over a two year period paid the consultant about $750,000. Kinross also failed to provide adequate training to its senior decision-makers regarding the corruption risks in hiring a consultant to work as a liaison with government officials. The Order alleges violations of Exchange Act sections 13(b)(2)(A) and 13(b)(2)(B).

To resolve the proceedings the firm consented to the entry of a cease and desist order based on the sections cited in the Order and agreed to pay a penalty of $950,000. Kinross also agreed to report to the staff regarding its progress in improving the internal controls and to retain a consultant. In agreeing to accept this offer of settlement the Commission considered the significant remedial efforts of the firm with regard to its internal controls. The DOJ previously declined prosecution.

Program: Insights Into SEC Enforcement, is roundtable discussion of the Former Directors of the SEC’s Division of Enforcement that will be held on April 3, 2018 beginning a 4:30 p.m. at Georgetown University Law School. The program will be followed by a reception. Registration is available here without charge. The program is sponsored by the SEC Historical Society, the Federal Bar Association, and the Association of SEC Alumni.