Cooperation Can Easily Bribe the SEC: Guest Post by Lindsey Craig

The SEC is an organization with limited funds and resources when it comes to enforcing the various acts they have put in place. When it comes to the smaller acts, such as the Foreign Corrupt Practices Act (FCPA), most of these offenses take place overseas and to gather witness and evidence can be quite costly. In the case of the Ralph Lauren Corporation they earned the first non-prosecution agreement for a FCPA case because of their cooperation with the SEC on their recent violation.

The Ralph Lauren Corporation was doing an internal audit of the company with compliance programming when they discovered discrepancies in their cash flows. The head of their Argentina subsidiary supplied the bribes by writing things as “loading and delivery expenses” and “stamp tax/ label tax”. The Ralph Lauren Corporation paid a total of $593,000 in bribes to Argentine officials. These were paid off in handbags, perfume and clothing. These bribes were effective in allowing the corporation to pass illegal merchandise through customs. Check out this Bloomberg for a great explanation. (http://www.bloomberg.com/video/ralph-lauren-corp-fined-in-argentine-bribery-case-m78X0JF6Qq67QbvhLXSYOQ.html )

During the discussion on what the SEC was going to do about the violation, the stop price dropped to its lowest price in months, down to $165.66, and then when the SEC offered to give Ralph Lauren the non-prosecution agreement the stockclimbed over $11. Because the SEC was lenient on the corporation their stock and investors avoided any harm. 

According to the NY Times, (http://dealbook.nytimes.com/2013/04/29/ralph-lauren-case-shows-the-benefits-of-cooperation/ ) the small settlement of $700,000 by Ralph Lauren to the SEC is a small price to pay for the transgression. The corporation did go above and beyond when trying to help the SEC in the investigation. Not only did they report themselves, they also:

—  Reported preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts.

—  Voluntarily and expeditiously produced documents.

—  Provided English language translations of documents to the staff.

—  Summarized witness interviews that the company’s investigators conducted overseas.

—  Made overseas witnesses available for staff interviews and brought witnesses to the United States

The penalty could have been much worse from the SEC and DOJ if they hadn’t cooperated, and the SEC hopes to use this as a template for other companies who violate the FCPA. They used the Ralph Lauren Corporation as a guinea pig to show future violators just how beneficial it can be to provide them with help. The SEC allowing cooperation to change the way they think about punishment is helpful for them with the amount of resources they no longer have to expend, but it is almost a form of bribery to these companies to help do the work and you will have to pay less.

It may be considered a trade-off, since the companies are paying what the SEC would be anyway. Yet, the SEC took a NPA instead of filing a larger claim and actually taking action. By the SEC taking the NPA approach it also helped the stock price of the company rebound at a faster rate, further encouraging companies to turn themselves in and being an unforeseen benefit of cooperation. The SEC is here to regulate industry in a productive manner, but we’ll see how their ruling on the Ralph Lauren case changes the future of the FCPA.