World Acceptance Corp., a Greenville, South Carolina-based consumer lender, recently announced it has set aside $21.7 million in anticipation of resolving a Foreign Corrupt Practices Act (“FCPA”) investigation into the company’s Mexico-based subsidiary by the United States Securities and Exchange Commission and the Department of Justice.
The investigation has focused on the legality of certain payments related to loans, the bookkeeping and records related to the loan payments, along with the classification of compensation for certain employees under both the FCPA and local law.
The FCPA is a United States bribery and corruption law that makes it unlawful to make payments to foreign government officials in order to assist in obtaining or retaining business. The two specific provisions at play here are the anti-bribery provision as well as the books and records provision. The anti-bribery provision prohibits any offer or payment of anything of value in order to obtain or retain business. The books and records provision requires companies whose securities are listed in the United States to meet certain accounting provisions, including making and keeping books and records that accurately and fairly reflect the transactions of the corporation; and devising and maintaining an adequate system of internal accounting controls.
World Acceptance said in its annual report filed with the SEC that the probe was looking specifically at whether improper payments were made between 2010 and 2017, by or on behalf of its Mexican subsidiary to government officials in Mexico in relation to loans to unionized employees.
While the FCPA often is used in tandem by the SEC and DOJ to investigate companies with significant international operations, the government historically has investigated companies in the oil, telecom, and healthcare industries. However, there has been a recent trend where the SEC and DOJ have brought enforcement actions against financial institutions.
For example, in the past four years alone, financial institutions have paid at least $250 million to the SEC and DOJ in order to settle FCPA claims. The investigations included a practice of hiring relatives and referrals of government officials in order to gain business and internship hiring practices which violated the FCPA.
When considering settlement numbers, the SEC and DOJ often took into account whether the companies voluntarily disclosed any potential wrongdoing and whether they cooperated during the investigation. World Acceptance voluntarily contacted both the SEC and DOJ about its internal investigation and has reportedly fully cooperated during the investigation. Further, World Acceptance sold its Mexico operations in 2018. It is worth noting that while the $21.7 million that World Acceptance has set aside is solely in anticipation of settling the SEC investigation, as of now there has been no word of a settlement with the DOJ.
In 2018, World Acceptance was under investigation by the Consumer Financial Protection Bureau, which looked into the consumer lender’s marketing and lending practices. However, the CFPB ultimately recommended no further action be taken against World Acceptance.
While FCPA investigations traditionally have targeted other industries, it has become clear that the SEC and DOJ have set their sights on financial institutions, particularly those with significant international operations. It is important, perhaps now more than ever, that financial institutions have robust FCPA compliance measures in place.