The Securities and Exchange Commission charged a consumer loan company $21.7 million to resolve charges that it violated the Foreign Corrupt Practices Act (FPCA).
The SEC says that a former Mexican subsidiary of World Acceptance Corporation (WAC), a South Carolina-based consumer loan company, paid more than $4 million from at least December 2010 to June 2017 in bribes to Mexican government officials and union officials to guarantee the ability to loan to government employees and timely repayments.
The bribes were made in cash, through deposits into the account of the official, or into the accounts of friends and relatives of the officials. WAC Mexico also hired third-party intermediaries to secure business through bribery, paying the intermediaries a small portion of the total bribe as a fee.
The company “lacked the appropriate tone at the top regarding internal audit and compliance, thereby undermining the effectiveness of those functions,” the SEC’s order said. The then-CEO of WAC terminated the vice president of internal audit after he voiced concerns about compliance.
The internal audit and compliance functions were then forced into one department with one vice president, who must report directly to the then-CEO. The then-CEO also pressured the vice president of the combined functions to cut staff in the department. When the new vice president voiced concerns about the adequacy of the internal audit and compliance departments in 2016, she was also terminated.
The SEC also says that WAC failed to keep accurate books and did not develop and maintain an adequate internal controls system to detect and prevent the bribes. The bribe payments were inaccurately recorded as legitimate “commission.” WAC Mexico did not have a vendor management system and did not conduct due diligence on new vendors, allowing the bribes to happen undetected.
WAC did not have entity level controls over their subsidiary and did not have reasonable assurance that the subsidiary has implemented and adhering to compliance regulations. WAC did not identify the high bribery risk in Mexico and did not adequately monitor or provide FCPA training to its employees in both the main and subsidiary branches.
“This long-running bribe scheme did not happen in a vacuum. Through a lack of adequate internal accounting controls and a culture that undermined its internal audit and compliance functions, World Acceptance Corporation created the perfect environment for illicit activity to occur for nearly a decade,” said Charles E. Cain, Chief of the SEC Enforcement Division’s FCPA Unit in a statement.
Stephanie Liu is assistant editor at Internal Audit 360°