On Tuesday, September 10, the U.S. Securities and Exchange Commission (“SEC”) announced and resolved charges against Deere & Co. (d/b/a John Deere) (“Deere”) for alleged violations of the books, records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”). Neither admitting nor denying liability, Deere consented to pay approximately $10 million in penalties and disgorgement and submit to a cease-and-desist order (“the Order”) to resolve charges that a newly-acquired subsidiary, in the three years following its acquisition by Deere, obtained contracts from the government of Thailand as a result of alleged bribes and lavish entertainments provided to Thai government officials. This case highlights the importance of integrating newly-acquired subsidiaries into the parent’s anti-bribery and corruption compliance and internal controls environment.
The Order alleges that Wirtgen Thailand, a subsidiary of Wirtgen Group, a German road construction company acquired by Deere in late 2017, engaged in several different schemes from at least 2017 to 2020, which the SEC alleged violated the FCPA as summarized below:
- Wirtgen Thailand personnel paid cash bribes via a “third-party consultant” (disguised as sham “commission agreements”) to Thai government officials in exchange for awarding to Wirtgen Thailand various government contracts valued at approximately $4.67 million;
- Wirtgen Thailand personnel arranged a trip for Thai officials to Switzerland for the stated purpose of visiting a Wirtgen factory, but the Thai officials never set foot in the factory, enjoying instead a “luxury” sightseeing trip; within weeks, two Thai government contracts were awarded to Wirtgen Thailand;
- Wirtgen Thailand personnel “regularly entertained” Thai officials at massage parlors in Thailand (all recorded as “entertainment”), which the SEC alleges was provided in exchange for sensitive bidding information and the award of multiple government contracts.
The Order alleges that the schemes were approved by senior Wirtgen Thailand and Group personnel, up to and including the Managing Director of Wirtgen’s Southeast Asia region.[1]
To settle the matter, Deere agreed to pay $5.43 million in disgorgement (inclusive of interest) and $4.5 million in the form of a civil penalty. The SEC gave Deere “cooperation credit” for undertaking a substantial internal investigation, providing translations of relevant documents, access to current and former employees, a forensic accounting analysis, and more. The SEC also noted that Deere terminated employees responsible for the misconduct and initiated improvements to its compliance and internal audit programs.
The fact that a penalty was assessed against Deere at all, however, underscores the continuing need for FCPA compliance after a transaction closes and while the new asset is being integrated. The Order notes that Deere itself had already adopted relevant policies and procedures, including policies on entertainment of government officials and policies on factory visits by non-U.S. government officials. The Order does not allege that any personnel at the parent company were complicit in or aware of the improper payments. The SEC nonetheless criticized Deere’s “fail[ure] to complete the full integration of [Wirtgen Thailand] into its compliance program and overall control environment.”
This case highlights the long-term value proposition for an acquiring company to conduct risk-based FCPA and anti-corruption due diligence on potential new business acquisitions, reinforced by appropriate post-acquisition integration into the acquirer’s existing compliance and internal controls environment. With focus before and after, acquirers have a better chance to identify and address any potential legacy issues and mitigate the risk that the acquired entity’s misconduct (if any) continues undetected post-acquisition, as it appears was the case for Deere and Wirtgen Thailand.
[1] The SEC also alleged that in 2018 and 2019, Wirtgen Thailand engaged in commercial bribery of a Thailand-based customer, with similar practices under the guise of “factory visits,” including lengthy sightseeing trips in Europe including family members of the customer representative, approved by senior Wirtgen Thailand personnel, and inaccurately recorded as “brokerage payments” and “sales commissions.”
