Bribery Alert
This is our first shot across the bow of the Goodship Trump. A second company in our portfolio has followed Teva (TEVA) getting into trouble with the US Department of Justice and the US Securities and Exchange Commission, following Teva's fine for bribing state and federal insurance bodies in Mexico, Ukraine, and Russia to boost prescriptions for its multiple sclerosis drug Coapaxone. The last company to have been hit with fines from both agencies for 'payola' is Soquimich, the Chilean miner of potash and lithium. Like Teva it comes under the Foreign Corrupt Practices Act passed by the US legislature, supported by both parties when the Senate Foreign Relations Committee was headed by Frank Church (D-Iowa) and my boss, Clifford Case (R-NJ). That law became a model for other countries aiming to fight payola in winning contracts.
SQM will pay $30.5 mn and enter into a deferred prosecution agreement to resolve civil and criminal matters related to improper payments to Chilean politicians and others with influence over the government's mining plans, federal authorities said Friday.
Under the terms of the prosecution agreement, SQM admitted that nearly $15 mn payments were made over at least a seven-year period through 2015, authorized by a senior executive, and that it falsified records to conceal the payments as being made to legitimate vendors.
Company officials whose job was to maintain internal accounting controls, the SEC said, became aware but failed to take appropriate steps to prevent further payments. For example, the SEC's investigation found that when payments to the relative of a Chilean official were stopped in 2014, payments resumed about a month later to the official's aide.
SQM, which already took a series of steps including firing the executive after Chilean tax authorities first spotted the backhanders. However it was left to the USA to impose real penalties on SQM which was politically connected to the former Pinochet regime when the bribes were paid, its board headed by the son-in-law, divorced, of his daughter.
Now the new Administration is plotting to repeal the FCPA so that US companies can get business by bribery without hindrance from stock market watchdogs or the Justice Dept., all in the interest of improving the business climate by getting rid of unnecessary regulations. This will not only do damage to the US reputation in world business, but it will also hurt the countries where bribery is practiced, notably emerging markets or ones just learning about capitalism, like Russia, China, Ukraine, or China. It also makes me wonder how Mr. Trump did business in the past. We all know that real estate permits are bought and sold by local governments even in Great America.
There is nothing particularly American about getting government contracts with backhanders. That is how Samuel Pepys ran the British Navy. That is how the Austro-Hungarian empire kept Mrs Melania Trump's ancestor on its side. It is simply not the way we want to get business in the future.
Disclosure: None.