I don’t share this to offer an opinion on the underlying action, but I thought it would be an item of interest to our readers. Much has been written on this blog about challenges in the SEC’s FCPA enforcement process.
I am surprised the news media hasn’t touched Herman Cain’s relationship with AGCO Corp. during the FCPA Oil-for-Food bribery settlement given the recent focus on his campaign. I thought I would share the facts with limited editorializing. Maybe the story is that it is an issue calling Herman Cain’s business judgment into question, then again maybe the point is how the FCPA is so harsh that even upstanding business leaders can get caught up in it.
Herman Cain was a member of the Board of Directors of AGCO Corp. from December 2004 until 2011. He also joined the Audit Committee of AGCO in December 2004, which had enhanced obligations for overseeing company internal controls after passage of Sarbanes-Oxley in 2003. Like many companies, including General Electric, AGCO was implicated in the Oil-for-Food scandal in which Saddam Hussein’s regime coerced companies selling food or other items permitted under exemptions to the UN embargo to give kickbacks to the regime.
The SEC filed a complaint in 2009 charging AGCO with violations of the Foreign Corrupt Practices Act in connection with the Oil-for-Food program. The SEC complaint alleges that “AGCO failed to accurately record in its books and records the kickbacks that were authorized for payment to Iraq. AGCO also failed to devise and maintain systems of internal accounting controls to detect and prevent such illicit payments.” The complaint describes an internal procedure whereby “sales and marketing personnel were able to enter into contracts without review from the legal or finance departments.” AGCO earned nearly $14 million on the contracts secured through the kickbacks.
AGCO settled with the SEC without admitting or denying the allegations in the complaint and paid nearly $20 million to settle the SEC and companion actions by the DOJ and Danish authorities. AGCO also entered into a deferred prosecution agreement with the DOJ over the companion criminal charges. The deferred prosecution agreement called on AGCO to fix problems in its internal controls to prevent future FCPA violations.
The SEC Complaint describes illicit activity taking place between 2000 and 2003 (ending in March 2003 with the US invasion), all of which occurred prior to Herman Cain joining the Board of AGCO in 2004. The SEC complaint also notes that AGCO senior managers received a red flag in 2004 indicating the prior bribery in the form of questions from a news reporter. AGCO’s fiscal year in 2004 ended in March, the SEC complaint doesn’t indicate whether the 2004 red flag came before or after March, and therefore whether AGCO’s Audit Committee would have discussed it if they knew about it in leading up to filing the 2004 annual financial statements in March of 2005.
Now, its clear that there is no evidence to indicate that Herman Cain had anything to do with the bribery. And, its also clear that almost all, if not in fact all, of the failure of management to catch the bribery occurred before his joining the Board or the Audit Committee. If the internal audit procedures were actually fundamentally flawed as the SEC alleged, I do think however it may be legitimate to ask what Herman Cain did to fix them during his tenure on the Audit Committee. That’s not to say it makes him complicit or liable, but it’s at least more relevant than some of stories we’ve seen in the silly season thus far in the last six months.