Anheuser-Busch InBev paid $6 million Wednesday to settle charges that it violated the Foreign Corrupt Practices Act and impeded a whistleblower who reported the misconduct.
The company’s India minority-owned joint venture used third-party sales promoters to make improper payments to government officials in India to increase sales and production, the SEC said.
It entered into a separation agreement that stopped an employee from continuing to voluntarily communicate with the SEC about potential FCPA violations. The agreement could have imposed a $250,000 penalty if the employee violated strict non-disclosure terms.
The SEC resolved the enforcement action with an internal administrative order and didn’t go to court.
“Despite repeated complaints from employees, Anheuser-Busch InBev had inadequate internal accounting controls to detect and prevent the improper payments, and the company failed to ensure that transactions involving the promoters were recorded properly in its books and records,” the SEC said.
Anheuser-Busch InBev’s India joint venture used sales promoters in several India states without conducting due diligence. It paid them inflated commissions, the SEC said.
For example, in 2011 the joint venture began working with an agent in the India state of Andhra Pradesh who had connections to the son-in-law of the Andhra Pradesh Excise Minister.
The agent secured extra brewing hours for the joint venture after the Andhra Pradesh Excise Commissioner had limited production time to 8 hours per day, the SEC said.
The SEC’s Kara Brockmeyer said Wednesday,
Anheuser-Busch InBev recorded improper payments by its sales promoters in India as legitimate expenses in its financial accounting, and then exacerbated the problem by including language in a separation agreement that chilled an employee from communicating with the SEC.
Anheuser-Busch InBev is headquartered in Leuven, Belgium. The company was formed in November 2008 through the merger of Anheuser-Busch Companies Inc. and InBev SA/NV.
The combined company’s American Depositary Receipts trade on the New York Stock Exchange under the symbol BUD and have been registered with the SEC since September 2009.
Anheuser-Busch InBev and its various subsidiaries and related companies have about 155,000 employees in 25 countries. Its brands include Budweiser, Corona, Stella Artois, Beck’s and Michelob. Revenues last year were about $43 billion.
The SEC found that Anheuser-Busch InBev violated the books and records and internal controls provisions of the FCPA. It also violated SEC Rule 21F-17(a) by impeding an employee from communicating directly with the SEC.
It paid the SEC $2.7 million in disgorgement, interest of about $292,000, and a penalty of about $3 million.
Anheuser-Busch InBev settled the action without admitting or denying the SEC’s findings.
The SEC said the whistleblower-employee stopped communicating with the agency after signing the separation agreement that included a liquidated damages provision that could impose damages of $250,000 for breaching strict confidentiality provisions.
The SEC then issued an administrative subpoena to the employee for testimony and documents, and the employee resumed communicating directly with the SEC.
The SEC said Anheuser-Busch InBev failed to report internal whistleblower complaints in 2009 and 2011 about illegal payments to government officials. The SEC contacted the company about the allegations in October 2011.
In May 2013, the SEC learned the India joint venture planned to destroy or hide documents. The SEC informed Anheuser-Busch InBev but the company took no immediate corrective action, the SEC said.
During the SEC investigation, Anheuser-Busch InBev “did not respond to subpoenas in a timely manner, and made broad assertions of privilege that required significant resources from the [SEC] to address and delayed the production of responsive, non-privileged documents,” the SEC’s order said.
“The timeliness of AB InBev’s responses to the [SEC’s] requests for documents and information improved over time,” the order said.
As part of Wednesday’s settlement, the company agreed to cooperate with the SEC for two years and report its FCPA compliance efforts.
It also must make “reasonable efforts to notify certain former employees that Anheuser-Busch does not prohibit employees from contacting the SEC about possible law violations.”
The SEC has brought one enforcement action under the anti-retaliation provisions of the Dodd-Frank Act and four other actions before Wednesday’s against companies for including language in confidentiality and severance agreements that impeded whistleblowers from reporting to the SEC.
“Threat of financial punishment for whistleblowing is unacceptable,” Jane Norberg, acting chief of the SEC’s Office of the Whistleblower, said Wednesday. “We will continue to take a hard look at these types of provisions and fact patterns.”
The SEC said it had help in its investigation from the Securities and Exchange Board of India.
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The SEC’s administrative order as Securities Exchange Act of 1934 Release No. 78957, Accounting and Audit Enforcement Release No. 3808, and Administrative Proceeding File No. 3-17586 In the Matter of Anheuser-Busch InBev (dated September 28, 2016) is here (pdf).
Richard L. Cassin is the publisher and editor of the FCPA Blog. He’ll be the keynote speaker at the FCPA Blog NYC Conference 2016.