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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Shruti J. Shah
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

Bill Steinman
Contributing Editor

Cleared by feds, but FCPA accusations leave lasting scars

In December 2012, a payment processing company based in Johannesburg called Net 1 UEPS Technologies, Inc. disclosed some bad news. The DOJ and SEC had launched FCPA investigations.

The feds wanted to know if Net1 paid bribes to win a contract from the South Africa Social Security Agency (SASSA). The FBI was also involved.

Barclays Bank had triggered the investigation after it lost a public tender for the SASSA contract.

As Net1 said later, Barclays referred “unsubstantiated South African press articles to the DOJ, alleging or implying that the SASSA tender process was tainted by corruption involving [Net1’s] subsidiary.”

“These actions resulted in the DOJ and [SEC] announcing investigations into alleged FCPA and disclosures violations on November 30, 2012.”

The SEC investigation lasted more than two and a half years, while the DOJ’s went on for nearly five years (four years, seven months, and 26 days). In the end, both agencies closed their investigations and declined to bring any charges.

Net1 said the DOJ declination was “the final step” to clear its name. Except it wasn’t. The FCPA allegations had caused a lot of damage and some of it lingered.

In a 10-K filed with the SEC this month, Net1 hinted at its FCPA ordeal and the aftermath:

“While [the DOJ and SEC] investigations have all been concluded with no adverse findings against us, during the course of the investigations, management’s time was diverted from other matters relating to our business and we suffered harm to our business reputation.”

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These days the company is still trying to repair the damage. It isn’t easy.

Management has to spend “a disproportionate amount of time explaining the circumstances surrounding, and the result of the investigations, when engaging new business partners, shareholders or regulators,” Net1’s latest disclosure said.

The company added a final warning: It could all happen again.

“Our current and potential competitors may use U.S. laws and regulations, including the FCPA, to disrupt our business operations and harm our reputation in the territories in which we operate or in which we intend to expand into.”

*     *     *

By early 2013, Net1’s legal costs for the FCPA investigations had swelled to more than $1.25 million a month. In May 2013, the company announced a quarterly loss of $4.7 million.

Later that year, South Africa’s financial regulator suspended a Net1 affiliate’s business license because of the FCPA allegations.

Net1 itself then asked the South African Police Service to investigate “the allegations of corruption that were contained in certain newspaper reports.” Two years later, prosecutors assigned to the case declined to go forward and the police closed the investigation.

As a result of the U.S. investigations, in late 2013 a purported class action lawsuit filed in federal court in New York City named the company and its CEO and CFO as defendants. The complaint alleged violations of the federal securities laws. The U.S. District Court dismissed the class action in September 2015.

*     *     *

As a postscript . . . 

Net1’s 2012 FCPA accuser, Barclays, disclosed its own FCPA investigation later that year. The DOJ and SEC were asking if “relationships with third parties who assist Barclays to win or retain business are compliant with the United States Foreign Corrupt Practices Act,” the bank said.

In 2013, Wall Street’s independent regulator, FINRA, fined Barclays Capital Inc. $3.75 million for failing to preserve electronic records and certain emails and instant messages.

In 2014, the UK Financial Conduct Authority (FCA) fined Barclays £26 million ($43.9 million) after accusing a former trader at the bank of improperly influencing gold prices at the expense of a customer.

In 2015, the FCA again fined Barclays Bank. This time the penalty was £72 million ($108 million) for ignoring red flags and failing to do proper due diligence on high net worth politically exposed persons.

In early 2016, the U.S. Department of the Treasury’s Office of Foreign Assets Control fined Barclays Bank $2.48 million to resolve potential civil liability for 159 apparent violations of OFAC’s sanctions against Zimbabwe.

Later in 2016, a jury in a London criminal court convicted three former traders from Barclays of manipulating U.S. Dollar interest rates.

In 2017, the UK Serious Fraud Office brought criminal charges against Barclays PLC for corruption offenses. The SFO said the offenses occurred when Barclays sought huge loans from sources in Qatar during the 2008 financial crisis. A London court later dismissed the charges. In the United States, the FCPA investigations are continuing, Barclays said.

In 2018, UK regulators fined Barclays’ chief executive Jes Staley about £642,000 ($871,000) for trying to track down and unmask an anonymous whistleblower who made allegations about Staley’s role in recruiting another employee. Staley had joined Barclays in December 2015.

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Richard L. Cassin is the publisher and editor of the FCPA Blog.

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1 Comment

  1. It is noted that even the big 4 providers of audit/accounting have been penalized with negotiated financial fines in tens of millions of US4 by Financial Regulatory Authorities in several countries which sums had been paid but without any wrongdoings being admitted. Yet there appears to be little adverse impact on the businesses or revenues of these companies unlike companies being subjected to FCPA investigations.
    Can any one explain the difference in the impact on providers of accounting/audit services?


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