Through the normal course of research, I review a lot of SEC filings. Over the years, I’ve probably thumbed through more than ten thousand. This has to be the most bizarre SEC filing disclosure related to the FCPA I’ve come across.
The filer — Beyond Air, Inc. — is a biomedical company that uses a “patented Ionizer™ technology that generates unlimited, on-demand nitric oxide using room air.”
I don’t know what that means, but I’m sure they are very good at it. However, I have doubts about their FCPA counsel.
Here’s the excerpt verbatim (grammar error included) from the June 23 Beyond Air, Inc. 10-K filing:
If we sell our device outside the United States, it must comply with the Foreign Corrupt Practices Act (“FCPA”) and local laws of other countries. FCPA is a complex patchwork of laws can change rapidly with relatively short notice.
Did you spot the issues?
Here are questions you should ask about the disclosure:
- Does FCPA jurisdiction depend on selling a device outside the United States?
- How does a device comply with the FCPA?
- Is the FCPA a patchwork of laws?
- Does the FCPA change rapidly?
- Does the FCPA change with short notice?
Here’s the answer key:
- FCPA jurisdiction does not depend on the company’s selling a device outside the United States. It depends on whether the company directly or indirectly gives or promises to give anything of value to a foreign official to obtain or retain business or gain an unfair advantage.
- It’s not the device that must comply with the FCPA but the company and anyone acting for it.
- The FCPA is not a patchwork of laws. It’s one law in two parts: the anti-bribery provisions and the accounting standards (books and records and internal controls provisions).
- The FCPA does not change rapidly. Congress has amended it twice since 1977.
- If Congress were to amend the FCPA again, short notice wouldn’t be a problem. Congress doesn’t move that quickly.
This is a surprising amount of error for a publicly traded, U.S.-based company that has a compliance committee.
Then again, the compliance committee only met once during the fiscal year ending March 2023. What did the compliance committee talk about? Maybe not the FCPA.
The same 10-K filing described their role as:
The primary purpose of our compliance committee is to assist our Board of Directors with oversight of healthcare compliance risk management arising from the FDA, Office of Inspector General, the U.S. Department of Justice and other federal, state or foreign corporate compliance requirements related to medical devices that specifically govern the AKS, FCA, FD&C Act, FCPA, Sunshine Act and similar state laws, HIPAA, the AdvaMed Code, and similar applicable state and local regulations and (when applicable) equivalent global requirements. Our compliance committee met one time during the fiscal year ended March 31, 2023
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What does a more accurate and complete FCPA disclosure look like?
Here is one from the latest 10-K from C3 AI, an enterprise software company (with the company’s emphasis):
We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, and similar anti-corruption, anti-bribery, and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition and results of operations.
We are subject to the FCPA, U.S. domestic bribery laws, the UK Bribery Act, and other anti-corruption and similar laws in the countries in which we conduct activities. Anti-corruption and anti-bribery laws have been enforced aggressively in recent years and are interpreted broadly to generally prohibit companies, their employees, and their third-party business partners or intermediaries, representatives, and agents from authorizing, offering, or providing, directly or indirectly, improper payments or other benefits to government officials or others in the private sector in order to influence official action, direct business to any person, gain any improper advantage, or obtain or retain business. As we increase our international sales and business, our risks under these laws may increase.
As we increase our international sales and business and sales to the public sector, we may engage with third-party business partners and intermediaries to market our C3 AI Software and to obtain necessary permits, licenses, and other regulatory approvals. In addition, we or our third-party business partners or intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of our third-party business partners or intermediaries, our employees, representatives, contractors, and agents, even if we do not explicitly authorize such activities.
These laws also require that we keep accurate books and records and maintain internal controls and compliance procedures designed to prevent any such actions. While we have policies and procedures to address compliance with such laws, our third-party business partners or intermediaries, employees, representatives, contractors, and agents may take actions in violation of our policies and applicable law, for which we may be ultimately held responsible.
Detecting, investigating, and resolving actual or alleged violations of anti-corruption laws can require a significant diversion of time, resources, and attention from senior management, as well as significant defense costs and other professional fees. In addition, noncompliance with anti-corruption, or anti-bribery laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, enforcement actions, fines, damages, other civil or criminal penalties or injunctions against us, our officers, or our employees, disgorgement of profits, suspension or debarment from contracting with the U.S. government or other persons, reputational harm, adverse media coverage, and other collateral consequences. If any subpoenas or investigations are launched, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal proceeding, our reputation, business, stock price, financial condition, prospects and results of operations could be harmed.
Maybe Beyond Air, Inc.’s compliance committee ought to take a look.