On April 22, 2013, the United States Department of Justice (DOJ) and United States Securities and Exchange Commission (SEC) announced that fashion powerhouse Ralph Lauren Corporation (RLC) has agreed to pay $1.6 million collectively to resolve allegations of misconduct under the Foreign Corrupt Practices Act (FCPA) for allegedly bribing government officials in Argentina to obtain improper customs clearance of merchandise and for illicitly providing expensive gifts to Argentine officials to secure the importation of RLC’s products into Argentina. The FCPA prohibits improper payments to foreign officials to secure business advantages. RLC discovered and timely self-reported the misconduct to US authorities after the violations surfaced during an internal investigation in 2010. Two non-prosecution agreements (NPA) were struck; one with the DOJ and the other with the SEC. The NPAs require RLC to report to prosecutors over a two-year period on remediation efforts and proposals to overhaul internal controls, policies, and procedures. As part of the deal, RLC will pay the DOJ a monetary penalty of $882,000 and the SEC $735,000 (disgorgement plus interest), for a total of about $1.6 million.
The alleged bribery scheme is detailed in the factual portion of the non-prosecution agreement. There, it is reported that over a four-year period, from approximately 2005 through approximately 2009, RLC Argentina General Manager and other employees of RLC Argentina approved bribe payments to be made to Argentine customs officials through a customs broker to assist in improperly obtaining paperwork necessary for RLC products to clear customs, to permit clearance of items without the requisite paperwork, to permit the clearance of prohibited goods, and to avoid inspection of products by Argentine officials. The bribery plot involved the customs broker submitting inflated invoices to RLC’s Argentina’s General Manager or subordinates for reimbursement of the custom broker’s expenses. While the line items included some legitimate charges, the invoices also included requests for excessive payments for “Loading and Delivery Expenses” and “Stamp Tax/Label Tax.” These fraudulent line items were used to conceal the bribe payments.
The scheme was uncovered when RLC adopted a new FCPA policy in 2010. When the new program was disseminated through RLC’s intranet site, RLC employees in Argentina raised concerns about the broker. One red flag in uncovering the misconduct was the absence of any back up documentation from the customs broker to RLC Argentina for the illicit line item charges. According to US authorities, an RLC Argentina manager also gave elaborate gifts to three Argentine officials, including perfume, dresses, and handbags valued from $400 to $14,000 each.
Besides the monetary fines, the Justice Department NPA requires RLC to maintain a rigorous corporate compliance program and internal controls with detailed policies and procedures covering items like gifts, entertainment, travel, charitable donations, sponsorships, and other known “red flag” expenses.
This is the first time the SEC and the Justice Department (in the Eastern District of New York) have struck dual non-prosecution deals with a company found to be in violation of the FCPA. The government agencies heading this investigation applauded RLC for self-policing and voluntarily disclosing the misconduct swiftly (within two weeks of discovery) and cooperating fully with the government’s investigation. RLC’s proactive investigation, immediate response, self-disclosure to US authorities, and complete cooperation were key in the leniency offered to RLC by the non-prosecution agreement. In past FCPA cases, US authorities have not been nearly as generous in granting this type of leniency to companies engaged in foreign bribery. Penalties for FCPA violations can be substantial, including multimillion dollar fines and up to five years imprisonment for each FCPA violation for individuals, as well as debarment from government contracts. Even with this leniency, the self reporting resulted in a significant fine, albeit RLC saved itself from a much more intrusive investigation and possible government mandated monitorship.
Further, these cases are not limited to enforcement authorities in the US. There are reports that the Government of Argentina is conducting a criminal investigation as well and has requested that US authorities provide it with the names of the Argentine officials involved in the bribery scheme. It is often the case now that foreign governments will conduct their own investigation, and may want cooperation from US companies. In such cases, the foreign government will need to work through the Office of International Affairs at DOJ, and formally request evidence. The company under investigation is then faced with responding to Mutual Legal Assistance Treaties, Letters Rogatory, and potentially depositions in this country.
This investigation highlights the expanding reach of the FCPA across all industries and its global impact on operations in foreign jurisdictions. In addition, this investigation reinforces that thorough, real-time cooperation with government authorities is essential to obtain any form of leniency for FCPA misconduct. Fashion designers, manufacturers, distributors, and retailers should be mindful of FCPA prohibitions and ensure robust compliance programs and comprehensive employee training across all levels of the company to prevent and quickly remediate any discovered violations. The fashion industry must also be aware of the far-reaching implications of FCPA misconduct, including the possibility of being called upon to assist the foreign jurisdiction with its own investigation and related discovery, despite settlement with US authorities.