Internal Controls: Avoid the Check-the-Box Approach

In terms of internal controls issues, the SEC has on more than one occasion found a “check-the-box approach” to anti-bribery compliance to represent inadequate internal controls. Such a conclusion is represented in the SEC’s order instituting a settled administrative proceeding against BHP Billiton Ltd. and BHP Billiton Plc (“BHPB”), a combination of companies headquartered in the United Kingdom and Australia with American Depository Shares listed in the United States.1

BHPB was found to have failed to devise and maintain adequate internal controls over its global hospitality program connected to its sponsorship of the 2008 Summer Olympic Games.2  BHPB invited government officials and employees of state-owned enterprises to attend the Games at its expense while these same individuals were in a position to help BHPB.3  However, as the circumstances changed, adjustments were not made in its procedures to address the new developments.

BHPB’s record-keeping practices were also found to be deficient.4  Even though the the applications for hospitality did not relate directly to the preparation of BHPB’s financial statements, they were found to be relevant to BHPB’s obligations under the FCPA’s record-keeping provisions. The applications failed to include accurate or updated information, or both, that would be pertinent to a determination by BHPB’s compliance officials.

BHPB essentially plodded ahead with what might be described as blinders as to what was occurring. The applications for hospitality for the Olympic Games were largely taken at face value with limited scrutiny. When circumstances changed such that there were ongoing efforts with certain officials for whom an application had been submitted, the applications were not updated to reflect the new developments. As one of the SEC officials pointed out in the SEC’s press release, BHPB’s “‘check the box’ approach” was found to be insufficient.5

Regardless of how well a set of compliance policies and procedures may be, blind obedience to the policies and procedures may not suffice. There is always a need to step back and, in a dispassionate manner, fully evaluate what is really taking place. There may be, as was the situation with BHPB, a need to update or include more recent information. There may also be a host of other factors that may render checking the boxes to be ineffective and inadequate in addressing compliance concerns.

1Order Instituting Cease-and-Desist Proceedings, at ¶¶ 35-38, In the Matter of BHB Billiton Ltd. and BHP Billiton Plc, SEC Admin. Proceeding No. 3-16546 (May 20, 2015).

2Id. at ¶¶ 16-24.

3Id. at ¶¶ 8-15.

4Id. at ¶ 38.

5Press Release, Sec. & Exch. Com’n, 2015-299, SEC Charges BHP Billiton With Violating FCPA at Olympic Games (May 20, 2015).

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