In terms of issuers and FCPA compliance, the entry of a plea by Jose Carlos Grubisich in response to the Indictment in United States v. Grubisich reflects the degree to which Section 302 Sarbanes-Oxley certifications by Chief Executive Officers (CEO) can serve as a basis for enforcement actions against senior corporate officials.1 Grubisich was a Brazilian citizen and CEO of Braskem, S.A., a Brazil-based petrochemical company and later a member of its board of directors. Braskem was an issuer.
As Braskem’s CEO, he “agreed with others to falsify Braskem’s books and records by falsely recording payments to offshore shell companies controlled by Braskem as ‘commissions.’”2 Among the violations, “Grubisich signed false certifications submitted to the SEC, which among other things, attested that Braskem’s annual reports fairly and accurately represented Braskem’s financial condition, and that Grubisich, as Braskem’s principal officer, had disclosed all fraudulent conduct by Braskem’s management and other employees with control over Braskem’s financial reporting.”3
By signing these documents, GRUBISICH personally certified that Braskem fully complied with the requirements of Sections 13(a) and 15(d) of the Exchange Act (Title 15, United States Code, Sections 78m(a) and 78o(d)), and that the information contained in Braskem’s annual reports fairly presented, in all material respects, the financial condition and results of operations and cash flows of Braskem. 4
The defendant JOSE CARLOS GRUBISICH also personally certified that he had disclosed any fraud, whether or not material, that involved management or other employees who had a significant role in Braskem’s internal control over financial reporting. GRUBISICH’s certification was false because GRUBISICH was aware that Braskem was generating funds that were being falsely reported as “commissions” payments on its books and records, and that these funds were being used to make bribe payments on Braskem’s behalf.5
As part of Section 302 of the Sarbanes-Oxley Act, 15 U.S. Code § 7241, CEOs and chief financial officers are required to make certain certifications in financial statements. This includes the requirement to disclose “any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal controls.”6 False certifications are subject to a ten-year term of imprisonment and a 20-year term of imprisonment when willful.7
The implications of Section 302 of Sarbanes-Oxley cannot be overstated in the context of anti-bribery compliance. Of particular significance, the fraud to be disclosed to an issuer’s auditors need not be material.8 Similarly, criminal sanctions may also be imposed on senior officers who failed to disclose “significant deficiencies in the design or operation of internal controls which could adversely affect the issuer’s ability to record, process, summarize, and report financial data and have identified for the issuer’s auditors any material weaknesses in internal controls.” 9
2Id., at ¶ 21.
3Id., at ¶ 21.
4Id., at ¶ 36.
5Id., at ¶ 37 (emphasis added).
618 U.S.C. § 7241(a)(5)(B) (emphasis added).
7Id., § 1350(c).
8Id., § 7241(a)(5)(B).
9Id., § 7241(a)(5)(A).