Securities Regulation Daily Company subsidiary bribed Mexican officials to get government employee loan business
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Thursday, August 6, 2020

Company subsidiary bribed Mexican officials to get government employee loan business

By Rodney F. Tonkovic, J.D.

Management's lack of concern about the effectiveness of internal audit functions contributed to not detecting a long-running bribery scheme at a Mexican subsidiary.

World Acceptance Corporation has agreed to pay $21 million to settle SEC charges that the company violated the Foreign Corrupt Practices Act. The Commission found that a Mexican subsidiary of the consumer loan company bribed union and government officials so that the subsidiary could make loans to government employees and then ensure that the loans were paid in a timely manner. The company lacked internal accounting and other controls that would have detected or prevented the payments, and the bribes were recorded as legitimate business expenses. The company agreed to disgorge $17 million and to pay a $2 million civil penalty (In the Matter of World Acceptance Corporation, Release No. 34-89489, August 6, 2020).

Bribery scheme. World Acceptance Corporation ("WAC") is a South Carolina-based consumer loan company. According to the Commission, WAC's former wholly-owned subsidiary in Mexico, WAC de Mexico, S.A. de C.V., paid approximately $4.1 million to bribe Mexican government officials and union officials between late 2010 and mid-2017. The bribes were made to obtain and retain business in WAC de Mexico's business line offering small loans to state and federal government employees.

WAC de Mexico had at least thirty contracts with government entities or unions representing government employees. To enter into these contracts to make loans to government employees, WAC de Mexico bribed union and government officials and made ongoing payments to make sure that loan repayments would be made in a timely manner. The Commission's order says that $4.1 million in bribe payments were paid in cash, deposited in the officials' accounts, or deposited into the account of a friend or relative of the official. About $1.5 million was paid to government officials, $580,000 to union officials, and $480,000 was paid to intermediaries who then paid certain officials.

In addition, the bribes were recorded as legitimate business expenses in WAC's books and records. The Commission found that both WAC and WAC de Mexico lacked internal accounting controls sufficient to detect or prevent such payments. Also, WAC lacked sufficient oversight over WAC Mexico to ensure that it was adhering to the company's FCPA policy. Finally, WAC management's uncaring attitude towards the internal audit and compliance functions undermined their effectiveness.

"This long-running bribe scheme did not happen in a vacuum. Through a lack of adequate internal accounting controls and a culture that undermined its internal audit and compliance functions, World Acceptance Corporation created the perfect environment for illicit activity to occur for nearly a decade," said Charles E. Cain, Chief of the SEC Enforcement Division’s FCPA Unit.

The release is No. 34-89489.

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