A tale of two corruption settlements …

Call us old-fashioned, but we think that a federal investigation for bribery or foreign corruption, even a small one relative to a company’s size, is significant, and warrants disclosure. We recently took General Electric (GE) to task for sweeping its own foreign corruption inquiry under the rug.

Last Friday, the Securities and Exchange Commission and the U.S. Justice Department announced settlements under the Foreign Corrupt Practices Act, or FCPA, with two tobacco companies. And their disclosures in the run-up to the settlement show modestly different approaches.

The companies are Universal Corp. (UVV), based in Richmond, Virginia, and Alliance One International (AOI), based in Morrisville, North Carolina. In Alliance’s case, the charges actually tie back to two predecessor companies, Dimon Inc. and Standard Commercial Corp.

First, the background: Both sets of charges center around the Thai tobacco monopoly. Universal is charged with paying $800,000 to officials there to win $11.5 million in contracts, while Alliance One is accused of paying $1.2 million to officials to win $18.3 million in contracts. Universal has agreed to pay $9.9 million in criminal fines and disgorgement to settle criminal charges and an SEC lawsuit. Alliance One is paying $19.45 million. Neither company is admitting or denying the allegations, of course. (For those who want more of the legal details, you’ll find them at the SEC and Justice websites.)

Not that Universal investors would have had much reason to think a settlement was just around the corner. The company did note in its most recent quarterly report, filed just last week, that negotiations “have resulted in agreements in principle being reached with representatives of the DOJ and the staff of the SEC,” and that “the Company has recorded accruals from time to time.” But there were no dollar figures given, and there didn’t appear to be any sense of urgency about it; in fact, the company had made essentially the same disclosure going back to its its late-May annual report.

By contrast, Alliance One gave some pretty extensive detail on the state of negotiations in its annual report, which it filed in mid-June. Like Universal, it noted that it had reached an agreement in principle, but it went on to add that it was “able to estimate a probable loss in connection with these matters of $19.45 million for any disgorgement, fines and penalties.” The company then repeated the disclosure in the 10-Q it filed August 5.

Mind you, we have little doubt that Universal’s lawyers were careful to follow disclosure rules, what with the Justice Department and SEC already breathing down their necks. But what’s the harm in keeping investors better informed? We can’t see any, short of a stern warning from the feds — in which case, shame on them. But otherwise, Universal could have been a little more forthcoming.

Image source: Justice Department website


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