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SEC Obtains Cease and Desist Order, Fine Regarding Foreign Corrupt Practices Act Violations by Gun Maker
Tuesday, July 29, 2014

The Securities and Exchange Commission (“SEC”) has announced that it has entered into a cease and desist order with gun manufacturer Smith & Wesson for violations of the Foreign Corrupt Practices Act (“FCPA”) by allegedly bribing representatives of international buyers with gifts of products or money, in the hope of obtaining sales contracts for the sale of guns.  Gun manufacturer Smith & Wesson did not admit the facts showing a violation of the FCPA, but it also did not deny them. Noteworthy to employers with overseas operations, as a result of the SEC’s investigation and findings the company terminated its entire international sales staff.

According to the SEC, from 2007 to 2010, Smith & Wesson sought to expand its gun sales in international markets, including in Pakistan, Indonesia, Turkey, Nepal, and Bangladesh.  As part of its attempt, the company authorized improper payments and bribes to local law enforcement officials, with an eye towards securing large contracts for the sales of guns to local law enforcement agencies in these countries.  In one instance, $11,000 worth of guns were provided as gifts to Pakistani law enforcement representatives and the company eventually securing a contract from the same officials that netted the gun manufacturer $107,852 in profits.

In another instance, in Indonesia, the company authorized payments through a third party that were ostensibly to be used for gun testing, but in reality were being used to bribe local Indonesian law enforcement officials.

As a result of these activities, the SEC determined that the company violated the FCPA by not accurately recording the true nature of the payments being made, by not having in place sufficient internal controls necessary to prevent the practices, and by profiting from the practices.

The company was ordered to disgorge $107,852 in profits due to the alleged activities, and pay a fine of $1,906,000.  It also was ordered to put into place internal controls designed to stop these practices from reoccurring and report on its efforts in this regard.

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