The Foreign Corrupt Practices Act has always been a law much broader than its name suggests.
Sure, the FCPA contains anti-bribery provisions which concern foreign bribery.
Sure, the FCPA’s books and records and internal controls provisions can be implicated in foreign bribery schemes.
However, the fact remains that most FCPA enforcement actions (that is enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions) have nothing to do with foreign bribery. For lack of a better term, these enforcement actions have longed been called non-FCPA, FCPA enforcement actions by this site.
The latest example concerns Plug Power (a New York based provider of green hydrogen and hydrogen-fuel-cell solutions).
In summary fashion, this administrative order finds:
“This matter involves financial reporting, accounting, and controls failures by Plug Power, a provider of green hydrogen and hydrogen-fuel-cell systems. These failures led to a multiyear restatement of Plug Power’s financial statements concerning, among other things, reported assets and liabilities for leases, classification of certain operating costs, and loss accruals for service contracts.
From 2018 through the third quarter of 2020, Plug Power failed to properly account for its right-of-use (“ROU”) assets and lease liabilities for certain sale-leaseback transactions, failed to properly classify and present certain costs related to research and development (“R&D”) activities as cost of revenue, and failed to properly estimate loss accruals for extended-maintenance contracts. Plug Power also failed to properly account for other items, including bonus expense in the third quarter of 2020, and certain conversions of the Company’s convertible preferred stock. On March 16, 2021, Plug Power announced that its prior annual reports on Form 10-K for 2018 and 2019, and prior quarterly reports on Form 10-Q for 2019 and 2020, should no longer be relied upon due to the Company’s accounting errors. Plug Power subsequently restated these financial statements in the Company’s 2020 Form 10-K filing on May 14, 2021. In the restatement, management identified a material weakness in internal control over financial reporting (“ICFR”), and ineffective disclosure controls and procedures (“DCP”), due to Plug Power’s failure to maintain a sufficient complement of trained, knowledgeable personnel to execute their responsibilities for certain financial statement accounts and disclosures. Despite these control deficiencies, the Company raised over $5 billion from investors during the relevant Filing Period. Plug Power’s remediation efforts are ongoing but the Company’s material weakness in ICFR and ineffective DCP have not been fully remediated.”
Under the heading “Plug Power’s Internal Control Deficiencies,” the order finds:
“During the restatement process, Plug Power identified numerous control failures, design deficiencies, and absent controls related to the Company’s accounting errors. In particular, management determined that Plug Power did not have the appropriate level of accounting personnel and technical expertise to properly assess the accounting implications of many complex business transactions. Management concluded that this design deficiency was primarily caused by a lack of sufficient qualified technical accounting and financial reporting personnel to perform control activities for complex and non-routine transactions.
Due to this deficiency, management determined that certain process-level controls did not operate effectively to mitigate identified risks in the following areas: (i) accounting for certain sale-leaseback transactions; (ii) classification of certain operating expenses; and (iii) identification and evaluation of certain management estimates concerning loss accruals, quarterly bonus expenses, and impairment. Management also determined that: (i) the Company’s process when applying GAAP to complex accounting matters was insufficient; (ii) its estimation policies and procedures were not consistent with overall market dynamics; and (iii) it did not have sufficient tools and tracking mechanisms to maintain appropriate documentation for the classification of certain operating expenses. Plug Power also failed to design sufficient controls for: (i) lease accounting; (ii) presentation of operating expenses; (iii) identification and evaluation of impairment; (iv) accrual for loss contracts; (v) accruals for certain expenses; and (vi) physical inventory controls at interim periods.”
Based on the above, the SEC found that Plug Power violated, among other things, the FCPA’s books and records and internal controls provisions.
Without admitting or denying the SEC’s findings, Plug Power agreed to pay a $1.25 million civil penalty.
Plug Power also agreed to the following undertakings.
“a. Fully remediate its material weakness in ICFR, and ineffective DCP, within one year from the date of this Order.
b. Publicly disclose, within one year from the date of this Order, whether in management’s opinion, Plug Power has fully remediated its material weakness in ICFR and ineffective DCP.
c. Certify, in writing, compliance with the undertakings set forth above. The Commission staff may make reasonable requests for evidence of compliance, including a narrative and supporting exhibits, and Plug Power agrees to provide such evidence. The certification and any requested supporting materials shall be submitted to James E. Etri, Assistant Director, with a copy to the Office of Chief Counsel of the Enforcement Division, no later than sixty (60) days from the date of the completion of the undertakings.”
The order then states:
“If [Plug Power] fails to comply with the undertakings … [Plug Power] shall, within ninety (90) days after one year from the date of this Order, pay an additional civil money penalty in the amount of $5 million.”
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