Overview
The accounting provisions require issuers—not all covered persons—to maintain adequate books, records, and internal accounting controls. The provisions apply broadly to all issuers, regardless of whether the issuer conducts business overseas or engages in bribery of foreign officials. Subsidiaries of issuers and individuals associated with issuers and their subsidiaries may also be held directly liable for violating these provisions.1
The books and records provision requires issuers, their subsidiaries, and associated individuals to make and keep books, records, and accounts in reasonable detail to accurately and fairly reflect transactions and disposition of assets. In other words, false, misleading, and fake entries constitute violations. According to US enforcement authorities, books and records include virtually any business record, not just accounting-related records.2
The internal controls provision requires issuers, their subsidiaries and associated individuals to devise and maintain adequate internal accounting controls. Such controls must provide reasonable assurances that:
- transactions are properly authorized;
- transactions are recorded in a manner that maintains accountability for assets and permits preparation of financial statements that conform to applicable accounting principles;
- access to assets is properly authorized; and
- existing assets are compared with recorded assets at reasonable intervals and discrepancies are appropriately addressed.3
The DOJ may pursue criminal violations of the accounting provisions; the SEC may pursue civil claims.
Elements of an Accounting Provisions Violation
Civil liability under Exchange Act Rules 13b2-1 and 13b2-2: Proof of knowledge and intent are not required for civil liability for violations of the accounting provisions.4
Criminal liability under the FCPA:
- The issuer, through its agents,
- knowingly and willfully
- falsifies its books and records, or
- circumvents or fails to implement a system of internal accounting controls.5
1 15 USC §§ 78l, 78o(d) (persons covered by accounting provisions); 15 USC § 78c(a)(8)-(9) (definitions of issuer, person); 15 USC § 78m(b)(6) (issuer’s obligations vis-à-vis subsidiaries).
2 15 USC § 78m(b)(2)(A).
3 15 USC § 78m(b)(2)(B).
4 17 CFR §§ 240.13b2-1, 13b2-2.
5 15 USC § 78m(b)(5).