Why is a U.S.-based wire and cable making company paying out $6.5 million in penalties to settle accounting violations with the Securities and Exchange Commission (SEC), in addition to more than $75 million to resolve allegations? General Cable Corporation has been in violation of the Foreign Corrupt Practices Act. The company’s overseas subsidiaries had been making improper payments to foreign governments’ officials since 2005 in efforts to gain more business. According to the SEC, the countries included Angola, Bangladesh, China, Egypt, Indonesia and Thailand.
In addition to the bribery, General Cable’s Brazilian subsidiary improperly accounted for their inventory resulting in a material misstatement of their financial statements from 2008 to 2012. This led to the reporting errors in the company’s financials, in which, the cost accounting personnel manipulated their systems to reflect the improper inventory counts for inventory that did not exist. In turn, General Cable Corporation was able to understate their cost of sales, overstate inventory, overstate net income available to shareholders and understate goodwill.
A statement by the SEC’s Enforcement Division acting director, Stephanie Avakian, sums up the reasons this fraud was able to take place: “General Cable operated globally without the effective compliance programs and internal controls necessary to proactively address corruption risks and accounting errors.”
Now, an agreement between the General Cable Corporation, the SEC and the Department of Justice (DOJ) has been reached and the Corporation will be paying out approximately $31.1 million in penalties, $82.3 million to the DOJ to satisfy financial obligations and disgorge profits of $51.2 million. General Cable is now transforming their business strategies with ethical intent and integrity and looking positively into the future.