Con-Way Inc. Settles FCPA Books and Records and Internal Control Charges

22 September 2008 Publication

In August 2008, Con-way, Inc. (Con-way), a California based international freight transportation and logistics services company with stock traded on the New York Stock Exchange, agreed to settle an SEC enforcement action charging Con-way with violations of the FCPA's books and records and internal control provisions. According to the SEC complaint, Con-way violated these provisions by virtue of "hundreds of small payments totaling at least $417,000" made by a Philippine-based company, Emery Transnational (Emery), to Philippine customs officials and to officials of numerous foreign state-owned airlines to influence these officials to assist Emery secure a business advantage or economic benefit such as: (i) allowing Emery to store shipments longer than permitted by customs regulations thus allowing the company to save on transportation costs; and (ii) improperly settling disputes or not enforcing legitimate fines against the company.

According to the SEC, a wholly-owned U.S. based subsidiary of Con-way, Menlo Worldwide Forwarding Inc., (Menlo) had a 55% voting interest in Emery and during the relevant time period Con-way and Menlo had "little supervision or oversight" of Emery nor did the entities take steps to devise or maintain internal accounting controls to ensure that Emery acted in accordance with Con-way's FCPA policies or to make certain that Emery's books and records were detailed or accurate.

According to the SEC, to generate the funds for these payments, Emery employees requested cash advances from the company's finance department, cashed the checks, and then paid the money to the foreign officials. The SEC alleged that the true nature of these payments were not identified in Emery's books and records. The SEC also alleged that Emery made numerous payments to foreign officials at numerous state-owned airlines in the Philippines for the purpose of obtaining or retaining business. According to the SEC, two types of payments were made: (i) payments to induce airline officials to improperly reserve space for the company on airplanes; and (ii) payments to induce airline officials to falsely under-weigh shipments and to consolidate multiple shipments into a single shipment thereby resulting in lower shipping costs. Both payments were generated by company employees through company issued checks to the employees for shipping payments which were then converted to cash and paid to the airline officials. Likewise, the SEC alleged that the true nature of these payments were not identified in Emery's books and records.

Based on the above conduct, the SEC charged Con-way with: (i) failing to keep accurate books and records, (ii) failing to devise and maintain an effective system of internal controls to ensure that Emery complied with the FCPA, and (iii) knowingly circumventing or knowingly failing to implement a system of internal accounting controls or knowingly falsifying books and records. Without admitting or denying the SEC's allegations, Con-way agreed to pay a civil penalty of $300,000. In a related administrative proceeding, Con-way consented to the issuance of an order requiring it to cease and desist from future FCPA violations. In resolving this matter, the SEC specifically noted that the conduct at issue was voluntarily disclosed to the SEC after Menlo conducted an internal investigation and that Menlo and Con-way undertook various remedial measures including termination of the employees involved in the conduct and additional FCPA training and education of employees.  

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