Sept. 16 – The U.S. Securities and Exchange Commission has applied the concept of “controlling persons liability” to a foreign corrupt practices act case for the first time. This has far reaching implications for executives of U.S. companies operating overseas.
The concept of “controlling person liability” indicates that every person who is in a position of control over any other person in a company is liable for the actions of that person, unless the controlling person “acted in good faith” and “did not directly or indirectly induce the act or acts constituting the cause of action” (section 20(a), Exchange act). The SEC does not need to prove that the controlling person had knowledge or involvement in the wrongdoing. The SEC can prosecute on the basis that “inadequate supervision” occurred. This is especially relevant in the keeping or books and records and the management of internal control systems.
This means that executives in control, especially those with responsibility over company books and records must take a proactive approach to compliance and to ensure that the company financial records are accurate, and that there are adequate internal controls and systems in place to prevent and detect fraud and potential violations.
Executives wishing to discuss compliance and internal control systems may contact the relevant regional Dezan Shira & Associates office in China, Hong Kong, India and Vietnam. Please view our web site for contact details or email in confidence to info@dezshira.com.
