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SEC Charges Smith & Wesson with FCPA Violations; Company Agrees to Pay $2 million in Fines

July 29, 2014

Author: Edward Goetz.

On July 28th, the Securities and Exchange Commission (SEC) charged Smith & Wesson Holding Corporation with violating the Foreign Corrupt Practices Act (FCPA) when employees and representatives of the U.S.-based parent company authorized and made improper payments to foreign officials in an attempt to win firearm contracts involving military and law enforcement agencies overseas. The company agreed to pay $107,852 in disgorgement, $21,040 in prejudgment interest, and a $1.906 million penalty. Smith & Wesson consented to the order without admitting or denying the findings.

Beginning in 2007 and continuing into early 2010, the Springfield, Mass.-based firearms manufacturer had sought to break into new overseas markets. During this period the company’s international sales staff offered, authorized, made illegal payments or provided gifts meant for government officials in Pakistan, Indonesia, and other foreign countries in an effort to attract new business.

For example, Smith & Wesson retained a third-party agent in Pakistan in 2008 to help the company obtain a deal to sell firearms to a Pakistani police department. Company officials authorized the agent to provide more than $11,000 worth of guns to Pakistani police officials as gifts, as well as additional cash payments.

Smith & Wesson ultimately won a contract to sell 548 pistols to the Pakistani police for a profit of $107,852. The SEC took into consideration several mitigating factors in the case. The company cooperated with the investigation, implemented a series of significant measures to improve its internal controls and compliance process, halted impending international sales transactions before they were finalized, and terminated its entire international sales staff.

Crowell & Moring’s public policy group is available to discuss how to aid companies in building effective FCPA compliance programs, especially in high risk areas.
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Edward Goetz
Manager, International Trade Services – Washington, D.C.
Phone: +1 202.508.8968
Email: egoetz@crowell.com