Canadian mining company settles FCPA case

Apr 02, 2018
SEC alleges internal accounting control weaknesses

A Canadian gold mining company has agreed to pay $950,000 to settle allegations that it violated anti-corruption legislation by failing to implement adequate accounting controls at two African subsidiaries.

The SEC alleges that Kinross Gold Corporation took almost three years after buying the subsidiaries to implement adequate controls, despite multiple internal audits flagging deficiencies – and that even then the company failed to maintain the controls.

‘Companies should take particular care to remediate known accounting controls issues when making acquisitions to mitigate the risk that company funds will be misused for unauthorized purposes,’ Tracy Price, deputy chief of the SEC enforcement division’s FCPA unit, says in a statement on the settlement.

The administrative proceeding at issue concerns alleged violations by Kinross of the books and records and internal accounting controls provisions of the FCPA. The Toronto-based company conducts development and mining operations in North and South America, West Africa and Russia.

According to the SEC, Kinross from September 2010 through at least 2014 operated gold mines in Mauritania and Ghana without devising and maintaining a system of internal accounting controls sufficient to provide reasonable assurances that transactions were executed in accordance with management’s authorization.

As a result, the SEC says, Kinross paid vendors and consultants, often in connection with government interactions, without reasonable assurances that transactions were consistent with their stated purpose or the prohibition against making improper payments to government officials.

For certain of these alleged transactions, the company used petty cash to pay consultants, which it then failed to accurately and fairly describe in its books and records, the agency says.

The SEC also alleges that Kinross in 2014 failed to maintain its internal accounting controls around contracting and awarded a lucrative logistics contract to a company preferred by government officials without following its own bidding and tendering procedures. Internal documentation provided incomplete information about the awarding of the contract, according to the agency.

In addition, the SEC says Kinross contracted with ‘a politically-well-connected third-party consultant to facilitate contacts with high-level government officials without conducting the heightened due diligence required by the company’s policies and procedures.’

INTERNAL AUDIT
In April 2011, the commission says, Kinross’ internal audit group concluded that the internal accounting controls surrounding vendor selection and disbursement for goods and services at subsidiaries in Ghana and Mauritania were not adequate to meaningfully assess transactions for accuracy or compliance with the FCPA.

According to the SEC, the internal audit group faulted the enterprise resource planning accounting and disbursements system, saying it did not ‘include much detail on the nature of disbursements,’ making it ‘not possible’ to identify suspect payments such as excessive rebates and discounts, advance payments, government commissions and unjustified business expenses.

Despite these findings by the internal audit group, the company’s management failed to take immediate action, the SEC says. Employees in the finance department became increasingly concerned about the poor internal accounting controls associated with disbursements in Africa and the continued risk of corrupt activities, suggesting new internal audits of the subsidiaries, according to the agency.

Reviews conducted by internal audit in 2012 of the subsidiaries found issues requiring significant improvements at both mines and made recommendations for extensive remediation steps, according to the settlement filing.

In 2013, the SEC says, Kinross took steps to enhance internal accounting controls concerning the procurement and payment of goods and services designed to provide reasonable assurances that transactions did not violate the FCPA and Kinross’ own code of conduct, which prohibits providing improper inducements to government officials. But on at least two occasions in 2014, Kinross failed to maintain these internal accounting controls, the agency alleges.

REMEDIATION AND SETTLEMENT
The SEC also outlines steps it says Kinross has taken to remediate the alleged internal control and recordkeeping issues, including:

  • Conducting audits
  • Generating management remediation plans and tracking their progress
  • Implementing a new enterprise resource planning system to enable finance personnel to more effectively track and manage expenditures
  • Replacing personnel at the subsidiaries.

Among other things, Kinross also increased its compliance personnel, updated relevant policies and procedures, conducted compliance training, continues to improve its internal accounting controls around third-party consultants and vendors and offers enhanced FCPA training, according to the SEC.

As part of the settlement, Kinross agrees that, with respect to its operations in Africa, it will report to the SEC over the course of a year on the status of its remediation and compliance efforts.

Kinross settled without admitting or denying wrongdoing. 

The company says in a statement: ‘Kinross is pleased to resolve this matter through an agreed-upon cease and desist order and that the SEC’s investigation has been concluded, as expected, without any material adverse effect on the company’s financial position or business operations. The cease and desist order with the SEC makes no findings of bribery by the company but is instead premised on allegations of various deficiencies in Kinross’ internal accounting controls and practices.

‘Kinross co-operated fully with the SEC throughout the investigation and has taken steps to improve and strengthen its compliance program and internal accounting controls and practices.’

It says the US Department of Justice last November notified Kinross that it had closed its investigation, declining to pursue the matter further and noting the company’s full co-operation during the inquiry.

‘Kinross is fully committed to operating in accordance with the highest ethical standards, conducting business in an honest and transparent manner that is compliant with the law, and building on its long-standing culture of ethical conduct and accountability consistent with its code of business conduct,’ the company says in its statement.

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