The holding company for Springfield-based gun maker Smith & Wesson has agreed to pay more than $2 million to settle charges that employees made improper payments to foreign officials to win contracts, a federal agency said Monday.
The settlement stems from a U.S. Securities and Exchange Commission charge that Smith & Wesson Holding Corp. violated the Foreign Corrupt Practices Act while trying to break into new overseas markets from 2007 to early 2010.
Under the settlement, the company will pay back $107,852 in money obtained illegally, $21,040 in interest, and $1.9 million as a penalty. The SEC said the company does not admit to or deny wrongdoing.
In a release announcing the settlement, the agency charged that the gun maker's international sales staff tried, "in a pervasive effort," to gain new business "by offering, authorizing, or making illegal payments or providing gifts meant for government officials in Pakistan, Indonesia, and other foreign countries."
In one instance, in 2008, Smith & Wesson used a "third-party agent" in Pakistan to arrange a deal to sell firearms to a Pakistani police department, the SEC said.
"Smith & Wesson officials authorized the agent to provide more than $11,000 worth of guns to Pakistani police officials as gifts, and then make 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 said.
The agency also cited an example from 2009, when, it said, Smith & Wesson tried to win a contract with an Indonesia police department by making improper payments to a third-party agent. The agent, in turn, would give some of the money to Indonesian officials disguised as legitimate testing costs, the SEC said. The deal, it said, never went through.
The SEC said the company cooperated with the investigation. In addition, the agency said, Smith & Wesson halted "the impending international sales transactions before they went through, and implemented a series of significant measures to improve its internal controls and compliance process. The company also terminated its entire international sales staff."
"This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales," Kara Brockmeyer, chief of the SEC Enforcement Division's FCPA Unit, said in the SEC release. "When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating."
The company said Monday that the settlement money was accrued in the quarter ending April 30.
"We are pleased to have concluded this matter with the SEC and believe that the settlement we have agreed upon is in the best interests of Smith & Wesson and its shareholders," company President and CEO James Debney said in a written release. "Today's announcement brings to conclusion a legacy issue for our company that commenced more than four years ago, and we are pleased to now finally put this matter behind us."
The Reuters news agency said the SEC case was related to a federal undercover sting operation in January 2010 that led to criminal charges against 22 defendants, including a former Smith & Wesson vice president, related to bribing foreign officials. Three defendants pleaded guilty, three were acquitted, and the U.S. Department of Justice in February 2012 dropped charges against the other 16, including the vice president, Reuters reported. Smith & Wesson, Reuters said, was not criminally charged.Copyright © 2015, The Baltimore Sun