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Securities & Derivative Litigation

Goodyear Settlement with SEC Highlights Reach of Parent-Subsidiary Liability Under the FCPA

By John A. Goldmark
April 2015
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The SEC’s recent settlement with Goodyear Tire & Rubber Co. underscores the risks of foreign acquisitions and parent-subsidiary liability under the FCPA. Under the settlement, Goodyear agreed to pay $16 million to settle the SEC’s charge that its subsidiaries in sub-Saharan Africa violated the FCPA by paying bribes to make tire sales.

According to the SEC’s order of settlement, Goodyear’s subsidiaries in Kenya and Angola paid more than $3.2 million in mostly cash bribes to government officials and private sector employees in order to obtain tire sales. The subsidiaries then falsely recorded the bribes as legitimate business expenses in their records, which were consolidated into Goodyear’s books and records.

Based on these alleged bribes by its subsidiaries, the SEC charged Goodyear with violating the FCPA’s accounting provisions, which require companies to (1) make and keep accurate books and records (2) implement and maintain internal controls to ensure management’s responsibility over company assets. The SEC alleged that Goodyear did not detect or prevent the bribes by its subsidiaries because it failed to implement adequate internal controls at its African-based subsidiaries and failed to conduct adequate due diligence before acquiring them.

The Goodyear settlement highlights several important lessons for companies doing business overseas. First, strong compliance programs are an important aspect of reducing FCPA liability. The SEC specifically cited the lack of any compliance training at Goodyear’s subsidiaries, and alleged that proper training could have prevented or deterred the bribes. Second, because the SEC will charge parent companies for bribes by subsidiaries, effective compliance programs should include corruption-related due diligence for acquisitions abroad. Third, taking a proactive and cooperative approach to tips of alleged FCPA violations can have benefits. The SEC stated the lower settlement amount, which did include a penalty, reflected “remedial steps” Goodyear took after receiving tips about the bribes, including conducting an internal investigation, taking disciplinary actions, increasing oversight, and self-reporting to the SEC.

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