Recent Penalty May Signal SEC's Entry Into Sanctions Enforcement, Law Firm Says

The Securities and Exchange Commission’s recent penalty against a U.S. company’s sanctions and anti-corruption violations may be an indication of the SEC’s intent to begin penalizing sanctions violators, according to a Nov. 18 post by Squire Patton Boggs. The penalty marked a “rare foray” by the SEC into sanctions enforcement, the post said, and may signal its aim to explore new ways of policing companies.

“With this unprecedented action, the SEC has put companies on notice that the Department of Justice and the Office of Foreign Assets Control are not the only sanctions enforcers in Washington,” the post said.

The September $10 million penalty imposed on Quad/Graphics Inc., a Wisconsin-based marketing provider, arose from the company’s violations of the Foreign Corrupt Practices Act. The company allegedly bribed Peruvian officials and falsified records to hide transactions with a U.S.-sanctioned Cuban telecommunications company. The SEC said the company violated the “anti-bribery, books and records, and internal controls provisions” of the SEC Act of 1934.

The SEC’s penalty was notable because the Justice Department declined to prosecute the company, Squire Patton Boggs said. The law firm said it is unclear if the SEC’s use of violations under the books and records and internal control provisions is a “one-time occurrence or the signal of a new trend in sanctions enforcement against public companies.” It is clear, however, that the SEC is looking for “new avenues to police issuers and other parties under its supervision.” In addition, if the SEC is willing to penalize sanctions violators, it is “entirely possible” it will investigate other compliance failures, including those committed by broker-dealers and investment advisers, the post said. The SEC, for example, may determine that an “inadequate” anti-money laundering compliance program could lead to an internal controls violation, the law firm said.

The penalty also emphasized the importance of “robust” due diligence during the pre-acquisition phase, covering “corruption to fraud to money laundering to sanctions violations,” the post said. “Entities that fail to take these steps may risk becoming the next target of an expansive SEC enforcement regime.”