On July 31, 2009, the U.S. Securities and Exchange Commission (the SEC) issued a notice that it has filed a settled enforcement against Nature’s Sunshine Products Inc. with violating the Foreign Corrupt Practices Act alleging that its Brazilian subsidiary made cash payments in 2000 and 2001 to customs officials to get their products imported into the country. Two officers of the company were also charged (its Chief Executive Officer Douglas Faggioli and its former Chief Financial Officer Craig D. Huff). The SEC used section 20(a) of the Exchange Act, which provides for control person liability:
Every person who, directly or indirectly, controls any person liable under any provision of this title or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
Canadian companies should be aware of section 20(a) of the Exchange Act because this provision could be used in the future to pursue Canadian companies and their directors and officers. This case shows a new willingness by the U.S. to hold individuals within companies responsible for their actions, which is not surprising in the current climate of corporate scrutiny. It's an indication of the SEC's willingness to use all the tools at its disposal to hold individuals liable for acts within the corporation. The important thing to remember is that other countries have tools / laws that are different than the laws of Canada. It is important to research the laws of the jurisdiction in which you do business.
For more information about the Nature Sunshine Products case, please go to the following links - http://www.sec.gov/litigation/litreleases/2009/lr21162.htm and http://www.sec.gov/litigation/complaints/2009/comp21162.pdf