The U.S. Security and Exchange Commission announced on August 6 that it would fine loan business World Acceptance Corporation USD 21.7 million after it violated the Foreign Corrupt Practices Act.
World Acceptance Corporation is a South Carolina corporation that operates a small-loan consumer finance business in twelve U.S. states.
The Security and Exchange Commission accused the corporation of bribing Mexican officials and union leaders between 2010 and 2017 to obtain government contracts. According to court documents, “the bribery scheme took place at WAC’s former wholly-owned subsidiary in Mexico, WAC de Mexico, S.A. de C.V. (“WAC Mexico”), which paid approximately USD 4.1 million in bribes, directly or through intermediaries, to Mexican government officials and union officials, from at least December 2010 through June 2017 to obtain and retain business.”
When the Security and Exchange Commission launched an investigation, it found that “WAC failed to make and keep accurate books and records and failed to devise and maintain a sufficient system of internal accounting controls necessary to detect and prevent these bribe payments. The bribe payments were inaccurately recorded as legitimate ‘commission' expenses in WAC’s books and records. WAC failed to implement sufficient internal accounting controls over vendor management and accounts payable at WAC Mexico, failed to provide reasonable assurances that WAC Mexico had implemented an FCPA policy and was adhering to it, failed to provide FCPA training at WAC and WAC Mexico, and lacked sufficient entity-level controls over WAC Mexico. In addition, WAC management lacked the appropriate tone at the top regarding internal audit and compliance, thereby undermining the effectiveness of those functions.”
Authorities argue WAC made USD 18 million through its bribery scheme.
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The bribery scheme
Court documents detail the bribery scheme implemented by the U.S. company in Mexico.
WAC, through its former wholly-owned subsidiary, WAC Mexico, engaged in a bribery scheme from December 2010 through June 2017, paying around MXN 64 million in bribes to obtain and retain business related to its Préstamos Viva business line.
WAC Mexico had two lines of business, Préstamos Avance (“Avance”) and Viva. Avance offered small loans directly to consumers, while Viva offered small loans to state and federal government employees. Viva had less collection risk than Avance because government employees had greater job security, and loan repayments were automatically deducted from the government employee’s paycheck, collected by the unions, and sent to WAC Mexico. WAC Mexico entered into at least 30 Viva contracts with government entities and/or worker unions representing government employees, most of whom worked in healthcare and education. To obtain Viva business and to ensure that loan repayments continued to be sent to WAC Mexico promptly, WAC Mexico paid monetary bribes to Mexican government officials and union officials.
“Préstamos Viva” and “Préstamos Avance” granted loans to teachers and healthcare workers.
WAC Mexico began granting loans to teachers in Coahuila in 2010. It later operated in 35 cities throughout Mexico.
The Viva contracts were signed by government officials, and/or union officials. To enter into these contracts, WAC Mexico paid bribes to Mexican government officials and union officials. During the performance of these contracts, WAC Mexico also made ongoing payments, referred to as “royalty payments,” “scholarship,” or “support,” to officials to ensure that loan repayments continued to be sent to WAC Mexico promptly. Regardless of who signed the contracts with WAC Mexico, government officials were paid bribes to obtain or retain the ability to make loans to the government employees under all of the contracts.
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Additionally, WAC Mexico also hired third-party intermediaries to assist with obtaining business and make ongoing bribe payments to officials. These intermediaries kept a small portion of the payments as their fee. One of WAC Mexico’s intermediaries flew to different municipalities in Mexico with large bags of cash to pay officials. Employees at WAC Mexico communicated with the intermediaries via email through servers located in the U.S.
The investigation details that of the USD 4.1 million in payments, at least USD 1.5 million was paid to government officials, USD 580,000 paid to union officials, and USD 480,000 paid to third-party intermediaries who used the funds to pay government officials and union officials.
Furthermore, the bribe payments were” inaccurately recorded as legitimate ‘commission' expenses in WAC’s books and records. WAC and WAC Mexico lacked the internal accounting controls sufficient to detect or prevent such payments. For example, WAC Mexico did not have a vendor management system, did not maintain a master list of approved vendors, did not conduct formal due diligence on new vendors, and did not have formal procedures or controls in place to approve new vendors. These internal control failures over vendors allowed WAC Mexico to hire third-party intermediaries to pay bribes to government officials and union officials.”
WAC Mexico did not have a sufficient accounts payable system. Instead, manual checks were used for payment, which resulted in managers pre-signing blank checks, making it impossible to enforce authorization limits in place over payments.
U.S. authorities argued WAC did not identify the high risk of bribery and corruption in Mexico and did not implement sufficient internal accounting controls to address that risk. Although starting sometime in 2013, WAC had an FCPA policy in its corporate compliance manual, there was no effective formal monitoring, or internal controls in place, to ensure that WAC Mexico was adhering to that policy.
Court documents reveal the bribery allegations came to light in March 2017.
WAC sold its Mexican branches in 2018 after U.S. authorities launched an investigation. Court documents don’t mention the names of the Mexican officials who received the bribes.
WAC Mexico
The corporation currently operates as WAC de México, it still operates “Préstamos Viva” and “Préstamos Avance”.
It offers credits with interest rates between 80.45% and 114.4%.
WAC Mexico has offices in Aguascalientes, Baja California, Baja California Sur, Campeche, Chiapas, Chihuahua, Coahuila, Ciudad de México, Durango, Estado de México, Guanajuato, Guerrero, Hidalgo, Jalisco, Morelos, Nuevo León, Oaxaca, Puebla, Querétaro, Quintana Roo, San Luis Potosí, Sinaloa, Sonora, Tamaulipas, Veracruz, and Yucatán.
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