The U.S. Securities and Exchange Commission (SEC) announced an enforcement action against Flutter International Inc. (formerly Paddy Power Betfair) for violating the Foreign Corrupt Practices Act (FCPA). In an administrative proceeding filed on March 6, the SEC alleged that a company acquired by Flutter had violated the FCPA through its use of Russian consultants, despite numerous “red flags” regarding the legitimacy of the services being provided by the consultants. As a result of the SEC’s action, Flutter has been ordered to pay a civil penalty of $4 million. The case is the first time that U.S. regulators have fined an Irish-based company for violating the FCPA. Of note, the charges were based on the principle of inherited liability, whereby Flutter has been found liable for the conduct of a company which it had acquired.
What is the FCPA?
The FCPA is one of the most prolifically enforced anti-bribery laws in the world. While it is a U.S. law, it applies to any company outside the U.S. that has chosen to list stock on the NYSE or NASDAQ.
The FCPA has two main provisions: the anti-bribery provision and the accounting provision. The anti-bribery provision prohibits companies from offering or giving anything of value to foreign officials in exchange for business. The accounting provision requires companies to maintain accurate records and implement internal controls.
Did Flutter Directly Engage in Bribery or Violate the FCPA?
No. The conduct that the SEC has prosecuted occurred at The Stars Group Inc. (Stars Group), a company that Flutter acquired. In addition, the misconduct in question took place before the Stars Group was acquired by Flutter. The only reason Flutter has been fined by the SEC is because Flutter inherited the legal liabilities of Stars Group when Flutter acquired the company.
What did Stars Group do?
The SEC alleges that Stars Group failed to conduct due diligence on three Russian consultants despite numerous “red flags” surrounding the services being provided by the consultants. In addition, Stars Group failed to maintain written contracts with the consultants, and even when contracts were put in place, Stars Group failed to enforce anti-bribery provisions in the contracts that required the consultants to explain the work they were doing. Stars Group also paid invoices to the consultants without any proof or explanation of the services being provided. This lack of documentation meant that the consultants were paid hundreds of thousands of dollars and Stars Group had no record of why the consultants were being paid.
Did Stars Group Engage in Bribery?
The SEC does not allege that Stars Group engaged in bribery, but facts provided by the SEC suggest that the consultants may have bribed Russian legislators to influence gambling legislation being considered by the Russian parliament. For example, the SEC notes that in June 2015, one of the Russian consultants submitted an invoice for $57,000 for “drafting legislation.” However, there was no evidence that any legislation was drafted by the consultant and when the invoice was submitted, an employee stated that the invoice “is urgent now and needs to be paid this week. The bill is going to the Duma and could be rejected if we don’t pay.”
Similarly, another consultant submitted invoices for $139,000 and internal emails suggest that some of these funds were used to reimburse the consultant for gifts that were given to Russian government officials.
Did Flutter Cooperate with the SEC’s Investigation?
Yes. The SEC gave credit to Flutter for cooperating with the investigation, sharing facts developed in the course of its own internal investigation and providing relevant witness statements. Flutter also took remedial measures which included taking steps to enhance its internal accounting controls, global compliance organization, and improve its policies and procedures regarding due diligence, use of third parties, and maintenance of adequate records. Flutter has also terminated, or is in the process of terminating, its relationships with the consultants.
Why is Flutter Subject to the FCPA?
Flutter does not have stock traded on the NYSE or NASDAQ. However, the SEC asserted jurisdiction over Flutter because Flutter inherited the FCPA violation when it acquired Stars Group. Stars Group had stock traded on the NASDAQ from 2015-2020, and as a result, Stars Group was subject to the FCPA when it committed the violations.