Con-way discovered potential FCPA issues in early 2003. Starting in January 2003, Menlo initiated steps to increase Emery ’s
internal reporting requirements, including requiring Emery to begin reporting its income and expenses, in addition to its net
profits. As a result, in reviewing Emery’s records, Menlo employees noticed unusually high customs and airline-related
Menlo conducted an internal investigation of the suspicious payments at Emery and determined that Emery employees had
been making regular cash payments to customs officials and employees of majority state-owned air- lines. Based on Menlo’s
investigation, Con-way conducted a broader review of all of Menlo foreign businesses and voluntarily disclosed the existence of
possible FCPA violations to the staff. After completing its internal investigation, Con-way imposed heightened financial
reporting and compliance requirements on Emery. Menlo terminated a number of the Emery employees involved in the
misconduct, and Con-way provided additional FCPA training and education to its employees and strengthened its regulatory
compliance program. In December 2004, Con-way sold Emery to UPS.
The FCPA, enacted in 1977, added Exchange Act Section 13(b)(2)(A) to require public companies to make and keep books,
records, and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of
the issuer, and added Exchange Act Section 13(b)(2)(B) to require such companies to devise and maintain a system of
internal accounting controls sufficient to provide reasonable assurances that (1) transactions are executed in accordance with
management’s general or specific authorization; and (2) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to
maintain accountability for assets.
As already detailed, Con-way’s books, records, and accounts did not properly reflect the illicit payments made by Emery to
Philippine customs officials and to officials of majority state-owned airlines. As a result, Con-way violated SEC Exchange Act
Section 13(b)(2)(A). Con-way also failed to devise or maintain sufficient internal controls to ensure that Emery Transnational
complied with the FCPA and to ensure that the payments it made to foreign officials were accurately reflected on its books and
records. As a result, Con-way violated Section 13(b)(2)(B) of the Act.
Securities Exchange Act Section 13(b)(5) prohibits any person or company from knowingly circumventing or knowingly
failing to implement a system of internal accounting controls as described in Section 13(b)(2)(B), or knowingly falsifying
any book, record, or account as described in Section 13(b)(2)(A). By knowingly failing to implement a system of internal
accounting controls concerning Emery Transnational, Con-way also violated Exchange Act Section 13(b)(5).
According to the SEC’s complaint, none of Emery’s improper payments were reflected accurately in Con-way’s books and