SEC: US Gunmaker Bribed Pakistani Police

By Angelo Young - A Pakistani police department received a cache of guns from U.S. gun manufacturer Smith & Wesson in return for a deal to sell hundreds of pistols to cops in the South Asian country, one of numerous attempts to bribe officials in developing economies, according to U.S. regulatory officials. The U.S. Foreign Corrupt Practices Act (FCPA) prohibits companies from bribing officials to make sales even if its common practice to do so in some countries.

This is a wake-up call for small and medium-sized businesses that want to enter high-risk markets,” said Kara Brockmeyer, head of the unit tasked with enforcing the FCPA, in announcing a $2 million fine against the Springfield, Massachusetts, manufacturer of ammunition, handguns and rifles for civilian, law enforcement and military uses.  

Smith & Wesson Holding Corporation (NASDAQ:SWHC) did not return a call for comment, but the SEC says the 162-year-old company agreed to pay the fine, which includes giving the federal government the $107,852 in profit it made in the deal with the Pakistani authorities in 2008. In that deal, Smith & Wesson give the Pakistani police $11,000 worth of guns in return for permission to sell 548 guns to the department.

The SEC also says the 162-year-old company attempted similar deals in Indonesia, Nepal, Turkey and Bangladesh. In 2009, the company attempted to win a contract with Indonesian police by paying a third party with the understanding the money would be channeled to key people authorized to approve the sales.

The company said in its latest financial earnings report last month that was the subject of a U.S. Department of Justice investigation into FCPA violations as far back as 2010, the same year the SEC informed the company it was being probed for “any violations of the federal securities law.”

“We are cooperating fully with the SEC in this matter and have undertaken a comprehensive review of company policies and procedures,” the company said in the filing. “We are in the final stages of discussions with the SEC staff that have brought.”

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Smith & Wesson has seen its international sales shrink from 4 percent in 2012 to 3 percent last year. Smith & Wesson reported $626.6 million in sales and $89.3 million in profit last year, up from $357.9 million in sales and $32.5 million in profit in 2010. The company’s share price was down 0.48 percent to $13.60 in afternoon trading in New York. It’s gained nearly one percent since the start of the year and about 109 percent since 2009.

In 2009, PBS Frontline looked at the practice of international bribery. In it, critics of the FCPA argue that the law puts U.S. companies at a disadvantage because other countries, such as the U.K. allow companies to provide gifts to government officials in return for business.