Under the FCPA record-keeping provisions, the manner in which information is entered into an issuer's records becomes very important under Rule 13b2-1.[1]  As set forth in the FCPA's legislative history, "[t]he purpose of the [accounting and record-keeping provisions] is to strengthen the accuracy of the corporate books and records and the reliability of the audit process . . . ."[2]

Rule 13b2-1 provides that "[n]o person shall directly or indirectly, falsify or cause to be falsified, any book, record or account subject to Section 13(b)(2)(A) of the Securities Exchange Act."[3]  Compliance with the record-keeping provisions is not limited to the accuracy of the record itself. Context and categorization can be equally important factors in determining a record's accuracy.

As pointed out in the FCPA's legislative history, "[u]nder the accounting section no off-the-books accounting fund could be lawfully maintained, either by a U.S. parent or by a foreign subsidiary, and no improper payment could be lawfully disguised."[4]  As a result, placing a transaction into an abnormal category or "burying" it in some other way may serve as a basis for an enforcement action for a violation of Rule 13b2-1 under the FCPA's record-keeping provisions.

Manipulating books or records to mask transactions by characterizing them in some oblique manner or actually falsifying a transaction can lead to serious exposure for an issuer and those individuals involved. At the same time, a record that may be limited in terms of the information provided may be adequate if properly categorized. Being recorded in a proper category may effectively fill in gaps and overcome concerns as to whether a transaction may be improperly disguised.

[1]17 C.F.R. § 240.13b1-2 (2012).

[2]S. Rep. No. 114 at 7, 95th Cong., 1st Sess. (1977), reprinted in 1977 U.S.C.C.A.N. 4098

[3]17 C.F.R. § 240.13b1-2.

[4]S. Rep. No. 114, supra note 2, at 11.