Smith & Wesson.
Smith & Wesson. (Photo: Tim Dobbelaere via Wikimedia Commons)

Smith & Wesson Holding Corp. agreed on Monday to pay $2 million to settle charges brought by the U.S. Securities and Exchange Commission claiming that the firearms manufacturer bribed foreign officials to boost sales.

Invoking the Foreign Corrupt Practices Act as well as securities laws, the commission said the company engaged in “a pervasive effort to attract new business” by making illegal payments or gifts of firearms to government officials in Pakistan, Indonesia, Turkey, Nepal and Bangladesh.

In one episode, the commission said Smith & Wesson officials authorized an agent to give more than $11,000 worth of guns to Pakistani police officials as gifts. Smith & Wesson won a contract to sell 548 pistols to the Pakistani police for a profit of $107,852.

The commission’s order, released Monday, said, “Smith & Wesson failed to properly account for the improper payments to its agent in Pakistan, the inflated lab testing payments to its agent in Indonesia, and the improper expense payments to its agents in Turkey in its books and records. Instead, Smith & Wesson improperly characterized the payments it made in Pakistan as legitimate commissions, and those that it made in Indonesia and Turkey as legitimate business expenses.”

Kara Brockmeyer, chief of the commission’s FCPA enforcement unit, said in a written statement, “This is a wake-up call for small and medium-size businesses that want to enter into high-risk markets and expand their international sales. When a company makes the strategic decision to sell its products overseas, it must ensure that the right internal controls are in place and operating.”

Without admitting or denying the findings, Smith & Wesson agreed to pay just more than $2 million in disgorgement and civil penalties. The SEC said that, in approving the agreement, it took into account the company’s actions after the illegal conduct was revealed. Smith & Wesson halted some pending transactions, implemented new internal controls and fired its entire international sales staff.

Contact Tony Mauro at tmauro@alm.com.