Con-way Inc: The Profits Came Home, the Expense Records Did Not

In the Con-way Inc FCPA case, the company agreed to a $300,000 civil penalty over alleged customs and airline payments concealed by inaccurate accounting and missing controls. The Securities and Exchange Commission brought the Foreign Corrupt Practices Act action over a Philippine freight affiliate whose employees allegedly turned company checks into cash for officials. For a freight or finance insider, the revealing part is what traveled back to the parent company: the profits, with almost none of the financial detail behind them.

The Securities and Exchange Commission’s August 27, 2008 announcement concerned Con-way, an international freight transportation company based in San Mateo, California. The related administrative order described hundreds of small payments totaling at least $417,000 between 2000 and 2003. We see a penalty smaller than the payments it answered for. Cheaper than the alleged bribes.

What the Customs Payments Bought

Emery Transnational, the Manila freight operation, allegedly paid customs officials to bend storage rules, settle disputes and reduce or leave administrative fines unenforced. The Securities and Exchange Commission’s order identifies officials at the Philippines Bureau of Customs and the Philippine Economic Zone Area as recipients. It says the customs payments totaled at least $244,000.

The storage concession had a practical value in the freight business. According to the SEC, officials allowed Emery Transnational to keep shipments longer than customs regulations permitted, saving transportation costs on inbound shipments. The other payments allegedly changed how customs disputes and otherwise legitimate fines were handled. An employee familiar with a shipment’s storage history or a disputed fine could understand what the payment was buying.

The order describes how employees obtained the cash. They submitted a Shipment Processing and Clearance Expense Report to the finance department, requesting a cash advance to complete customs processing. Finance issued checks payable to employees, who allegedly cashed them and paid designated officials. The payments lacked receipts from the customs and economic-zone authorities, and the company’s books did not identify their true purpose.

That is the useful connection in customs bribery: a processing expense, the person who received the cash and the official decision it purchased. We look at those together because an expense description can hide the part a logistics employee remembers. The shipment stayed longer, the dispute went away or the fine stopped being enforced.

Airline Payments Bought Space and Lower Charges

The Securities and Exchange Commission alleged that Emery Transnational also paid officials at fourteen majority state-owned airlines operating in the Philippines. Those payments totaled at least $173,000 and served different purposes from the customs payments. The recipients controlled commercial freight decisions inside airlines, while the customs officials controlled government clearance and enforcement decisions.

The order separates the airline payments into two kinds. Payments called “weight shipped” allegedly induced airline officials to reserve aircraft space improperly for Emery Transnational. The amounts depended on the volume of freight the airlines carried for the company. For an operations employee, the shipment volume and space reservation explain the payment’s business purpose.

Payments called “gain shares” allegedly bought false under-weighing and the consolidation of multiple shipments into one, lowering shipping charges. The SEC said Emery Transnational paid the officials 90% of the reduced shipping costs. The reward for making the airline’s bill smaller went to the people able to change that bill. We see an alleged bargain over the airline’s revenue, dressed up as a gain to be shared.

According to the order, members of Emery Transnational’s management team handled both kinds of airline payments. They received company checks, cashed them and personally distributed the money to airline officials. The local books did not describe the payments as bribes, and neither Con-way nor its U.S. subsidiary requested or received the expense records during the period.

The Parent Received a Dividend, Not the Expense Detail

Con-way’s books-and-records and internal-controls case turned on what the parent recorded and what it failed to oversee. Its wholly owned U.S. subsidiary, Menlo Worldwide Forwarding, held a 55% voting interest in Emery Transnational. The SEC alleged that both companies exercised little supervision over the Philippine operation and failed to maintain controls to make its records accurate or ensure it followed Con-way’s Foreign Corrupt Practices Act policies.

According to the order, Emery Transnational reported net profits to Menlo Forwarding and paid it a yearly dividend reflecting that interest. Menlo included the dividend in its financial results, which Con-way then consolidated into its financial statements. The order makes clear how little information accompanied the earnings:

The commission alleged that neither company maintained or reviewed Emery Transnational’s operating-expense records, including the records that should have shown the payments to officials. We see a parent taking the financial benefit while leaving the spending that produced it outside its review. The profit report answered how much the business made. It never answered how.

In foreign subsidiary accounting, accepting earnings without reviewing expenses leaves exactly this gap. The Securities and Exchange Commission’s accounting findings addressed inaccurate books and records, insufficient internal accounting controls and a knowing failure to implement those controls.

Expense Reporting Exposed the Payments

The Securities and Exchange Commission’s order says the problem surfaced when Menlo Forwarding began requiring income and expense information in addition to net profits. Starting in January 2003, that broader reporting led employees reviewing Emery Transnational’s records to notice unusually high customs and airline expenditures. The spending became visible when the reporting requirement changed.

Menlo investigated the suspicious payments, and Con-way expanded the review to Menlo’s other foreign businesses. According to the order, Con-way voluntarily disclosed possible Foreign Corrupt Practices Act violations to the commission’s staff and imposed stronger financial-reporting and compliance requirements. The sequence gives finance and audit employees a concrete point of comparison: what the earlier reports left out, what the new reports showed and who recognized the difference.

When a Freight Charge Hides the Official’s Payment

The same separation between a shipping problem, a cash payment and an accounting label appears in Fresenius Medical Care. The 2022 Journal of Forensic and Investigative Accounting paper Fresenius Medical Care: A Case Study on the FCPA examines the company’s criminal non-prosecution agreement and SEC order. In its discussion of the criminal agreement, it describes over $1.76 million in payments to Saudi customs officials to speed clearance or avoid penalties and fees:

The comparison is useful because it shows how an ordinary freight-cost label can conceal an official’s payment. In Con-way’s case, the SEC described employees using clearance-expense reports and company checks to obtain cash. In the Fresenius study, a freight company stood between the business and customs officials. In each account, knowing what happened to the shipment explains more than reading the expense label alone.

What a Freight or Finance Insider Can Show

Someone working in freight operations may know why a shipment stayed in storage, how its weight changed on the paperwork or who secured aircraft space. Someone in finance may know who requested the advance, cashed the check or approved an expense without an official receipt. The Con-way allegations connect those ordinary work records to the decisions the payments allegedly bought.

At the parent-company level, ownership and voting records explain control, while reporting instructions and expense reviews show what management could see. We connect that business knowledge to the payment and accounting evidence with you. A person who understands the freight transaction can explain why a routine-looking entry deserves attention.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That covers fraud against the U.S. government, while Con-way’s was a Foreign Corrupt Practices Act case. We assess how the payments and records you know fit the FCPA whistleblower programs and build your case strategy with you.

You Know What the Freight Payment Bought

If you recognize cash advances for officials or freight savings that depended on a false weight, speak to one of our Whistleblower Experts about what those payments bought. We bring in foreign-bribery whistleblower lawyers who understand overseas operations and parent-company accounting to build your strongest whistleblower case. We stay beside you through the process, with the freight transaction and the people behind it at the center of the case.