Of Corporate Internal Controls and Swiss Army Knives

Abstract

This Article addresses the trend in recent SEC enforcement actions related to corporate internal controls. Specifically, this Article dissects the SEC's broad interpretation of Section 13(b)(2)(B), a provision situated in the Foreign Corrupt Practices Act, that requires corporations to establish certain internal accounting controls. In a recent dissent from a SEC cease and desist order involving violations of 13(b)(2)(B), SEC Commissioners Peirce and Uyeda likened the SEC's use of 13(b)(2)(B) to a Swiss Army Knife, or a "multi-use tool handy for compelling companies to adopt and adhere to policies and procedures that the Commission deems good corporation practice." The SEC's broad view of the statute was partially struck down in the July 2024 SolarWinds decision, but questions remain related to the scope and breadth of 13(b)(2)(B)'s ambit. This Article considers the theoretical implications of an expansive reading of the statute, and outlines normative considerations, including alternative regulatory measures.

Keywords: internal controls, SEC, FCPA, accounting, compliance, insider trading, cybersecurity, COSO