The FCPA Files: American Rice, Inc. (2002)

“Miami rice” — that’s what the Haitians called it: cheap, stateside-subsidized grain whose large-scale importation nearly killed the crop’s domestic cultivation. The plan — as established by the Caribbean Basin Initiative in the early 1980s — was to promote diversification of Haiti’s economy, comparable to the“structural adjustments” demanded globally by the World Bank during the next decade. Among the specific interventions in Haiti was a drastic reduction of import tariffs on rice, from a pre-initiative rate of 150% down to an eventual 3%.

The CBI’s execution was helmed by Lawrence H. Theriot, an official at the U.S. Department of Commerce. Theriot would later go on to work for American Rice, Inc., one of the largest rice dealers in the United States. The company was originally formed as an agricultural cooperative in the late 1960s, helping to market, mill, and sell rice grown by more than 1500 member farms. In 1986, American joined forces with Comet Rice, one of the country’s oldest and largest millers, to boost sales in the face of increased competition from east Asia. It also opened a new $30 million milling and storage facility in Freeport, Texas, facilitating shipments abroad.

American Rice’s eventual incorporation and merger with Comet provided a hedge against dependency on the middle-eastern market (its Abu Bint brand at one point accounted for 70% of the rice sold in Saudi Arabia). Nevertheless, legal and distributional problems caused significant losses by the end of 1997, leading to a Chapter 11 reorganization in October 1999. The in-between period was when company leaders — among them president Douglas Murphy and VP of Caribbean operations David Kay, along with Theriot acting as Caribbean operations consultant — arranged to evade Haiti’s already-low import taxes by underreporting the volume of rice shipments, paying customs officials to look the other way. Supposed competition with rice smugglers provided a convenient rationalization, as well as an obvious foil for the company’s public relations efforts.

The bribery scheme would come to light during American Rice’s bankruptcy reorganization, and charges would be brought against Theriot, Murphy, and Kay. Theriot would agree to a permanent injunction and an $11,000 fine, while the other two would challenge their indictment, arguing that reducing import taxes shouldn’t count as an attempt to “obtain or retain business” under the FCPA. The appeals court, as we all know, did not agree.

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This post is part of "The FCPA Files" series, examining key enforcement cases under the Foreign Corrupt Practices Act and the lessons they offer for modern compliance.