When Your Chinese Employees Sell to Syria

NCR‘s stock took a dive last week when allegations surfaced that the ATM maker is potentially violating U.S. trade sanctions and doing business with Syria.

The Wall Street Journal reported:

Documents shown by the tipster to The Wall Street Journal indicate that NCR has operated a directly controlled subsidiary in Syria in potential violation of sanctions handed down by the Obama administration last summer. The tipster also alleged and presented documents indicating that an NCR unit has conducted business with two Syrian banks the U.S. has blacklisted for allegedly supporting Syrian President Bashar al-Assad’s regime and the proliferation of weapons of mass destruction.

Analysts responded.

In particular, Wedbush senior analyst Gil B. Luria downgraded the stock from Outperform to Neutral.

In a note to investors, he said:

We believe NCR could grow [Earnings Per Share] at a 15% [Compound Annual Growth Rate] over the next three years if it is able to avoid the impact of potential Foreign Corrupt Practices Act (FCPA) issues… immediate implications could be multi-quarter investigation and potential fines with overall price tag in the single millions to tens of millions.

He added that if the allegations are true and the Chinese business is hurt, between $200-and-300 million of revenue in China could be “at risk”.

Furthermore, a “broader investigation could put overall emerging market growth at risk as well.”

And — solely for patriotic reasons, I’m sure — investors got skittish and the stock fell:

The business-technology company’s shares sank 10 percent in Tuesday trading.

NCR responded in an 8-K:

NCR has received anonymous allegations from a purported whistleblower regarding certain aspects of the Company’s business practices in China, the Middle East and Africa, including allegations which, if true, might constitute violations of the Foreign Corrupt Practices Act. NCR has certain concerns about the motivation of the purported whistleblower and the accuracy of the allegations it received, some of which appear to be untrue. NCR takes all allegations of this sort seriously and promptly retained experienced outside counsel and began an internal investigation that is ongoing. NCR does not comment on ongoing internal investigations.
Certain of the allegations relate to NCR’s business in Syria. NCR has ceased operations in Syria, which were commercially insignificant, notified the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) of potential apparent violations and is taking other measures consistent with OFAC guidelines.

Still, NCR isn’t the first ATM maker to fall prey to the exact same international regulatory issues.

Diebold (DBD), NCR’s archival in the ATM business, went through the same problems in the second quarter or 2010, and is only now settling with the DOJ.

From Diebold’s latest 10-Q:

During the second quarter of 2010, while conducting due diligence in connection with a potential acquisition in Russia, the Company identified certain transactions and payments by its subsidiary in Russia (primarily during 2005 to 2008) that potentially implicate the Foreign Corrupt Practices Act (FCPA), particularly the books and records provisions of the FCPA. As a result, the Company conducted a global internal review and collected information related to its global FCPA compliance. In the fourth quarter of 2010, the Company identified certain transactions within its Asia Pacific operation that occurred over the past several years that may also potentially implicate the FCPA. The Company continues to monitor its ongoing compliance with the FCPA.

That raises the question: Is this just the cost of doing business internationally?

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