My earlier analysis of The Scoular Company FCPA enforcement action necessarily relied on the Department of Justice Press Release. That release described the government’s allegations. The formal Deferred Prosecution Agreement (DPA) expands the footing of the discussion. We are no longer working only from a prosecutor’s summary. We now have a detailed chronology of facts the company formally admitted.
Those facts reveal a scheme connecting stricter Mexican inspections, commercial pressure, employees, multiple customs brokers, a meeting at a company office, invoices, wire payments, WhatsApp, and millions in avoided costs. The central compliance lesson is normalization. A corrupt proposal became a repeatable business process. Over the next four blog posts I will be taking a deep dive into the DPA, what it tells us and what we must speculate on.
The Scheme Began With a Change in Enforcement
Scoular transported corn and other agricultural products from the United States into Mexico. Those trains were inspected by Mexico’s Secretariat of Agriculture and Rural Development, referred to in the DPA by its former name, SAGARPA.
Inspectors looked for dirt, soil, and other impurities, sometimes described as “suelo.” SAGARPA approval was required before a train could enter Mexico. When inspectors detected suelo, the agency could delay entry, and the shipment could incur fumigation and demurrage costs.
Beginning around 2013, Mexican authorities conducted the inspections more rigorously. The result was more soil findings in Scoular shipments and greater exposure to delay, fumigation, and demurrage. This legitimate business problem called for better product controls and contingency planning. It also created pressure that made a corrupt alternative attractive.
Compliance failures often begin here. Regulation becomes more rigorous, costs increase, and delivery commitments are threatened. The governance question is whether management improves the process or finds a way around the control. This demonstrates why a continuous risk assessment is so critical; when your risks change you need to perform and updated risk assessment.
The Proposal Was a Guarantee Against Adverse Decisions
In June 2013, customs broker Carlos Leopoldo Alvelais contacted a Scoular sales employee and a Scoular senior manager. According to the DPA, he proposed a procedure under which Scoular would pay a fee on every train. The purpose was not ambiguous. The proposal was designed to ensure that Scoular would “not have a single risk of adverse determinations from Mexican inspectors.” That sentence captures the scheme.
A legitimate broker can prepare documents, coordinate an inspection, and challenge an incorrect result. It cannot guarantee that a regulated company will never receive an adverse decision. A promise of zero regulatory failure should be treated as a red flag, not a service level. James Min made this clear with his risk matrix for assessing risk in custom broker clearance rates. If a customs broker offers you 100% success rate – to quote Monty Python from The Holy Grail; Run Away Run Away, do not walk away.
The DPA says that, later in June 2013, Alvelais traveled to Scoular’s Kansas office and met with Scoular employees and others. After that meeting, he began paying bribes to Mexican officials and invoicing Scoular for reimbursement. The invoices described the payments as “REVISION SAGARPA PROCESS,” (Reinspection Fees herein) generally in round amounts of $2,000.
The Kansas meeting is a significant new fact. The arrangement was not confined to an informal exchange between a local employee and a broker at a remote border crossing. The broker presented the approach at a company office. After the meeting, the payments began. This speaks to a serious failure in an overall compliance program; failure in communication, failure in training, failure in risk assessments, failure in internal controls and failure in overall compliance visibility into the business operations of an organization it is supposed to keep in compliance.
At a minimum, when a high-risk third party visits a company office to propose a government-facing payment process, the arrangement should require a documented business rationale, legal and compliance review, a payment protocol, and supporting evidence. Without those controls, the meeting can move misconduct into the company’s operating structure. This basic failure led to catastrophe for Scoular Company.
The Payment Process Was Replicated
The DPA places a sales employee and a senior manager who worked on international grain sales and shipments at the center of the conduct. They authorized reimbursement of Reinspection Fees to Alvelais and his companies while knowing that at least part of the money would be used to bribe Mexican border officials. The objective was to ensure that Scoular trains passed inspection without the fumigation, demurrage, and other costs associated with soil findings and failed inspections.
But it got worse from there. Scoular then replicated the approach with two other customs brokers. That replication is critical. This was not simply a broker corrupting a customer. Company personnel took a method used with one broker and extended it to additional agents. The model followed the business.
The DPA describes cash payments of up to $2,000 per train. Scoular employees and agents coordinated the scheme through email, messaging applications, and other communications. Invoices were transmitted, and Scoular caused payments to be made by wire. The scheme therefore had all the components of a functioning process:
- A recurring commercial problem
- A third-party payment mechanism
- Employee knowledge and authorization
- Multiple participating brokers
- Standard invoice descriptions
- Company reimbursement
- Off-channel and conventional communications
- A measurable business benefit
Each component could look ordinary when reviewed separately. Together, they formed the bribery scheme.
The Communications Made the Purpose Clear
The admitted communications are especially instructive because they connect payment, knowledge, and outcome. In August 2015, an Alvelais employee informed a Scoular employee that inspectors had detected soil in a train. The train nevertheless had been released without delay, and the account would include a $2,000 charge. In October 2015, a Scoular employee sent a WhatsApp message to the senior manager stating that Alvelais would provide a favorable rate and guarantee that no train headed to a particular buyer would be stopped for soil. Another October 2015 communication listed “Dispatch of merchandise in the presence of soil” at $2,000 per shipment.
Later that month, a Scoular employee reported that the broker was doing everything possible to move a shipment, but an inspector’s supervisors were in town and “normal procedures” were not working. By 2018, the language was even more direct. During an exchange concerning pests detected in a shipment, an Alvelais employee wrote that the broker had offered more than it normally gave and the officials had not accepted it. A Scoular employee responded by asking why the broker was requesting double if the issue was fixed for soil.
These communications defeat any claim that employees believed they were paying published government fees. They describe adverse findings, guarantees against stopped trains, and payments beyond ordinary amounts. No single record tells the complete story. The invoice supplies the accounting description, the message supplies intent, the inspection record supplies the regulatory event, and the release time supplies the outcome. Investigations and monitoring must connect all four.
The Scheme Continued Into 2019
The DPA identifies three invoices from 2019:
- A $3,000 “SAGARPA process” fee from an Alvelais company
- A $1,750 “Other Inspection” fee from a second customs broker
- A 35,000 Mexican peso “SERVICIOS DE SAGAR” fee, approximately $1,835, from a third customs broker
Scoular promptly paid each invoice.
The changing descriptions are a lesson in internal control design. A monitoring rule limited to “reinspection fee” would have missed “SAGARPA process,” “Other Inspection,” and “SERVICIOS DE SAGAR.” Compliance analytics must identify families of risk, not merely exact words.
The DPA says that internal reports alleging improper business practices connected to the SAGARPA fees arose in 2019. Scoular then changed its practices for grain shipments into Mexico and terminated direct engagement with the customs brokers involved.
That response ended the factual chronology, but it opens the next compliance question: what happened between the internal reports and the DOJ resolution, and why did Scoular receive no voluntary self-disclosure credit? That will be the focus of Part 2.
The Economics Show Why the Scheme Endured
Between approximately 2015 and 2019, Scoular authorized $414,351 in bribes to bypass inspections and secure unhindered passage into Mexico. The company avoided approximately $6,513,014 in demurrage and related costs. That is more than $15 in avoided costs for every dollar paid in bribes.
The ratio does not excuse the conduct. It explains the incentive that allowed it to become embedded. A $2,000 charge could appear small against the cost of a delayed train, while the accumulated benefit rewarded the business process that produced the misconduct. This is why compliance cannot evaluate customs payments only by individual transaction value. The relevant indicators include frequency, round amounts, timing, inspection outcome, avoided cost, broker success rate, and management awareness.
The Compliance Failure Was Normalized
The Scoular Statement of Facts shows how misconduct can become ordinary:
- External enforcement became more rigorous.
- The business faced higher costs and delays.
- A broker proposed a fee-based solution.
- The broker met with employees at a company office, and payments followed.
- Brokers paid officials and invoiced Scoular.
- Employees authorized reimbursement.
- The approach expanded to other brokers.
- Messages and invoices developed a shared vocabulary.
- The business received predictable passage and significant avoided costs.
- The process continued until internal reports surfaced.
The DPA does not describe a control that failed once. It describes an alternative control environment that operated for years.
The DPA sharpens the Scoular lesson. The scheme was not simply a series of border bribes. It was a business process built to eliminate the risk of adverse government decisions. When a third party offers that result, compliance should assume the risk has not disappeared. It has merely been transferred into a payment, an invoice, and a promise that deserves immediate scrutiny.
Join us tomorrow where we take a deep dive into the Scoular Company’s failure to self-disclose and the loner-term ramifications.