UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933

Release No. 11032 / February 22, 2022

SECURITIES EXCHANGE ACT OF 1934

Release No. 94294 / February 22, 2022

ACCOUNTING AND AUDITING ENFORCEMENT

Release No. 4283 / February 22, 2022

ADMINISTRATIVE PROCEEDING

File No. 3-20781

In the Matter of

BAXTER INTERNATIONAL 

INC.

Respondent.

ORDER INSTITUTING CEASE-ANDDESIST PROCEEDINGS, PURSUANT TO 

SECTION 8A OF THE SECURITIES ACT 

OF 1933 AND SECTION 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934, 

MAKING FINDINGS, AND IMPOSING A 

CEASE-AND-DESIST ORDER 

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that ceaseand-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act 

of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”) against Baxter International Inc. (“Baxter” or “Respondent”). 

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Ceaseand-Desist Proceedings, Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of 

the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order 

(“Order”), as set forth below. 
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III.

On the basis of this Order and Respondent’s Offer, the Commission finds1that:

Summary

1. Baxter is a publicly-traded, U.S.-based healthcare product company that generates 

the majority of its revenue outside of the U.S. Baxter reports its consolidated financial results in 

U.S. dollars, although many of its subsidiaries have a different functional currency as they 

manufacture and sell products globally and transact in foreign currencies. The values of these 

foreign currencies relative to the U.S. dollar fluctuate frequently.

2. From at least 1995 through July 2019, the foreign exchange rate convention (“FX 

Convention”) Baxter used to record foreign currency transactions recognized by subsidiaries in their 

functional currencies and to uniformly translate the results of subsidiaries with foreign functional

currencies into U.S. dollars was not in accordance with U.S. generally accepted accounting 

principles (“GAAP”). 

3. Beginning in at least 2009 and continuing through July 2019, Baxter improperly

leveraged its FX Convention by engaging in intra-company transactions for the purpose of 

generating foreign exchange accounting gains or avoiding foreign exchange accounting losses (the 

“FX Transactions”). These FX Transactions had the effect of materially misstating Baxter’s net 

income as reported in its public filings. 

4. In October 2019, Baxter announced that it was conducting an internal investigation 

concerning the FX Transactions. In March 2020, Baxter restated its financial statements, which 

reduced its previously reported net income for 2017 through June 30, 2019 and retained earnings as 

of January 1, 2017 by $582 million, collectively. Of this amount, $517 million was related to 

foreign exchange gains and losses dating back to 2010, which was in part attributable to FX 

Transactions.

5. Based on this conduct, and as described in further detail below, Baxter violated

Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a), 13(b)(2)(A), and 

13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13 thereunder. 

Respondent

6. Baxter International Inc. is a Delaware corporation with its principal place of 

business in Deerfield, Illinois. Its common stock is registered pursuant to Section 12(b) of the 

Exchange Act and trades on the New York Stock Exchange. Baxter files periodic reports, including 

annual reports on Form 10-K and quarterly reports on Form 10-Q, with the Commission pursuant to 

 

1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding. 
3

Section 13(a) of the Exchange Act and related rules thereunder. During the relevant period, Baxter 

sold securities to the public pursuant to registration statements filed with the Commission.

Facts

Baxter’s Foreign Exchange Rate Convention

7. FASB Accounting Standards Codification Topic 830, “Foreign Currency Matters” 

(ASC 830), provides guidance concerning foreign exchange rate conventions. ASC 830-20-30-1 

requires that foreign currency transactions initially be measured and recorded in an entity’s 

functional currency using the exchange rate on the date of the transaction. ASC 830-20-35-2 

requires that foreign currency denominated assets and liabilities be remeasured at the end of each 

reporting period using the exchange rate at that date. 

8. Before July 2019, Baxter’s FX Convention was not in accordance with GAAP 

because foreign currency transactions in a given month were initially measured using exchange 

rates from a specified date near the middle of the previous month as opposed to the exchange rate 

on the date of the transaction. Additionally, foreign currency denominated assets and liabilities 

were subsequently remeasured at the end of each month using exchange rates from a specified date 

near the middle of the then current month, called “T Day,” and not at the end of the reporting 

period.

9. Because of Baxter’s FX Convention, Baxter employees knew the exchange rates 

that would apply to intra-company transactions from the T Day in a given month through monthend. 

Treasury Employees Leveraged Baxter’s Foreign Exchange Rate to Record Gains

10. Baxter’s Treasury department was responsible for managing Baxter’s exposure to 

fluctuations in foreign exchange rates, which Baxter managed on a consolidated basis. 

11. Beginning in about 2007, Baxter’s Treasury department began focusing on 

managing Baxter’s foreign exchange rate exposure more efficiently and at a lower cost. Baxter 

wanted to reduce its use of third-party derivative contracts and instead manage its foreign currency 

exposures on a consolidated basis through offsetting cash positions. Baxter developed the FX 

Transactions as a way to better control reported foreign exchange gains and losses. 

12. Beginning in at least 2009, personnel in Baxter’s Treasury department engaged in 

the FX Transactions solely to generate non-operating foreign exchange accounting gains or avoid 

foreign exchange accounting losses. 

13. Each FX Transaction comprised a series of transactions designed to create a foreign 

exchange gain or avoid a loss at a Baxter subsidiary. For example, when the dollar was 

strengthening in comparison to the Euro, Baxter would generate a foreign exchange gain by 

moving U.S. dollars to a Euro-functional Baxter entity. Specifically, a U.S. dollar Baxter entity 

would make a capital distribution in U.S. dollars to its Baxter Euro-functional parent (“Euro 

Parent”). Euro Parent would then enter into simultaneous transactions with Baxter’s Euro-
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functional cash pooling entity (“Euro Cash Pooling Entity”) to (i) trade the dollars for Euros and 

(ii) loan Euros in the same amount it just traded. The Euro Cash Pooling Entity would record a

foreign exchange gain on the U.S. dollars that it held at month end. The gain was the difference 

between exchange rates for the prior month’s T Day and current month’s T Day. After month-end, 

the Treasury group would unwind the currency trade and the loan.

14. Because of Baxter’s FX Convention, Treasury personnel knew the foreign 

exchange rates that would apply to month-end transactions before they happened. With this 

knowledge, certain Treasury personnel executed FX Transactions to generate specific amounts of 

accounting gains or avoid specific amounts of accounting losses.

15. Beginning in the fourth quarter of 2017, Baxter began to more accurately forecast

the “other (income) expense, net” line of its financial statements as part of a company-wide 

initiative to improve its forecast accuracy and as a result of the consistent gains being generated by 

the Treasury department. The foreign exchange component of the other (income) expense line 

forecast was based on the average actual foreign exchange gains reported by Baxter over the

previous several quarters, discounted slightly for volatility. 

16. Baxter did not have sufficient internal accounting controls over intra-company 

transactions. It also did not have adequate internal controls to monitor and quantify the difference 

between the foreign exchange gains and losses that it reported using its FX Convention and the 

gains and losses it would have reported using exchange rates in accordance with GAAP. Baxter’s 

internal accounting controls failed to identify that the foreign exchange gains generated by the FX 

Transactions were improper.

Baxter’s Inaccurate Financial Reporting and Ineffective Internal Control Over Financial Reporting

17. The accounting gains generated (or losses avoided) from the FX Transactions were 

reported on the “other (income) expense, net” line of Baxter’s financial statements and were 

reflected in Baxter’s net income and earnings per share (“EPS”).

18. Baxter reported foreign exchange gains of $113 million in 2015, $28 million in 

2016, $50 million in 2017, $73 million in 2018, and $22 million for the first two quarters of 2019. 

The improper FX Transactions had the effect of inflating Baxter’s net income and EPS. 

19. Baxter should have discovered that the FX Transactions caused materially 

misstated financial results.

20. In late July 2019, Baxter’s Tax department asked certain Treasury personnel about 

the details of the FX Transactions. The Treasury personnel explained the FX Transactions to the 

Tax personnel, including that the FX Transactions were used to generate foreign exchange gains or 

avoid losses. Shortly thereafter, Baxter undertook to change its FX Convention. 

21. In October 2019, Baxter announced that it was conducting an internal investigation 

concerning the FX Transactions. 
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22. On February 13, 2020, Baxter announced that its consolidated financial statements 

for the years ended December 31, 2016, 2017, and 2018 and its quarterly financial statements for 

the quarters ended March 31, 2017 through June 30, 2019, should no longer be relied upon because 

of misstatements to Baxter’s previously reported foreign exchange gains and losses. 

23. On March 17, 2020, Baxter filed its Form 10-K for the period ending December 31, 

2019. In that filing, Baxter announced it had completed the investigation concerning the FX 

Transactions and restated its financial statements and financial information for 2017, 2018, and the 

first half of 2019, including each of the quarterly and year-to-date periods from 2018 through 2019, 

to correct material misstatements related to the FX Transactions as well as other immaterial 

misstatements. The 10-K also included restatements of selected unaudited financial information 

for the years ended December 31, 2015 and 2016. 

24. In quantifying the misstatements, Baxter identified all legal entities that had foreign 

exchange gains or losses on intra-company transactions above an immaterial threshold and 

remeasured the foreign exchange gains and losses for those transactions by applying a new 

exchange rate convention in accordance with GAAP. No distinction was made on whether the 

foreign exchange gain or loss resulted from FX Transactions. Baxter also remeasured the gains and 

losses on foreign currency derivative contracts in these same entities using the new exchange rate 

convention. 

25. As a result of the restatement, Baxter reduced its total reported foreign exchange 

gains and losses from 2010 through the second quarter of 2019 by $517 million. 

26. On February 13, 2020, Baxter announced that it had determined that it had material 

weaknesses in its internal control over financial reporting in the area of foreign exchange gains and 

losses, and that as a result of the material weaknesses, its disclosure controls and procedures were 

not effective as of December 31, 2018, March 31, 2019, and June 30, 2019. 

27. In its Form 10-K for the year ended December 31, 2019, Baxter disclosed that it 

had a material weakness in its internal control over financial reporting related to accounting for 

foreign exchange gains and losses as of December 31, 2018 and continuing through December 31, 

2019. 

28. Specifically, Baxter disclosed that it did not have controls in place to monitor and 

quantify the difference between the foreign exchange gains and losses that it reported using the FX 

Convention and the foreign exchange gains and losses it would have reported using exchange rates 

determined in accordance with GAAP. In addition, Baxter did not have sufficient policies and 

controls for approving and monitoring intra-company transactions to prevent or detect the FX 

Transactions. As a result of this material weakness, Baxter did not maintain effective internal

control over financial reporting as of December 31, 2019. 

Violations

29. As a result of the conduct described above, Baxter violated Sections 17(a)(2) and 

17(a)(3) of the Securities Act, which prohibit any person from directly or indirectly obtaining 

money or property by means of any untrue statement of a material fact or any omission to state a 
6

material fact necessary in order to make the statements made, in light of the circumstance under 

which they are made, not misleading, or engaging in any transaction, practice, or course of 

business which operates or would operate as a fraud or deceit upon the purchaser, in the offer or 

sale of securities. A violation of these provisions does not require scienter and may rest on a 

finding of negligence. See Aaron v. SEC, 446 U.S. 680, 685, 701-02 (1980).

30. As a result of the conduct described above, Baxter violated Section 13(a) of the 

Exchange Act and Rules 13a-1, 13a-11, and 13a-13 thereunder, which require issuers with 

securities registered under Section 12 of the Exchange Act to file annual, current, and quarterly 

reports with the Commission containing such information as the Commission’s rules may require.

A violation of these reporting provisions does not require scienter and may rest on a finding of 

negligence. See SEC v. Wills, 472 F. Supp. 1250, 1268 (D.D.C. 1978).

31. As a result of the conduct described above, Baxter violated Section 13(b)(2)(A) of 

the Exchange Act, which requires issuers with securities registered under Section 12 of the 

Exchange Act to make and keep books, records and accounts which, in reasonable detail, 

accurately and fairly reflect the transactions and dispositions of assets of the issuer. Scienter is not 

an element of the books and records provision. See Ponce v. SEC, 345 F.3d 722, 737 n.10 (9th Cir. 

2003) (noting that a “plain reading of Section 13(b) reveals that it also does not impose a scienter 

requirement”).

32. As a result of the conduct described above, Baxter violated Section 13(b)(2)(B) of 

the Exchange Act, which requires issuers with securities registered under Section 12 of the 

Exchange Act to devise and maintain a system of internal accounting controls sufficient to provide 

reasonable assurance that, among other things, transactions are recorded as necessary to permit 

preparation of financial statements in conformity with GAAP. Scienter is not an element of the 

internal accounting control provisions. See Ponce, 345 F.3d at 737 n.10. 

Baxter’s Remedial Efforts and Cooperation 

33. In determining to accept Baxter’s Offer, the Commission considered Baxter’s 

report of the FX Transactions to the Commission’s staff, the cooperation provided by Baxter 

throughout the Commission’s investigation, and remedial measures undertaken by Baxter.

34. Shortly before announcing the internal investigation publicly on October 24, 2019, 

Baxter disclosed to the Commission’s staff that it was conducting an internal investigation 

concerning the FX Transactions. 

35. Thereafter, Baxter provided substantial cooperation to the Commission’s staff 

throughout its investigation, including by providing detailed explanations of how the FX 

Transactions worked, summarizing witness interviews, and providing other relevant information to 

the staff, both on their own initiative and at the staff’s request. The cooperation afforded by Baxter 

substantially advanced the quality and efficiency of the staff’s investigation and conserved 

Commission resources. 

36. Baxter also undertook multiple remedial measures, including: (i) adopting a new, 

GAAP-compliant foreign exchange rate convention shortly after personnel raised concerns about 
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the FX Transactions; (ii) hiring a new treasurer with public company experience and creating two 

new roles to provide additional oversight over treasury matters; (iii) recouping bonuses paid to the 

CEO, CFO, and other officers pursuant to its Executive Compensation Recoupment Policy and 

Section 304(a) of the Sarbanes-Oxley Act of 2002; (iv) improving its approval process for intracompany transactions; and (v) restating its financial statements. 

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent’s Offer.

Accordingly, pursuant to Section 8A of the Securities Act and Section 21C of the Exchange 

Act, it is hereby ORDERED that:

A. Baxter cease and desist from committing or causing any violations and any future 

violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(a), 13(b)(2)(A), 

and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-11 and 13a-13 thereunder. 

B. Baxter shall, within 10 days of the entry of this Order, pay a civil money penalty in 

the amount of $18,000,000 to the Securities and Exchange Commission. If timely payment is not 

made, additional interest shall accrue pursuant to 31 U.S.C. § 3717. 

Payment must be made in one of the following ways: 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request; 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to: 

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying 

Baxter as a Respondent in these proceedings, and the file number of these proceedings; a copy of 

the cover letter and check or money order must be sent to Jeffrey A. Shank, Division of 

Enforcement, Securities and Exchange Commission, 175 W. Jackson Blvd., Ste. 1450, Chicago, 

Illinois 60604. 
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C. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair Fund is created 

for the penalties referenced in paragraph IV.B. above. Amounts ordered to be paid as civil money 

penalties pursuant to this Order shall be treated as penalties paid to the government for all 

purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, 

Respondent agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor 

shall it benefit by, offset or reduction of any award of compensatory damages by the amount of any 

part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”). If the court in 

any Related Investor Action grants such a Penalty Offset, Respondent agrees that it shall, within 30 

days after entry of a final order granting the Penalty Offset, notify the Commission’s counsel in 

this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission. 

Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change 

the amount of the civil penalty imposed in this proceeding. For purposes of this paragraph, a 

“Related Investor Action” means a private damages action brought against Respondent by or on 

behalf of one or more investors based on substantially the same facts as alleged in the Order 

instituted by the Commission in this proceeding.

D. Respondent acknowledges that the Commission is not imposing a civil penalty in 

excess of $18,000,000 based upon its cooperation in a Commission investigation. If at any time 

following the entry of the Order, the Division of Enforcement (“Division”) obtains information 

indicating that Respondent knowingly provided materially false or misleading information or 

materials to the Commission, or in a related proceeding, the Division may, at its sole discretion and 

with prior notice to the Respondent, petition the Commission to reopen this matter and seek an 

order directing that the Respondent pay an additional civil penalty. Respondent may contest by 

way of defense in any resulting administrative proceeding whether it knowingly provided 

materially false or misleading information, but may not: (1) contest the findings in the Order; or (2) 

assert any defense to liability or remedy, including, but not limited to, any statute of limitations 

defense.

By the Commission.

Vanessa A. Countryman

Secretary