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Issues To Consider From The FLIR Systems Enforcement Action

Issues

This recent post highlighted the SEC FCPA enforcement action against FLIR Systems.

This post continues the analysis by highlighting various issues to consider associated with the enforcement action.

Was the Enforcement Action “Just”

In the minds of some, “rogue employees” are mere figments in the imagination of corporate apologists.

Yet, the FLIR Systems enforcement action was based on the conduct of two individuals:  Stephen Timms (Head of FLIR’s Middle East Office) and Yasser Ramahi who reported to Timms.

What did these two individuals do?

In the words of the SEC, the individuals “concealed” the extent and nature of the travel and gifts to “foreign officials” which gave rise to the enforcement action.

In the words of the SEC, after Timms’ manager asked certain questions about the travel, “Ramahi and Timms later claimed that the … ‘world tour’ had been a mistake” and that the foreign officials “used FLIR’s travel agent in Dubai to book their own travel and that it had been mistakenly charged to FLIR.  They then used FLIR’s third-party agent to give the appearance that the MOI paid for their travel.  Timms also oversaw the preparation of false and misleading documentation of the MOI travel expenses that was submitted to FLIR finance as the ‘correct’ travel document.”

Was the conduct of the two individuals, who concealed and lied, inconsistent with FLIR’s existing FCPA-related policies and internal controls?

Yes.

In the words of the SEC:

“During the relevant time, FLIR had a code of conduct, as well as a specific anti-bribery policy, which prohibited FLIR employees from violating the FCPA. FLIR’s policies required employees to record information “accurately and honestly” in FLIR’s books and records, with “no materiality requirement or threshold for a violation.” FLIR employees, including Timms and Ramahi, received training on their obligations under the FCPA and FLIR’s policy, although the company did not ensure that all employees, including Ramahi, completed the required training.”

Against this backdrop of SEC allegations, was it truly “just” for the SEC to find that FLIR Systems violated the FCPA’s anti-bribery provisions?

The same question can even apply to the SEC’s finding that FLIR Systems also violated the FCPA’s books and records and internal controls provisions.

In the words of the SEC:

“FLIR had few internal controls over travel in its foreign sales offices at the time. Although FLIR had policies and procedures over travel for its domestic operations, there were no controls or policies in place governing the use of foreign travel agencies. Instead, FLIR foreign sales employees worked directly with FLIR’s foreign travel agencies to arrange travel for themselves and others. Sales managers, such as Timms, were solely responsible for expense approvals for their sales staff. Timms’ manager was responsible for approving travel-related expenses for all non-U.S.-based senior sales employees (such as Timms) and approving the payment of large invoices to the foreign travel agencies.

FLIR also had few controls over the giving of gifts to customers, including foreign government officials. Sales staff and managers were responsible for all expense approvals for gifts and accounts payable was not trained to flag expenses that were potentially problematic.”

As a matter of law, the FCPA’s internal control provisions do not specify which type of internal controls provisions an issuer must have.  Rather, the law states than issuer must have internal controls sufficient to provide reasonable assurances as to four general categories.  The FCPA specifically defines “reasonable assurances” and “reasonable detail” as follows: a “level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”

The only substantive judicial decision on the internal controls provisions states:

“The concept of ‘‘reasonable assurances’’ contained in [the internal control provisions] recognizes that the costs of internal controls should not exceed the benefits expected to be derived. It does not appear that either the SEC or Congress, which adopted the SEC’s recommendations, intended that the statute should require that each affected issuer install a fail-safe accounting control system at all costs.”

The SEC’s most extensive guidance on the internal controls provisions states, in pertinent part, as follows:

“The Act does not mandate any particular kind of internal controls system. The test is whether a system, taken as a whole, reasonably meets the statute’s specified objectives. ‘‘Reasonableness,’’ a familiar legal concept, depends on an evaluation of all the facts and circumstances.

Private sector decisions implementing these statutory objectives are business decisions. And, reasonable business decisions should be afforded deference. This means that the issuer need not always select the best or the most effective control measure.”

Against this backdrop, it would seem relevant to the SEC’s internal controls finding regarding foreign travel that during the time period relevant to the enforcement action FLIR had approximately 2,100 employees, with approximately 1,400 located in the U.S.

Are the Post-Enforcement Action Reporting Obligations “Just”?

Against the backdrop of the SEC’s allegations, as well as the fact that FLIR Systems voluntarily disclosed and cooperated in the SEC’s investigation and undertook “significant remedial efforts,” was it “just” that the SEC required FLIR Systems, for a two year period, to report “periodically, at no less than nine months intervals” concerning the “status of its compliance review of its overseas operations and the status of its remediation and implementation of compliance measures?”

Or was the SEC’s condition of settlement yet another example of a government required transfer of shareholder wealth to FCPA Inc. (See here for the prior post).

Is the Disgorgement “Just”?

The bulk of the $9.5 million settlement ($8.5 million to exact) consisted of disgorgement and prejudgment interest.

The simplistic position that the SEC took (and often takes in FCPA enforcement actions) is that FLIR Systems would not have secured the business at issue with the Saudi Arabia Ministry of Interior (“MOI”) but for the alleged travel (which the SEC did acknowledge contained a core, legitimate business but morphed) and wrist-watches provided to the “foreign officials”.

Because FLIR System did obtain or retain such business, the theory goes, FLIR Systems was unjustly enriched and thus should disgorge its profits from the sales to the MOI.

This is so simplistic as to fail the basic smell test (see here, here, here and here for prior posts discussing the same general topic).

For instance, FLIR’s major customer base is governments around the world – including the U.S. government.  Indeed, as noted in its most recent annual report:

“We derive significant revenue from contracts or subcontracts funded by United States government agencies. A significant reduction in the purchase of our products by these agencies or contractors for these agencies would have an adverse effect on our business. For the fiscal years ended December 31, 2014, 2013 and 2012 approximately 20 percent, 24 percent and 27 percent, respectively, of our revenues were derived directly or indirectly from sales to the United States government and its agencies.”

Yet, in the SEC’s mind, FLIR was unjustly enriched when the Saudi MOI purchased its products because a few of its officials happened to go to, among other places, New York City in connection with a legitimate factory inspection tour or were provided with wrist-watches.

The Foolish of Obey the Law Injunctions

As noted in the SEC’s administrative order resolving the FCPA enforcement:

“On September 30, 2002, in connection with a settled accounting fraud case, the Commission ordered FLIR to cease and desist from violations of the anti-fraud and related provisions of the federal securities laws.”

As highlighted in the SEC’s order, the 2002 action focused on general revenue recognition and financial reporting issues.  Yet, given the generic nature of the FCPA’s books and records and internal controls provisions, the SEC did find violations of those provisions in the 2002.

This is another reminder of the foolishness of the SEC’s so-called “obey the law injunctions” – which as explored in this guest post – have been found invalid because the injunction is so broad as to mean next to nothing.

No Disclosure

The vast majority of issuers under FCPA scrutiny disclose the scrutiny in SEC filings, notwithstanding the fact that in most instances there is no legal obligation to do so.

FLIR Systems was a unique example of a company not disclosing its FCPA scrutiny.  The first the public learned about FLIR’s scrutiny was logically when the SEC brought the related enforcement against the former employees in November 2014.

SEC Returns To “World Tour” Allegations In Administrative Action Against FLIR Systems

World Tour

As highlighted in this prior post, in November 2014 the SEC brought an administrative FCPA enforcement action against Stephen Timms and Yasser Ramahi (individuals who worked in sales at FLIR Systems Inc., – an Oregon-based company that produces thermal imaging, night vision, and infrared cameras and sensor systems).

The conduct at issue was alleged expensive travel, entertainment, and personal items for Saudi foreign officials in order to influence the officials to obtain or retain business for FLIR with the Saudi Arabia Ministry of the Interior.

Based on the same conduct, the SEC yesterday announced this administrative action against FLIR Systems.

In summary fashion, the order states:

“This matter concerns violations of the anti-bribery, books and records and internal controls provisions of the FCPA by FLIR. In 2009, employees of FLIR provided unlawful travel, gifts and entertainment to foreign officials in the Kingdom of Saudi Arabia to obtain or retain business. The travel and gifts included personal travel and expensive watches provided by employees in FLIR’s Dubai office to government officials with the Saudi Arabia Ministry of Interior (the “MOI”). The extent and nature of the travel and the value of the gifts were concealed by certain FLIR employees and, as a result, were falsely recorded in FLIR’s books and records. FLIR lacked sufficient internal controls to detect and prevent the improper travel and gifts. Also, from 2008 through 2010, FLIR provided significant additional travel to the same MOI officials, which was booked as business expenses, but for which there is insufficient supporting documentation to confirm the business purpose. As a result of the unlawful conduct, FLIR earned over $7 million in profits from the sales to the MOI.”

Under the heading “FLIR’s Business with the Saudi Ministry of Interior” the order states:

“Stephen Timms (“Timms”) was the head of FLIR’s Middle East office in Dubai during the relevant time period, and was one of the company executives responsible for obtaining business for FLIR’s Government Systems division from the MOI. Yasser Ramahi (“Ramahi”) reported to Timms and worked in business development in Dubai.2 Both Timms and Ramahi were employees of FLIR.

In November 2008, FLIR entered into a contract with the MOI to sell binoculars using infrared technology for approximately $12.9 million. Ramahi and Timms were the primary sales employees responsible for the contract on behalf of FLIR. In the contract, FLIR agreed to conduct a “Factory Acceptance Test,” attended by MOI officials, prior to delivery of the binoculars to Saudi Arabia. The Factory Acceptance Test was a key condition to the fulfillment of the contract. FLIR anticipated that a successful delivery of the binoculars, along with the creation of a FLIR service center, would lead to an additional order in 2009 or 2010.”

Under the heading “World Tour,” the order states:

“In February 2009, Ramahi and Timms began preparing for the July 2009 Factory Acceptance Test. Ramahi and Timms then made arrangements to send MOI officials on what Timms later referred to as a “world tour” before and after the Factory Acceptance Test. Among the MOI officials for whom Ramahi and Timms provided the “world tour” were the head of the MOI’s technical committee and a senior engineer on the committee, who played a key role in the decision to award FLIR the business.”

The trip proceeded as planned, with stops in Casablanca, Paris, Dubai and Beirut. While in the Boston area, the MOI officials spent a single 5-hour day at FLIR’s Boston facility completing the equipment inspection. The agenda for their remaining seven days in Boston included just three other 1-2 hour visits to FLIR’s Boston facility, some additional meetings with FLIR personnel, at their hotel, and other leisure activities, all at FLIR’s expense. At the suggestion of Timms’ manager, a U.S.-based Vice President responsible for global sales to foreign governments, Ramahi also took the MOI on a weekend trip to New York while they were in Boston. In total, the MOI officials traveled for 20 nights on their “world tour,” with airfare and luxury hotel accommodations paid by FLIR. There was no business purpose for the stops outside of Boston.

Timms forwarded the air travel expenses for the MOI to his manager for approval, attaching a summary reflecting the full extended routing of the travel. The manager approved the travel, directing him to make the expenses appear smaller by “break[ing] it in 2 [submissions.]” Timms also forwarded the travel charges and an itinerary showing the Paris and Beirut stops, to FLIR’s finance department. FLIR’s finance department processed and paid the approved air expenses the next day. Neither Timms’ manager nor anyone in FLIR’s finance department questioned the itinerary or the travel expense, although the itinerary reflected travel to locations other than Boston.

After receiving questions from Timms’ manager, Ramahi and Timms later claimed that the MOI’s “world tour” had been a mistake. They told the FLIR finance department that the MOI had used FLIR’s travel agent in Dubai to book their own travel and that it had been mistakenly charged to FLIR. They then used FLIR’s third-party agent to give the appearance that the MOI paid for their travel. Timms also oversaw the preparation of false and misleading documentation of the MOI travel expenses that was submitted to FLIR finance as the “corrected” travel documentation. FLIR finance then made an additional payment to the Dubai travel agency for the remaining travel costs.

Following the equipment inspection in Boston, the MOI gave its permission for FLIR to ship the binoculars. The MOI later placed an order for additional binoculars for an approximate price of $1.2 million. In total, FLIR earned revenues of over $7 million in profits in connection with its sales of binoculars to the MOI.”

Under the heading “Additional Travel,” the order states:

“From 2008 through 2010, FLIR paid approximately $40,000 for additional travel by MOI officials. For example, Ramahi took the same MOI officials who went on the “world tour” to Dubai over the New Year holiday in December 2008 and again in 2009. FLIR paid for airfare, hotel, and expensive dinners and drinks. FLIR also paid for hotels, meals and first class flights for the MOI officials to travel within Saudi Arabia to help FLIR win business with other Saudi government agencies. Although the trips were booked as business expenses, the supporting documentation is incomplete and it is not possible to determine whether all the trips in fact had a business purpose.

Moreover, in June and July of 2011, a FLIR regional sales manager accompanied nine officials from the Egyptian Ministry of Defense on travel paid for by a FLIR partner. The travel centered on a legitimate Factory Acceptance Test at FLIR’s Stockholm factory. The travel, however, also included a non-essential visit to Paris, during which the officials spent only two days on demonstration and promotion activities relating to FLIR products. In total, the government officials traveled for 14 days and most of the officials only participated in legitimate business activities on four of those days. Three officials engaged in two additional days of training in Sweden. The total travel costs were approximately $43,000. FLIR subsequently reimbursed the partner for the majority of the travel costs, based upon cursory invoices which were submitted without supporting documentation.”

Under the heading “Expensive Watches,” the order states:

“At Timms’ and Ramahi’s instruction, in February 2009, FLIR’s third-party agent purchased five watches in Riyadh, paying approximately 26,000 Saudi Riyal (about U.S. $7,000). Ramahi and Timms gave the watches to MOI officials during a mid-March 2009 trip to Saudi Arabia to discuss several business opportunities with the MOI. The MOI officials who received the watches included two of the MOI officials who subsequently went on the “world tour” travel.

Within weeks of his visit to Saudi Arabia, Timms submitted an expense report to FLIR for reimbursement of the watches. The expense report clearly identified the watches as “EXECUTIVE GIFTS: 5 WATCHES” costing $1,425 each. Shortly thereafter, Timms specified that the watches were given to MOI officials, and identified the specific officials who received the watches.

Despite these red flags, the reimbursement was approved by Timms’ manager and, based on that approval and the submitted invoices, FLIR’s finance department paid the reimbursement to Timms.

In July 2009, in connection with an unrelated review of expenses in the Dubai office, FLIR’s finance department flagged Timms’ reimbursement request for the watches. In response to their questions, Timms claimed that he had made a mistake and falsely stated that the expense report should have reflected a total of 7,000 Saudi Riyal (about $1,900) for the watches, rather than $7,000 as submitted. Ramahi also told FLIR investigators that the watches were each purchased for approximately 1,300-1,400 Saudi Riyal (approximately $377) by FLIR’s third-party agent. In September 2009, at Timms’ direction, FLIR’s agent maintained the false cover story in response to emailed questions from FLIR’s finance department. Timms and Ramahi also obtained a false invoice reflecting that the watches cost 7,000 Saudi Riyal, which Timms submitted to FLIR finance in August 2009. The false, revised invoice was processed by FLIR.”

Under the heading, “FLIR’s FCPA-Related Policies and Training and Internal Controls,” the order states:

“During the relevant time, FLIR had a code of conduct, as well as a specific anti-bribery policy, which prohibited FLIR employees from violating the FCPA. FLIR’s policies required employees to record information “accurately and honestly” in FLIR’s books and records, with “no materiality requirement or threshold for a violation.” FLIR employees, including Timms and Ramahi, received training on their obligations under the FCPA and FLIR’s policy, although the company did not ensure that all employees, including Ramahi, completed the required training.

FLIR had few internal controls over travel in its foreign sales offices at the time. Although FLIR had policies and procedures over travel for its domestic operations, there were no controls or policies in place governing the use of foreign travel agencies. Instead, FLIR foreign sales employees worked directly with FLIR’s foreign travel agencies to arrange travel for themselves and others. Sales managers, such as Timms, were solely responsible for expense approvals for their sales staff. Timms’ manager was responsible for approving travel-related expenses for all non-U.S.-based senior sales employees (such as Timms) and approving the payment of large invoices to the foreign travel agencies.

FLIR also had few controls over the giving of gifts to customers, including foreign government officials. Sales staff and managers were responsible for all expense approvals for gifts and accounts payable was not trained to flag expenses that were potentially problematic. To the contrary, the initial expense submission for the watches was labeled in large English print “EXECUTIVE GIFTS: 5 WATCHES” for a total of $7,123, and was accompanied by email confirmation that the watches were provided to 5 MOI “officers,” when it was approved by Timms’ manager and processed and paid by FLIR accounts payable department.”

Under the heading, “Remedial Efforts,” the order states:

“In November 2010, FLIR received a complaint letter from FLIR’s thirdparty agent, and began an investigation that lead to the discovery of the improper watches and travel. FLIR subsequently self-reported the conduct to the Commission and cooperated with the Commission’s investigation.

Subsequent to the conduct described herein, FLIR undertook significant remedial efforts including personnel and vendor terminations. FLIR broadened its relevant policies and trainings and implemented a gift policy. FLIR enhanced access by its employees to its anti-bribery policy by providing translations into languages spoken in all countries in which it has offices. FLIR is in the process of enhancing its travel approval system in its foreign offices, including requiring all non-employee travel to be booked through either one large, designated travel agency or a limited number of designated regional travel agencies after receiving advance written approval from senior business personnel and the legal department. All travel agencies will be vetted through FLIR’s full FCPA due diligence framework, be subject to all of FLIR’s current FCPA training obligations, and cannot be reimbursed for travel bookings for non-employees in the absence of appropriate approvals. FLIR added additional FCPA training and procedures for its finance staff, and enhanced its third-party diligence process and contracts. FLIR also engaged outside counsel and forensic accountants to conduct a compliance review of travel and entertainment expenses in its operations outside the U.S.”

Under the heading, “Legal Standards and FCPA Violations,” the order states, in pertinent part:

“FLIR violated [the anti-bribery provisions] by corruptly providing expensive gifts of travel, entertainment, and personal items to the MOI officials to retain and obtain business for FLIR. [FLIR] also violated [the internal control provisions], by failing to devise and maintain a sufficient system of internal accounting controls to prevent the provision and approval of the watches and the travel and the falsification of FLIR’s books and records to conceal the conduct. As a result of this same conduct, FLIR failed to make and keep accurate books and records in violation of [the books and records provisions].”

As noted in the SEC’s release:

“The SEC’s order finds that FLIR violated the anti-bribery provisions of [the FCPA] and the internal controls and books-and-records provisions of [the FCPA].  FLIR self-reported the misconduct to the SEC and cooperated with the SEC’s investigation.  FLIR consented to the order without admitting or denying the findings and agreed to pay disgorgement of $7,534,000, prejudgment interest of $970,584 and a penalty of $1 million for a total of $9,504,584.”

In the release, Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated:

“FLIR’s deficient financial controls failed to identify and stop the activities of employees who served as de facto travel agents for influential foreign officials to travel around the world on the company’s dime.”

As a condition of settlement, FLIR is required to report to the SEC “periodically, at no less than nine-month intervals during a two-year term, the status of its compliance review of its overseas operations and the status of its remediation and implementation of compliance measures.”

FLIR Systems issued this release stating:

“FLIR Systems … announced an agreement with the Securities and Exchange Commission (SEC) resolving previously disclosed violations of the Foreign Corrupt Practices Act (FCPA) committed by two former FLIR employees dating back to 2008.

FLIR discovered the FCPA violations related to approximately $40,000 in excessive travel related to factory acceptance tests and miscellaneous gifts valued at approximately $7,000. FLIR subsequently self-reported the actions to the SEC and the U.S. Department of Justice (DOJ) and then terminated the involved employees, who knowingly violated and actively circumvented the Company’s policies and financial controls. As part of its act of self-reporting, FLIR conducted a thorough investigation of its international business activities with the assistance of independent legal specialists. The settlement fully resolves all outstanding issues related to these investigations.

In announcing the settlement, the SEC recognized FLIR for self-reporting the violations.

“FLIR takes compliance very seriously and has policies and procedures in place to prevent such conduct,” said FLIR President and CEO,Andy Teich. “We self-reported the employees’ activities to the relevant authorities upon discovering them and cooperated with the government’s investigation. We have taken action to bolster our training, controls, and policies. The actions of the two former employees involved do not reflect the values of FLIR or the high standards to which we hold ourselves accountable. I am very pleased that we have fully resolved this matter and put it behind us.”

The DOJ declined to pursue any case against FLIR.”

Bruce Yannett (Debevoise & Plimpton) represented FLIR.

Yesterday, FLIR’s stock closed down approximately .9%.

“World Tour” For Saudi Officials Results In Individual SEC FCPA Enforcement Action

World Tour

Yesterday, for the first time since April 2012, the SEC brought a Foreign Corrupt Practices Act enforcement action against an individual.  Like the previous five SEC corporate FCPA enforcement actions in 2014, the enforcement action was brought via the SEC’s administrative process.

The enforcement action was against Stephen Timms and Yasser Ramahi, individuals who worked in sales at FLIR Systems Inc., (an Oregon-based company that produces thermal imaging, night vision, and infrared cameras and sensor systems).

The enforcement action is similar to previous FCPA enforcement actions against Lucent Technologies and UTStarcom in that the action focused on certain bona fide business travel that morphed into excessive travel and entertainment of foreign officials.

In summary fashion, the SEC’s order states:

“During 2009, Stephen Timms and Yasser Ramahi arranged expensive travel, entertainment, and personal items for foreign government officials in the Kingdom of Saudi Arabia in order to influence the officials to obtain new business for their employer, FLIR Systems, Inc. and to retain existing business for FLIR with the Saudi  Arabia Ministry of Interior (the “MOI”). Timms and Ramahi subsequently provided false explanations for the gifts to FLIR and attempted to conceal the gifts’ true value by submitting false documentation to the company.”

In the order Timms is described as follows.

“Stephen Timms … is a United States citizen who resides in Thailand. FLIR hired Timms in November 2001. He was promoted to Middle East Business Development Director for FLIR’S Government Systems division in September 2007. Timms was the head of FLIR’s Middle East office in Dubai during the relevant time period, and was one of the company executives responsible for obtaining business for FLIR’s Government Systems division from the MOI.”

Ramahi, a United States citizen who resides in the United Arab Emirates, is described as follows.

“Ramahi was hired by FLIR in late 2005 and worked in business development in Dubai. During the relevant period, Ramahi’s manager was Timms, the head of FLIR’s Middle East office.”

Under the heading “FLIR’s Business with the Saudi Ministry of Interior,” the order states:

“In November 2008, FLIR entered into a contract with the MOI to sell thermal binoculars for approximately $12.9 million. Ramahi and Timms were the primary sales employees responsible for the contract on behalf of FLIR. In the contract, FLIR agreed to conduct a “Factory Acceptance Test,” attended by MOI officials, prior to delivery of the binoculars to Saudi Arabia. The Factory Acceptance Test was a key condition to the fulfillment of the contract. FLIR anticipated that a successful delivery of the binoculars, along with the creation of a FLIR service center, would lead to an additional order in 2009 or 2010.

At the same time, Ramahi and Timms were also involved in FLIR’s negotiations to sell security cameras to the MOI. In May 2009, FLIR signed an agreement for the integration of its cameras into another company’s products for use by the MOI. The contract was valued at approximately $17.4 million and FLIR hoped to win additional future business with the MOI under this agreement.”

Under the heading “World Tour” for Saudi Officials” the order states:

“In February 2009, Ramahi and Timms began preparing for the Factory Acceptance Test, which was scheduled to occur in July 2009 in Billerica, Massachusetts. Timms requested the names of the MOI officials who would attend the test so that travel arrangements could be made for them by FLIR’s travel agent in Dubai, UAE. Timms subsequently contacted the United States Embassy in Riyadh, Saudi Arabia, for assistance to obtain visas for the MOI officials to attend the Factory Acceptance Test.

Ramahi and Timms then sent MOI officials on what Timms later referred to as a “world tour” before and after the Factory Acceptance Test. Among the MOI officials for whom Ramahi and Timms provided the “world tour” were the head of the  MOI’s technical committee and a senior engineer on the committee, who played a key role  in the decision to award FLIR the business.

In June 2009, Ramahi made arrangements for himself and MOI officials to travel from Riyadh to Casablanca, where they would stay for several nights at FLIR’s expense. The MOI officials then traveled to Paris with FLIR’s third-party agent, where they would also stay for several nights at a luxury hotel, also paid for by FLIR. Ramahi met the MOI officials and FLIR’s third-party agent in Boston for the equipment inspection at FLIR’s nearby facilities. On the way back from Boston, Ramahi traveled with most of the MOI officials to Dubai and arranged airfare and hotel accommodations for one MOI official to travel to Beirut before returning to Riyadh, all at FLIR’s expense. Timms received the travel itinerary ahead of the officials’ departure on the “world tour.”

The trip proceeded as planned. In total, the MOI officials traveled for 20 nights on their “world tour,” with airfare and hotel accommodations paid for by FLIR. In addition, while the MOI officials were in Boston, Ramahi and the third-party agent also took the MOI officials on a weekend trip to New York City at FLIR’s expense. There was no business purpose for the stops outside of Boston.

While in the Boston area, the MOI officials spent a single 5-hour day at FLIR’s Boston facility completing the equipment inspection. The agenda for their remaining 7 days in Boston included just three other 1-2 hour visits to FLIR’s Boston facility, some additional meetings with FLIR personnel at their hotel, and other leisure activities, all at FLIR’s expense.

Timms approved expenses incurred by Ramahi and the MOI officials in connection with the extended travel, and Timms’ manager approved the expenses for the air travel provided to the MOI officials in connection with their “world tour.” FLIR’s  finance department processed and paid the approved air expenses the next day.”

Under the heading “Expensive Watches for Saudi Officials,” the order states:

“In March 2009, while Ramahi was present, Timms provided expensive gifts to five MOI officials. At Timms’ and Ramahi’s instruction, in February 2009, FLIR’s third-party agent purchased five watches in Riyadh, paying approximately 26,000  Saudi Riyal (about U.S. $7,000).

In mid-March 2009, Ramahi and Timms traveled to Saudi Arabia for a nine-day business trip to discuss several business opportunities with MOI officials. According to Timms’ expense report, the purpose of the trip was to meet with MOI officials regarding FLIR’s efforts to sell its security cameras. During the trip, Timms, with Ramahi’s knowledge, gave the five watches to MOI officials. Ramahi and Timmsbelieved the MOI officials to be important to sales of both the binoculars and the security cameras. The MOI officials who received the watches included two of the MOI officials who subsequently went on the “world tour” travel.

Within weeks of his visit to Saudi Arabia, Timms submitted an expense report to FLIR for reimbursement of the watches. At the time of his submittal, Timms confirmed that each watch cost $1,425 and was for “Executive Gifts.” Shortly thereafter, Timms identified the names of the MOI officials who received the watches. The reimbursement was approved by Timms’ manager and paid out to Timms.”

Under the heading “The Cover Up,” the order states:

“In July 2009, in connection with an unrelated review of expenses in the Dubai office, FLIR’s finance department flagged Timms’ reimbursement request for the watches. In response to their questions, Timms claimed that he had made a mistake and falsely stated that the expense report should have reflected a total of 7,000 Saudi Riyal(about $1,900) rather than $7,000 as submitted.

At his supervisors’ request, Ramahi secured a second, fabricated invoice reflecting that the watches cost 7,000 Saudi Riyal, which Timms submitted to FLIRfinance in August 2009. Ramahi also told FLIR investigators that the watches were each purchased for approximately 1,300-1,400 Saudi Riyal (approximately $377) by FLIR’s third-party agent.

In September 2009, the FLIR finance department attempted to contact FLIR’s third-party agent. In e-mail correspondence, the FLIR finance department asked the agent a series of questions about the watches. Unknown to the finance department, Timms drafted responses to the questions on behalf of the agent. At Timms’ direction, the agent maintained the false cover story: that the watches cost a total of 7,000 Saudi Riyal, not U.S. $7,000.

In July 2009, Ramahi and Timms claimed that the MOI’s luxury travel and “world tour” had been a mistake. They told the FLIR finance department that the MOI had used FLIR’s travel agent in Dubai to book their own travel and that it had been mistakenly charged to FLIR. They promised to send an invoice to the MOI to pay for the“world tour” travel. Instead, however, Ramahi and Timms used FLIR’s agent to give the appearance that that the MOI paid for their travel. Timms also oversaw the preparation of false and misleading documentation of the MOI travel expenses that was submitted to FLIR’s finance department. For example, Timms obtained an invoice from the Dubai travel agency showing direct flights from Boston to Riyadh—a route not taken by the MOI officials on their “world tour.” Timms submitted the false invoice to FLIR finance as the “corrected” travel documentation.”

Under the heading, “FLIR’s FCPA-Related Policies and Training,” the order states:

“At all relevant times, FLIR had in place a code of conduct which prohibited FLIR employees from violating the FCPA. The policy required employees to record information “accurately and honestly” in FLIR’s books and records, with “no materiality requirement or threshold for a violation.”

Both Ramahi and Timms received training on their obligations under the FCPA and FLIR’s policy prior to the provision of expensive gifts of travel, entertainment, and personal items to the MOI. On or around May 13, 2007 and on or around December 2, 2008, Timms completed FLIR’s two-part FCPA-specific online training courses, including courses focused on “Understanding the Law” and “Dealing with Third Parties.” Ramahi only completed part one of the two-part series in May 2007. The training course completed by both Ramahi and Timms, entitled “Understanding the Law,” gave examples of prohibited gifts under the FCPA and specifically identified gifts of luxury watches, vacations and side trips during official business travel.”

As stated in the order:

“Respondents violated [the FCPA’s anti-bribery provisions] by corruptly providing expensive gifts of travel, entertainment, and personal items to the MOI officials to retain and obtain business for FLIR. Respondents also violated Section 13(b)(5) of the Exchange Act, and Rule 13b2-1 thereunder, by knowingly circumventing FLIR’s existing policies and controls, placing a fabricated invoice for the watches into FLIR’s books and records and falsifying FLIR’s records regarding the MOI officials’ extended personal travel paid by FLIR. As a result of this same conduct, Respondents caused FLIR’s books and records to be not accurately maintained in violation of [the books and records provisions of the FCPA].”

As noted in the SEC’s order and release, “without admitting or denying the findings, Timms and Ramahi consented to the entry of the order and agreed to pay financial penalties of $50,000 and $20,000 respectively.”

In the SEC’s release, Andrew Ceresney (Director of the SEC’s Enforcement Division) states:

“This case shows we will pursue employees of public companies who think it is acceptable to buy foreign officials’ loyalty with lavish gifts and travel. By making illegal payments and causing them to be recorded improperly, employees expose not only their firms but also themselves to an enforcement action.”

According to media reports, Timms is represented by Solomon Wisenberg (Nelson Mullins) an Ramahi is represented by Lisa Prager (Schulte Roth & Zabel).

According to the SEC’s release, “the SEC’s investigation is continuing.”  As relevant to any potential FCPA enforcement action against FLIR, the SEC’s order states under the heading “FLIR Profits from Sales to the Saudi Ministry of Interior” as follows.

“Following the equipment inspection in Boston, the MOI gave its permission for FLIR to ship the thermal binoculars. The MOI later placed an order for additional binoculars for an approximate price of $1.2 million. In total, FLIR received payments from the MOI for the binoculars that exceeded $10 million.

From September 2009 through August 2012, FLIR also shipped the security cameras and related accessories to the MOI. FLIR received payments for the cameras exceeding $18 million. FLIR subsequently submitted a bid to sell additional security cameras to the MOI. The bid expired before the contract was awarded by the MOI.”

Based on a review of FLIR’s SEC filings, it does not appear that the company has disclosed any FCPA scrutiny.

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