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Microsoft Resolves Long-Standing FCPA Scrutiny By Agreeing To Pay $25.3 Million

microsft

Microsoft has been under Foreign Corrupt Practices Act scrutiny since early 2013 (see here for the prior post). Yesterday, the DOJ and SEC announced here and here an aggregate $25.3 million enforcement action against the company and a Hungarian subsidiary concerning conduct in Hungary, Saudi Arabia, Thailand and Turkey.

The enforcement action involved a DOJ component involving a non-prosecution agreement involving MS Hungary in which the entity agreed to pay a $8.8 million criminal penalty and an SEC administrative order against Microsoft finding violations of the FCPA’s books and records and internal controls provisions in which the company agreed, without admitting or denying the SEC’s findings, to pay disgorgement and prejudgment interest of approximately $16.5 million.

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Fresenius Medical Care Pays Approximately $232 Million To Resolve Its Long-Standing FCPA Scrutiny

fresenius

German healthcare firm Fresenius Medical Care AG (a company with American Depositary Receipt shares traded on the NYSE) has been under FCPA scrutiny since 2012 (no that is not a typo).

Today the DOJ and SEC announced (here and here) an approximate $232 million enforcement action ($84.7 million to the DOJ and $147 million to the SEC) against the company for alleged bribery schemes involving physicians and other healthcare personnel in Angola, Saudi Arabia, Morocco, Spain, Turkey, Gabon, Benin, Burkina Faso, Senegal, Ivory Coast, Niger, Cameroon China, Serbia, Bosnia, and Mexico.

While not specified in any of the resolution documents, the DOJ’s non-prosecution agreement and SEC’s administrative order make generic reference to the Angola and Saudi Arabia conduct involving ‘agents and employees utiliz[ing] the means and instrumentalities of U.S. interstate commerce, including the use of internet-based email accounts hosted by numerous service providers located in the United States.”

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DOJ Announces FCPA Enforcement Action Against Former Embraer Exec Colin Steven

colin steven

In 2016, Embraer (a Brazil-based aircraft manufacturer with American Depositary Shares listed on the New York Stock Exchange) resolved a parallel DOJ / SEC Foreign Corrupt Practices Act enforcement action alleging improper conduct in the Dominican Republic, Saudi Arabia, Mozambique, and India (See here for the prior post).

The net FCPA settlement amount was $187 million and in terms of Saudi Arabia it was alleged that “Embraer [largely through the conduct of Executive B] agreed to pay and did pay Saudi Arabia Official [described as “an official in a high-level decision-making position in a state-owned and controlled company in Saudi Arabia that performed a government function] more than $1.5 million to obtain a contract for the sale of three business jets, valued at approximately $93 million to Saudi Arabia Instrumentality.”

Yesterday, the DOJ returned to these allegations and announced an enforcement action against Executive B, also known as Colin Steven (a U.K. citizen residing in the United Arab Emirates).

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Embraer Bribery Schemes Result In Net $187 Million FCPA Enforcement Action

embraer

Yesterday, the DOJ and SEC announced resolution of a Foreign Corrupt Practices Act enforcement action against Embraer, a Brazil-based aircraft manufacturer with American Depositary Shares listed on the New York Stock Exchange.

According to the DOJ and SEC, Embraer engaged in bribery schemes between 2008 through 2011 in the Dominican Republic, Saudi Arabia, and Mozambique in which the company approved bribe payments, through various third-parties, to various alleged “foreign officials.” According to the DOJ and SEC, Embraer’s wholly-owned U.S. subsidiary was active in the bribery schemes including by making payments from its New York based bank account. In addition, the enforcement action also involved improper conduct in India between 2005 and 2009. In total, the government alleges that Embraer made approximately $84 million as a result of the improper conduct.

The enforcement action involved a DOJ component in which the company agreed to pay a criminal penalty of approximately $107.3 million and an SEC component in which the company agreed to pay $83.8 million in disgorgement and $14.4 million in prejudgment interest. The SEC agreed to credit a disgorgement amount that Embraer agreed to pay to Brazilian authorities and this filing suggests that disgorgement amount is approximately $18.6 million. Thus, the net FCPA settlement amount was approximately $187 million.

This post goes in-depth into the enforcement action by summarizing the approximate 115 pages of resolution documents.

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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%.

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