Like many FCPA enforcement actions, the recent RTX (Raytheon) matter largely focused on a problematic third party used to facilitate the alleged bribery schemes.
The DOJ and SEC resolution documents make for an interesting read and tell a story across a wide spectrum of third party compliance from due diligence, to oversight and supervision, to payment.
The story demonstrates that when it comes to third parties, several things can be “true” (based on DOJ/SEC allegations findings) all at the same time.
It can be “true” that culpable employees knowingly circumvented existing third party compliance policies and procedures in place and it can also be “true” that others within the company were seemingly indifferent to the activities of a third party.
As detailed in the charging documents, Raytheon had a due diligence process for the engagement of third parties.
Problem is, the due diligence process was circumvented by culpable individuals.
In the words of the DOJ:
“Raytheon Employee 3 helped Qatari Company and Qatari Sub 1 pass RAYTHEON’s due diligence process—a prerequisite to receiving the sham studies subcontract— by coaching Individual 1 on what information to provide to RAYTHEON about the companies’ leadership and capabilities. With the knowledge of Raytheon Employee 3, Individual 1 submitted due diligence forms to RAYTHEON that falsely failed to disclose Foreign Official 1’s involvement or ownership stake in Qatari Company and Qatari Sub 1 and overstated the companies’ experience and capabilities.”
Elsewhere, the DOJ alleges that culpable employees used personal e-mail accounts in connection with a “sham” third-party contract.
Thereafter, according to the DOJ:
“Individual 1 submitted false paperwork to RAYTHEON certifying that Qatari Company had completed the work on the studies that were actually performed by Raytheon Employee 4. Raytheon Employees 3 and 4 falsely certified that Qatari Company satisfied the requirements of its subcontract, such as providing the studies to Raytheon Employee 4 for review, to trigger payment from RAYTHEON to Qatari Company.”
Elsewhere, the DOJ alleges:
“In or around 2013, as Foreign Official 1 gained more responsibilities within the QEAF, Foreign Official 1 began using an alias when communicating on behalf of the Qatari Entities and instructed Individual 1 to create an alias email account for Foreign Official 1 to use to communicate with RAYTHEON (the “Alias Email Account”). The Alias Email Account contained the Qatari Company’s domain name and an alias for Foreign Official 1 belonging to a relative who shared Foreign Official 1’s last name but was not known to be affiliated with the QEAF. Raytheon Employees 1-4 were aware of Foreign Official 1’s use of the Alias Email Account.
Foreign Official 1 used the Alias Email Account to communicate with other RAYTHEON personnel in order to secure a subcontract from RAYTHEON for Qatari Sub 2 for the studies on the Second Qatar Addition.
[…]
As with the First Qatar Addition, Raytheon Employee 4 coached Qatari Sub 2 on the proposal it submitted to RAYTHEON, while Raytheon Employee 3 helped Qatari Sub 2 pass RAYTHEON’s due diligence process in order to receive the subcontract for the studies.
For example, on or about February 11, 2015, Raytheon Employee 3 used a personal email account to send Foreign Official 1 an email attaching RAYTHEON’s due diligence questionnaire directed to Qatari Sub 2, and writing “my ideas in red text.” The attached questionnaire included Raytheon Employee 3’s suggested responses for Qatari Sub 2 to provide to RAYTHEON, many of which were inaccurate.”
Likewise, in the words of the SEC:
“Raytheon employees communicated with Qatari Military Officials A and B using their U.S. based personal computers and mobile devices, personal email, and other off-channel communications in violation of Raytheon’s policies.”
Notwithstanding the above, the SEC’s order (which goes into more detail than a typical SEC FCPA administrative order), while touching upon the same general points discussed above, also paints a picture of others within the company being seemingly indifferent to the activities of a third party.
The SEC order contains a section titled “Qatari Third-Party Agent Background” which states:
“Raytheon had long sought to win military defense contracts in Qatar. However, the process was challenging, given the Qatari military procurement process was opaque. When Raytheon retained Qatari Agent as its representative in Qatar, his royal ties and lack of military defense contracting experience were known. Despite due diligence that revealed red flags of heightened corruption risks, Qatari Agent was engaged on a success fee basis through his Company. Over time, Raytheon personnel learned of additional red flags associated with Qatari Agent that Raytheon failed to address. As one compliance employee stated regarding Qatari Agent, “We have always had some ‘red flags’ that we basically accepted to live with.”
The success-fee arrangement provided for vague services, and Qatari Agent’s primary obligation was to exercise “best efforts” to help Raytheon establish relationships and good will with the Qatari military. Qatari Agent was not willing or able to assist Raytheon personnel with the few substantive tasks that were itemized in the agreements. Neither the agreements nor Raytheon’s policies required Qatari Agent to submit invoices in order to get paid; rather, the award of a contract to Raytheon and the receipt of payments from Qatar triggered Raytheon’s payment of commissions to Qatari Agent. Until at least 2019, Raytheon did not require the Qatari Agent to report its activities on behalf of Raytheon as a condition for payment, and thus Raytheon did not know what Qatari Agent did as its representative in Qatar to help Raytheon win billions in military contracts, or what he did with the millions paid to him. While numerous Raytheon employees raised concerns regarding red flags of high corruption risk, they were overruled by management, who allowed the contracts with Qatari Agent to be extended.
Raytheon employees believed that the Qatari Agent was able to represent Raytheon only as a result of an exception granted by the Emir to a prohibition on companies using sales representatives to assist them in military procurements. No efforts were made by Raytheon to determine whether Qatari Agent engaged in corruption to obtain the exception. Raytheon also simply referred to Qatari Agent in some agreements as a “service provider” instead of representative, but the substance of the relationship did not change.”
Elsewhere, the SEC found:
“Working with Qatari Agent, Raytheon was awarded billions in defense contracts. Qatari Agent was a relative of the Qatari Emir and for some period a member of the Council of the Ruling Family, and he had no prior background in military defense contracting. Time and time again, managers and employees raised concerns over red flags of corruption regarding the agent. Yet, the relationship with the agent, who provided very little support for work performed, continued unchecked.
Due diligence on the agent was insufficient, and indicia of corruption were ignored. For years, the company relied on a poorly drafted two-page opinion that Qatari Agent was not a government official, despite the agent being a royal family member and a member of the Council of the Ruling Family, who at times advised the Emir on finances before he became Emir. Contracts with the agent were entered into and extended several times despite known significant corruption risk.
Raytheon’s written policies and procedures regarding agents were overlooked and, at times, circumvented, to allow Qatari Agent to work on the company’s behalf. For example, when the company finally required that Qatari Agent provide documentation of work performed, a company employee, with the knowledge of others, ghost-wrote the agent’s reports.
Despite the lack of or inadequate documentation of services performed by Qatari Agent, and numerous employees expressing concern about continuing to work with the agent due to the corruption risks, Raytheon paid over $30 million to Qatari Agent. Payments continued to Qatari Agent even after the Commission staff raised questions about the company’s business practices and corruption in Qatar. In an effort to exit the relationship quickly, Raytheon paid the agent a record $17 million in March and April 2020. Despite the staff’s investigation, Raytheon did not disclose to Commission staff the known corruption concerns and amounts paid to the Qatari Agent. They were not revealed until new management became aware following the merger that created RTX and they determined to cooperate fully with the staff’s investigation.”
Another section of the SEC’s order is titled “Raytheon Failed to Obtain Proof of Services Provided” and states:
“From 2012 until 2022, the Raytheon Country Manager for Qatar (“Country Manager”) was considered Qatari Agent’s handler, controlling all access to Qatari Agent by other Raytheon employees. When Raytheon employees asked to speak with Qatari Agent, they were often told that Qatari Agent was too important or busy to speak with them or provide the requested service or information. In addition, Country Manager helped postpone deadlines for Qatari Agent submissions that were required by Raytheon’s compliance and due diligence program, to the point that the periodic refreshes of Qatari Agent’s due diligence were chronically late, and the company’s information about Qatari Agent was frequently out of date by a year or more. Raytheon personnel understood that Raytheon’s senior leadership supported Country Manager, rendering him untouchable.
Raytheon personnel could not confirm what work Qatari Agent had done to help Raytheon win the contracts, and Raytheon failed to require Qatari Agent to report its activities. While Raytheon managers and employees were aware that Qatari Agent was interacting with Qatari officials on their behalf in connection with obtaining and retaining military contracts, they did not know the names or titles of the government officials Qatari Agent contacted on Raytheon’s behalf. Likewise, they did not know what transpired during those communications and meetings.
[…]
Country Manager provided Qatari Agent with internal documents and non-public information to assist him with appearing to provide services and claim additional commissions from the company. The internal documents included talking points for Qatari Agent to use with Raytheon executives, draft messages from Raytheon senior managers to Qatari Agent to allow Qatari Agent to prepare a response, and even draft minutes of a meeting between Raytheon and Qatari Agent regarding a dispute over commissions. Country Manager’s sharing of information to help Qatari Agent create the appearance of providing services was known to others within Raytheon, yet they took no steps to stop the practice.
In addition, it was known that Country Manager ghost-wrote communications on behalf of Qatari Agent to send to Raytheon managers and executives. These included emails and WhatsApp messages about the progress of Raytheon pursuits and the burden on Qatari Agent of completing Raytheon due diligence forms. Moreover, beginning in 2019, when Raytheon instituted a requirement that representatives submit quarterly activity reports, Country Manager wrote all Qatari Agent’s activity reports. The reports were vague and lacked specific information about work performed. Raytheon managers and an attorney knew
Country Manager authored the activity reports without authorization. The reports were a requirement for Qatari Agent to be paid. Despite knowledge the reports were ghost-written, Raytheon paid Qatari Agent and continued the relationship.When Raytheon personnel attempted to obtain an adequate level of detail from Qatari Agent in the activity reports, Country Manager wrote a letter of complaint for Qatari Agent Company to send to a Raytheon executive. The executive then tasked Country Manager with drafting a response for him to send to Qatari Agent. A Raytheon attorney who was aware of the situation emailed, “Priceless since [Country Manager] probably wrote the letter from [Qatari Agent Company].” Thus, any attempt to gather information about what Qatari Agent was doing through the activity reports was a meaningless, check-the-box exercise that neither enhanced compliance efforts nor mitigated corruption risks.”
Yet another section of the SEC order is titled “Raytheon Made Unsupported Payments to Qatari Agent” and states:
“The contracts that Raytheon sought in Qatar were high-value pursuits worth billions of dollars which increased the risks of the relationship with Qatari Agent. Raytheon senior executives focused only on the potential for unusually high revenue from military sales in Qatar, to the exclusion of meaningful compliance or internal accounting controls over payments to the Qatari Agent. They believed that keeping Qatari Agent happy was essential to obtaining that revenue, which resulted in special treatment of Qatari Agent. The tone at the top of Raytheon and the relevant business unit stressed keeping Qatari Agent on board at all costs, without regard to the numerous red flags of corruption and compliance concerns.
[…]
The few executives who met with the Qatari Agent merely exchanged courtesies and discussed Raytheon business at a high level. They did not know what, if any, legitimate services Qatari Agent was providing in exchange for the millions being paid to him.
[…]
Raytheon’s policies required periodic evaluations of Qatari Agent’s performance as a representative; however, the main factor used was whether Raytheon won business in Qatar. For example, one manager admitted in the evaluation form that he was not privy to and did not attend meetings and he had no knowledge of what Qatari Agent did to win the contracts. As a result, Raytheon’s evaluation forms were simply a check-the-box requirement.
Raytheon’s financial policies and procedures included caps on commissions to third parties, which the company raised or manipulated for Qatari Agent. Qatari Agent was one of Raytheon’s highest-paid representatives world-wide. To ensure that Qatari Agent continued to receive their unusually high compensation, Raytheon senior management raised the commission caps for Qatari Agent. In addition, they manipulated Qatari Agent’s existing contract appendices by adding pursuits in ways that allowed them to supersede internal policies concerning commission caps. Raytheon took these unusual steps to retain Qatari Agent’s support due to belief that Qatari Agent was essential to Raytheon’s success in Qatar.
In 2019 and 2020, when Qatari Agent submitted vague and inadequate activity reports, there were no meaningful consequences for Qatari Agent. Although one commission payment was delayed, Raytheon personnel were told that they were not to withhold commission payments or terminate appendices with Qatari Agent because they should not “rock the boat.” Qatari Agent was perceived to be essential to assisting Raytheon in obtaining payments for Patriot 2-Lot and NASAMS. The message was communicated from Raytheon senior executives, who emphasized profits over compliance. At Raytheon, winning contracts took priority over concerns of the legal and compliance functions. Thus, the company’s gatekeepers were not empowered to address compliance issues with Qatari Agent, exposing Raytheon to the risk of corruption.
As a result of weaknesses in Raytheon’s internal accounting controls surrounding intermediaries, Raytheon hired, paid, and increased commission rates for Qatari Agent despite elevated risks of bribery and without reasonable assurance that its payments compensated legitimate services. Between 2007 and 2020, Raytheon paid Qatari Agent over $30 million in commissions, and despite having the right to audit Qatari Agent, it never performed one.
Raytheon personnel signed off on the payments without knowledge or proof of the services that Qatari Agent provided. Some approvers stated that they never interacted with Qatari Agent, yet they or their subordinates approved the payment of commissions. At least one approver expressed the possibility that paying Qatari Agent could raise FCPA concerns. Several approvers simply relied on what Country Manager claimed Qatari Agent Company did. These signoffs represented the epitome of a paper program. Employees were required to check boxes, but they conducted no meaningful review of the services provided that supported the proposed payment.
The lack of effective compliance or internal accounting controls created an enhanced risk that the huge commission payments to Qatari Agent Company could be used to fund improper payments to foreign officials who were instrumental in awarding the military defense contracts. Raytheon also maintained inadequate books, records, and accounts concerning its payments to Qatari Agent Company, as they were unsupported by adequate documentation of legitimate services, and the company maintained inaccurate documents relating to Qatari Agent Company in its books and records. These failures occurred against a backdrop of senior management indifference to the heightened corruption risk in connection with Raytheon’s business in Qatar.”
