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An Accounting Fraud Matter With Some FCPA Sprinkled In

[This post is part of a periodic series regarding “old” FCPA enforcement actions]

Foreign Corrupt Practice Act issues can be the tip of the iceberg with a company and its executives also engaging in other improper conduct. Such was the case in an enforcement action American Bank Note Holographics and its executive Joshua Cantor.

This 2001 criminal information [1] against Joshua Cantor  (during the relevant time period President or Executive Vice President and General Manager of American Bank Note Holographics, Inc. (ABNH), a subsidiary of American Banknote Corporation) is primarily a securities / accounting fraud matter.

However, Cantor was also charged with count of conspiracy to violate the FCPA’s anti-bribery provisions.

According to the information, from May 1998 to January 1999, Cantor, and his co-conspirators “carried out a scheme to pay money to the Foreign Official [described as the Director of the Issues and Vaults Department of the Saudi Arabian Monetary Agency – SAMA] for the purpose of enabling ABNH to obtain and retain business with SAMA.”

As alleged in the information, a sales agent “advised representatives of ABNH that SAMA was planning to produce a special commemorative banknote with a hologram; that ABNH was being given the opportunity to be the hologram supplier, subject to the submission of a competitive bid; and that if ABNH was awarded the contract and performed acceptably, it would have a good chance to obtain future, lucrative business from SAMA.”

However, according to the information, ABNH’s bid would “need to include an additional sum to cover consultancy fees” and Cantor believed at least a portion of the fee would be given to officials at SAMA “in order to ensure that ABNH was awarded the contract to provide holograms for the Saudi Arabian commemorative banknote, and in order to enable ABNH to receive future business from SAMA.” According to the information, the foreign official “received at least a portion of the $239,000 consultancy fee.”

Strangely, 13 years after his guilty plea in 2001, Cantor was sentenced in 2014 to time served. (See here [2]).

[3]

Based on the same core conduct alleged in the DOJ action, in 2003 the SEC brought a related action against Cantor and ABNH. Like the DOJ action, the SEC action was also an accounting fraud matter with a bit of FCPA sprinkled in. As alleged in the SEC complaint [4]:

“In 1998, ABNH employed agents who were responsible for seeking out new business in various regions of the world. These agents were generally compensated on a commission basis for any business they generated for the company.

In late 1998, one of ABNH’s agents, informed an ABNH employee of an opportunity to bid on a contract to produce holograms for the government of Saudi Arabia. In an effort to win the contract, Cantor, with the authorization of the Senior Officer and at his direction, authorized and directed an ABNH employee to wire $239,000 to a Swiss bank account for the benefit of one or more officials of the Saudi Arabian government.

The employee wired the money as instructed and ABNH accounted for this payment as a consulting fee. This $239,000 payment comprised nearly 40% of the contract’s value. Cantor, and the Senior Officer, caused ABNH to make the payment for the purpose of influencing or affecting the acts or decisions of one or more Saudi Arabian officials, or the Saudi Arabian government, in order to assist ABNH in obtaining or retaining business with the Saudi Arabian government.”

Based on the above, the SEC charged Cantor with violating the FCPA’s anti-bribery provisions. Given the core accounting fraud allegations, the SEC also charged Cantor with violating the FCPA’s books and records and internal controls provisions. Without admitting or denying the SEC’s allegations, Cantor consented to an order permanently enjoining him from violating the laws he was charged with violating and he also consented to a ten year prohibition from acting as an officer or director of a public company.

Based on the same core conduct, the SEC also brought this administrative order [5] against ABNH. Like the Cantor enforcement action, the ABNH matter was also an accounting fraud matter with a bit of FCPA sprinkled in. As stated in the Order:

“In late 1998, ABNH also violated the anti-bribery provisions of the Foreign Corrupt Practices Act (“FCPA”). ABNH employed agents who were responsible for seeking out new business in various regions of the world. These agents were generally compensated on a commission basis for any business they generated for the company. In late 1998, one of ABNH’s agents informed an ABNH employee of an opportunity to bid on a contract to produce holograms for a foreign government. In an effort to win the contract, former ABNH officers authorized and directed an ABNH employee to wire $239,000 to a bank account for the benefit of one or more officials of that foreign government. The employee wired the money as instructed and ABNH accounted for this payment as a consulting fee. This $239,000 payment comprised nearly 40% of the contract’s value and constituted an additional payment ABNH made for the purpose of influencing or affecting the acts or decisions of one or more of the foreign officials, or of the foreign government, in order to assist ABNH in obtaining or retaining business with the foreign government.”

[…]

“ABNH violated [the anti-bribery provisions] when it wired $239,000 to a foreign bank account for the purpose of influencing or affecting the acts or decisions of one or more foreign officials, or of the foreign government, in order to assist ABNH in obtaining or retaining business with the foreign government.”

Without admitting or denying the SEC’s findings, ABNH agreed to pay $75,000 and agreed to cease and desist from committing any future legal violations.

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