To “fund” a bribery scheme, often times money needs to be “generated” within a business organization.
As highlighted below, in numerous Foreign Corrupt Practices Act enforcement actions the money is “generated” through an invoicing scheme with a third party.
The below enforcement actions are not the complete list of enforcement actions to involve an invoicing scheme, but rather representative examples.
The SAP enforcement action concerned conduct in South Africa and Indonesia. As to the Indonesia, the government stated: “SAP Indonesia and Indonesia Intermediary 1 used fake training invoices to issue payments that created slush funds to pay bribes. Employees at Indonesia Intermediary 1 created shell companies to generate these false expenses. Some of the false invoices generated kickback payments to employees at the Indonesia Intermediary 1, some paid for customer excursions, and others generated cash payments to government officials at state-owned entities.”
The Clear Channel Outdoor enforcement action concerned conduct in China and found that “Clear Media used sham intermediaries and false invoices to generate cash for off-book consultants engaged to win advertising business from government and private customers.”
The 3M enforcement action concerned conduct in China and involved non-business travel. According to the SEC: “In order to cover certain of their own non-reimbursable expenses related to Tourism Activites, 3M-China Employees would at times work with the collusive China Travel Agencies to inflate their billing invoices for ostensibly legitimate, line item expenses (e.g. travel costs). In other instances, the 3M-China Employees submitted unpermitted invoices directly to the China Travel Agencies for reimbursement.”
The Franks International enforcement action concerned conduct in Angola and involved an agent who submitted invoices to the company – and paid by the company – which generically referred to “various marketing expenses paid on behalf of Frank’s International.” According to the SEC, the Angola Agent served as a bribe conduit, but Frank’s recorded the payments as “business expenses—entertainment and meals” in its books and records.
In the Quad/Graphics enforcement action, “improper payments were made through four purported third party vendors, which were sham companies owned by the same individual (“Sham Vendors”). As stated by the SEC: “Most of the invoices submitted by the Sham Vendors were purportedly for pre-press, modulation and/or packaging services provided to Quad Peru in connection with INEI contracts. In truth, none of the Sham Vendors performed any such services for Quad Peru. […] The bribes that Quad Peru paid to INEI officials were approximately 13% of each government contract work order and were paid through fake invoices for services submitted by the Sham Vendors that were routinely approved by the Quad Peru Head Sales Executive and the Quad Peru General Manager.
The Ralph Lauren enforcement action concerned conduct in Argentina and included allegations that the company, through an agent, made payments to officials to “assist in improperly obtaining paperwork necessary for goods to clear customs, to permit clearance of items without the necessary paperwork, to permit the clearance of prohibited items, and to avoid inspection.” According to the government, the payments were generated by having the agent include in his invoices to the company “loading and delivery expenses” and a “stamp tax/label tax.”
The Alstom enforcement action concerned conduct in numerous countries and alleged that “employees instructed the consultants to submit false invoices and other back-up documentation reflecting purported legitimate services rendered that those employees knew were not actually performed, so that Alstom could justify the payments to the consultants.” In addition, the government found that “during the relevant time period, Alstom did not engage in auditing or testing of consultant invoices or payments”
The Goodyear enforcement action concerned conduct in Kenya and Angola and found, as relevant to the Angolan conduct, that “to hide the scheme and generate funds for the improper payments, [a wholly-owned subsidiary] falsely marked-up the costs of its tires by adding to its invoice price phony freight and customs clearing costs” and that “on a monthly basis, as tires were sold, the phony freight and clearing costs were reclassified to a balance sheet account” and as “bribes were paid, the amounts were debited from the balance sheet account, and falsely recorded as payments to vendors for freight and clearing costs.”
The Analogic enforcement action concerned conduct in Russia and found that after the company invoiced the distributor for the real price of the equipment, the distributor would request that the company provide it “with a second invoice reflecting an inflated sales price” and that following these requests company employees “would create a fictitious invoice outside the normal invoice-generation and accounting system that reflected an inflated amount of payment due.” According to the government, a subsidiary company “would keep two invoices in its books and records – a correct invoice created pursuant to the Company’s accounting procedures, and a fictitious invoice created outside these procedures.”
Large business organizations of course process numerous invoices during the ordinary course of business and finding problematic invoices in the absence of red flags may be a daunting task.
Nevertheless, it is clear that the enforcement agencies, particularly the SEC, have high expectations for gatekeepers such as finance and accounting personnel, and expect them to play a meaningful role in FCPA compliance. To play a meaningful role in FCPA compliance, finance and accounting personnel first need to have a pair of “FCPA goggles” and understand the elements of an FCPA violation, how the FCPA is enforced, and FCPA compliance best practices designed to manage and mitigate risk.
