To “fund” a bribery scheme, money often needs to be “generated” within a business organization.
In several Foreign Corrupt Practices Act enforcement actions, invoice schemes have been that mechanism.
For instance, in the BIT Mining (500.com) enforcement action, the SEC stated: “During the relevant period, 500.com failed to properly verify that payments to consultants were used for their stated purposes, and it failed to have mitigating controls to verify that services were properly rendered before paying the consultants and corresponding expense reimbursements. Executives at 500.com were able to direct employees to pay invoices without having supporting documented deliverables and to pay cash bribes.”
In the Gartner enforcement action, the SEC stated: “Gartner’s invoices, like the other official transaction documents, omitted any reference to the participation of the Private Company [a South African consulting company]. As a condition of Gartner’s right to bid on the contract, SARS [South Africa Revenue Service] officials had instructed Gartner to manage its subcontractor, the Private Company. Gartner’s invoices to SARS contained only a single line item for “Professional Fees.” Zimeleyo [Gartner’s sub-agent] invoiced Gartner monthly through a single invoice containing two line entries with different hourly rates. The Zimeleyo invoice did not identify the hourly rates as pertaining to Zimeleyo and the Private Company. Gartner made its payments to Zimeleyo, which in turn paid the Private Company. The Gartner Consulting Manager approved all invoices submitted by Zimeleyo. Gartner’s payments to South Africa were initiated from its operations facility in Fort Myers, Florida.”
In the Moog enforcement action, the SEC stated: “Various cash generation schemes through inflated and false invoices and connections to other entities were discussed to fund the bribe payment to the HAL [an Indian public sector aerospace and defense company] official and ultimately the MMCPL [Moog’s subsidiary] finance manager was directed to “Please inform [Distributor B] to raise an invoice on MOOG …. Sale value can be INR 10 lakhs.” Ten lakhs was the amount of the bribe payment agreed upon between MMCPL employees and the HAL official. Pursuant to that directive, in January 2022, Distributor B prepared a fabricated invoice for MMCPL in the amount of INR 1,540,000. The purpose of the invoice was ostensibly for the construction of a specialized table, yet MMCPL never requisitioned the table, and Distributor B never delivered a newly constructed table and was not in fact capable of constructing the table. The sham transaction was used to generate sufficient cash to pay the promised bribe to the HAL government official.”
In the SAP enforcement action, the SEC stated: “In some cases, 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.”
In the Quad/Graphics enforcement action, the SEC found in connection with “bribery to secure sales in Peru” that “improper payments were made through four purported third party vendors, which were sham companies owned by the same individual.”
The Ralph Lauren enforcement action concerning conduct in Argentina 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 concerning conduct in numerous countries 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 concerning conduct in Kenya and Angola 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 concerning conduct in Russia 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.”
