This previous post highlighted the $1.7 million Foreign Corrupt Practices Act enforcement actions against Moog Inc. concerning subsidiary conduct in India.
This post highlights additional issues to consider.
No Prior Disclosure
It is rarely a surprise when a publicly-traded company (an issuer under FCPA speak) resolves an FCPA enforcement action because most issuers disclose FCPA scrutiny in an SEC filing.
It is unique (although not unprecedented) for an issuer not to disclose its FCPA scrutiny.
Based on a review of Moog’s prior SEC filings, it does not appear that Moog’s disclosed its FCPA scrutiny prior to the enforcement action.
Interestingly, the same dynamic was present in the recent Deere FCPA enforcement action.
Cash Generation
“Pots of money” often need to be created within a business organization to fund a bribery scheme.
As highlighted in this prior post, invoice schemes are often used to create this “pot of money.”
On this issue, the SEC’s order states:
“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 fully owned by the Indian government and is part of the Department of Defense Production, Ministry of Defense] official and ultimately the MMCPL [Indian 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.”
Moog’s Culpability?
Like several other FCPA enforcement actions against a parent company issuer based on foreign subsidiary conduct, there is no finding in the SEC’s order that anyone associated with Moog (the issuer) did anything wrong relevant to the conduct at issue.
The only substantive sentences in the SEC’s order regarding Moog are:
- “the improper payments [at an Indian subsidiary] were falsely recorded as legitimate business expenses in Moog’s books and records, and the conduct went undetected as a result of deficient internal accounting controls;”
- Moog “fail[ed] to devise and maintain sufficient internal accounting controls over third-party payments, which allowed these bribery schemes to continue undetected over multiple years;” and
- the Indian subsidiary’s “financial statements are consolidated with those of Moog.”
No Charged Bribery Disgorgement
The Moog enforcement action was the latest in a long line of FCPA enforcement action in which the SEC did not allege or find a violation of the FCPA’s anti-bribery provisions, yet still sought a disgorgement remedy based solely on violations of the FCPA’s books and records and/or internal controls provisions.
As highlighted in this previous post (and numerous prior posts thereafter), no-charged bribery disgorgement is troubling. Among others, a former Associate Director of the SEC Division of Enforcement has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” The former SEC enforcement official noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”
