Moog Inc. (“Moog”) is a worldwide designer and manufacturer of motion controls systems for a broad range of applications in aerospace, defense, industrial and medical markets. The New York headquartered company – with four operating segments: military aircraft, commercial aircraft, space and defense, and industrial – has shares traded on the New York Stock Exchange and has sales, engineering, and manufacturing facilities in twenty-six countries.
Moog is the latest company to resolve a Foreign Corrupt Practices Act enforcement action.
This SEC order states in summary fashion:
“This matter concerns violations of the books and records and internal accounting controls provisions of the FCPA by Moog Inc., a global provider of technology used in the aerospace and defense markets, through its wholly owned Indian subsidiary, Moog Motion Controls Private Limited (“MMCPL” – a wholly owned subsidiary of Moog that promotes and sells Moog’s products in India). Between 2020 and 2022, employees of the subsidiary bribed a variety of Indian foreign officials to win business. These same employees also offered bribes to Indian foreign officials in an attempt to cause public tenders in India to favor Moog’s products and exclude competitors.
A variety of schemes were used to funnel the improper payments, including through third-party agents and distributors. The improper payments 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. As a result, Moog was unjustly enriched by approximately $504,926.”
The order contains findings regarding contracts with:
- South Central Railway (described as one of the Indian railway zones, wholly owned by the Indian government. India’s Railway Board oversees and manages the Indian railroad network, including SCR, and approves policies and projects related to the Indian railways. The Railway Board reports to the Ministry of Railways); and
- Hindustan Aeronautics Limited (described as an Indian public sector aerospace and defense company headquartered in Bangalore, India. HAL is fully owned by the Indian government and is part of the Department of Defense Production, Ministry of Defense).
Regarding the South Central Railway Contract, the order finds:
“Beginning in early 2020, MMCPL sought an award contract with SCR. To be eligible to bid on an SCR project, approval is required by RDSO [Research Design and Standards Organization is the research and development organization under the Ministry of Railways of the Indian government, which functions as a technical advisor and consultant to the Railway Board with respect to the design and standardization of railway equipment and problems related to railway construction, operations, and maintenance], SCR’s railway advisor. Historically, MMCPL found it difficult to get on the approved supplier list with RDSO.
To get on the RDSO supplier list, and obtain a contract with SCR, the employees used a scheme that involved using third-party Agent A to make bribe payments to SCR officials. Agent A was introduced to them by a third party following a May 2020 discussion of ways to “start working in railways and will find some wayout [for SCR] to buy from Moog India.”
In July 2020, MMCPL entered into a liaison agreement with Agent A, in which Agent A agreed to assist MMCPL in obtaining business from SCR in exchange for 10% of any contract value.
In August 2020, shortly after engaging Agent A, the Moog brand was added to the supplier list for an upcoming SCR tender notice. Agent A’s director relayed that “[f]urther to our pursual [sic] with the [Railway Board] & SCR we are pleased to confirm that Moog brand has been added as an acceptable brand in upcoming SCR tender.” The tender notice listed Moog, along with one additional supplier, as potential suppliers for a specific part in the SCR tender. MMCPL employees discussed engaging in additional misconduct to remove the competitor from the supplier list, stating “my next target would be to remove them from railways.”
In September 2020, MMCPL won the SCR contract for $34,323. In April 2022, Agent A invoiced MMCPL for “commission charges,” which several MMCPL employees knew included the improper payments to government officials to eliminate competition and win contract awards. The payments were falsely recorded as legitimate contractor services.”
Regarding the Hindustan Aeronautics Limited Contract, the order finds:
“In April 2021, HAL announced a public tender for aerospace actuators. The contract value was over $1.3 million.
By May 2021, MMCPL employees were discussing negotiations around the amount and timing of a bribe payment to a HAL official, with one MMCPL employee explaining that the HAL official is “…asking for 2.5 percent to be given …or one percent to be given immediately…” The employees further discussed that the bribe payment would require a “maximum of 1.5 percent [payment] and then two .75 percent [payments] …they will promise that all the three people will be eliminated …” The employees also noted they would “have to give by cash.”
Internal discussions continued about the importance of winning the HAL tender and having the HAL official help disqualify the other bidders. “By any means, we must take the order of HAL,” and in response, “We need to eliminate everybody other than [a Moog competitor]. For that, we need to make some commitment to [HAL official].”
In November 2021, HAL awarded MMCPL a contract valued at $1,399,328 for parts and services related to the April 2021 contract tender.
Various cash generation schemes through inflated and false invoices and connections to other entities were discussed to fund the bribe payment to the HAL official and ultimately the MMCPL 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 January 2022, an instant message from a MMCPL employee instructed MMCPL’s finance manager to “please close [Distributor B] offer … as he came upfront to help us when we needed it.” In March 2022, MMCPL paid Distributor B approximately $18,614, which was used to make the promised improper payment to the HAL official. The invoice was falsely recorded as a legitimate expense, and falsely booked as a cost under the HAL contract.”
The order also contains a heading titled “Attempts to Improperly Influence Tenders” which states:
“In addition to the SCR and HAL tender bribe schemes, MMCPL employees engaged in several other attempts to rig the tender bidding process for government contracts by seeking to have Indian officials exclude competitors. As part of these efforts, they at times again used Agent A and Distributor B to facilitate in their efforts.
In one such attempt involving RDSO, an audio recording notes “three member committee has agreed to remove [competitor] from the list.” Another employee responds, “our agreement with him remains the same [as] what you initially discuss, right?” “Yes, the same 1%.” “I spoke to [Distributor B] and I aligned this without telling him the name of the customer and the person or anything … we can manage it a little bit smartly so that we don’t want to you know publicize this that we are approved taking this kind of approach.”
In connection with a November 2020 tender for SCR, employees noted they “had discussed with [Agent A and] he will try to disqualify” the other bidder.
MMCPL employees and HAL officials discussed qualification criteria in advance of additional tenders, noting in one October 2021 instance, “HAL also informed that if we want to add any qualification criteria, same has to be communicated now so that they will look into consideration in formal tender.”
MMCPL employees also discussed bribing RDSO officials to eliminate competitors on tenders, and the payment of 1% of the contract award as a bribe. One employee noted his communication with an RDSO Official and the negotiation of the bribe, “I just had a call with that guy, RDSO [Official]… so what he is talking about is one percent of the value…” His colleague indicated he had informed their distributor of the scheme to funnel the payments to RDSO Official.
The employees further discussed the details of how the payment would be made by MMCPL, stating, “It could be through invoicing or through one of [the distributor’s] existing contracts. … so it is not going to be a problem.”
Employees freely discussed their misconduct, which reflected a prevailing culture to win business at any cost, including improper means. The widespread misconduct at MMCPL reflected a breakdown in internal accounting controls, training, compliance, and tone at the top of the subsidiary.”
Based on the above, the order finds that Moog violated the FCPA’s books and records provisions (“falsely recording the improper payments as legitimate business expenses and commissions in its books and records”) and the internal controls provisions (“failing to devise and maintain sufficient internal accounting controls over third-party payments, which allowed these bribery schemes to continue undetected over multiple years”).
Without admitting or denying the SEC’s findings, Moog agreed to pay approximately $1.7 million (disgorgement of $504,926, prejudgment interest of $78,889, and a civil monetary penalty in the amount of $1,100,000).
Under the heading “Cooperation and Remediation,” the order states:
“[T]he Commission considered remedial acts promptly undertaken by Respondent and cooperation afforded the Commission staff. Moog initially reported certain misconduct to DOJ and subsequently provided SEC staff with facts developed during its own internal investigation. Moog’s cooperation included identifying and producing key documents and sharing witness statements.
Moog’s remediation included the termination of employees and third parties involved in the misconduct and enhancing its internal accounting controls over third-party payments. Moog also strengthened its global compliance organization; enhanced its policies and procedures regarding the due diligence process and the use of third parties; increased the frequency of its audits and monitoring of distributor and intermediary activities; mandated management approval for all distributor and reseller agreements; created new positions to address potential risks; and increased training of employees on anti-bribery issues and tender specific procedures.”
In this SEC release, Charles Cain (Chief of the SEC’s FCPA Unit) states:
“The SEC’s action against Moog highlights the need for issuers operating internationally to have appropriate compliance and internal accounting controls over third parties and third-party payments, as weaknesses in those systems heighten corruption risk.”
