[This post is part of a periodic series regarding “old” FCPA enforcement actions]
In 1999, the DOJ brought this civil complaint for a permanent injunction against Metcalf & Eddy Inc., the successor by merger of Metcalf & Eddy International Inc. (M&E International – a U.S. environmental engineering firm). It was a notable case – the first Foreign Corrupt Practices Act enforcement action based solely on travel and entertainment issues.
The conduct at issue focused on sewage and wastewater treatment facility projects in Alexandria, Egypt sponsored by the United States Agency for International Development (“USAID”) for the benefit of the Alexandria General Organization for Sanitary Drainage (“AGOSD”), an alleged instrumentality of the Government of Egypt.
The complaint alleged that Metcalf & Eddy and M&E International provided excessive travel and entertainment expenses to the Chairman of AGOSD “to induce the official to use his influence to effect and influence an act of the Government of Egypt” in connection with two contracts (1) an approximate $11 million wastewater treatment facility project and (2) an approximate $25 million architectural and engineering services project.
The complaint alleged:
“Although the [contracts] were awarded by USAID, the prospective contractors and their bids were subject to review by a Technical Review Board comprised of five voting members. AGOSD held a voting position on each of the boards, which position was shared by two AGOSD representatives. As members of the Technical Review Boards, the AGOSD representatives participated in the evaluation and scoring of bidders. Although the AGOSD Chairman himself did not participate in the evaluation and scoring of bidders in the selection process, officials at M&E International knew that we was capable of exerting influence upon his subordinates, including the AGOSD officials who sat on the Technical Review Boards. […] In addition, M&E International officers knew that the Chairman could influence the selection process through direct communications with USAID regarding his preferences and that he could directly or indirectly impede the ability of M&E International to successfully complete its obligations under the contracts.”
The complaint focused on two trips the AGOSD Chairman made to the United States at the invitation of M&E International during time periods in which the awarding of the contracts were under consideration by USAID. According to the complaint “the Chairman’s wife and two children accompanied him on both trips at M&E International’s expense.”
According to the complaint, the first trip (approximately 20 days) included travel to Boston, Washington, D.C., Chicago and Orlando. The complaint stated that during this trip “the AGOSD Chairman was invited to a water conference in Chicago.” According to the complaint, the second trip (approximately 13 days) involved travel to Paris, Boston and San Diego.
The complaint alleged that both of the contracts at issue required that travel associated with the contracts be in accord with Federal Travel Regulations (FTRs) and that under the regulations the Chairman was entitled to receive, in advance, a cash per diem payment to cover certain travel-related expenses. The complaint alleged that the Chairman received 150% of his estimated per diem expenses and that USAID authorized the amount based upon M&E International’s representation that no accommodations were available within the per diem amount.
The complaint alleged:
“In each case, the payment of 150% of per diem was not a necessary expense, and in neither case was the payment of the extra 50% justified or documented by M&E International as required by the FTRs.”
The complaint also alleged that once the Chairman and his family were in the U.S. “M&E International paid for most of the travel and entertainment expenses incurred by and on behalf of the Chairman and his family, despite the fact that the Chairman had already received funds for his own per diem expenses.” According to the complaint, “under these circumstances, the advance per diem payments were, in effect, unrestricted cash payments to the Chairman.”
The complaint also alleged that M&E International “paid to upgrade the Chairman’s airline tickets to first class for both of his trips to the United States” and that “M&E International’s provision of the first class tickets was a payment of a thing of value to the Chairman.” The complaint also alleged that M&E International’s payment of the first class tickets for the Chairman’s wife and children were also “a payment of a thing of value to the Chairman.”
The complaint also alleged that during the relevant time period, “M&E International failed to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the payment of money and things of value to or for the benefit of the Chairman.” It is interesting to note that the complaint contains these allegations even though Metcalf & Eddy and M&E International were “domestic concerns” under the FCPA and thus the books and records and internal controls provisions did not even apply.
Finally, the complaint stated that M&E International did not “have any training or compliance program that educated its employees concerning the conduct prescribed by the FCPA.”
It is further interesting to note that the “means and instrumentality of interstate commerce” alleged in the complaint was a “commercial aircraft.”
Without admitting or denying the allegations in the DOJ’s civil complaint, in this Consent and Undertaking M&E agreed to “maintain a compliance and ethics program designed to detect and prevent violations of the FCPA and other applicable foreign bribery laws.” The consent and undertaken set forth the minimum standards of such a program. In the consent and undertaking M&E also agreed to implement various financial and accounting procedures consistent with the FCPA’s books and records and internal controls provisions.
Finally, in the consent and undertaking, M&E agreed to pay a civil fine in the amount of $400,000 and reimburse the U.S. for the costs of the investigation in the amount of $50,000.