SEC Obtains $9.5 Million Settlement for Foreign Corrupt Practices Act Bribery to Foreign Officials in Saudi Arabia by U.S. Public Company – Beware of Gift Giving
1st May 2015
FLIR Systems, Inc. (“FLIR”), a publically traded company based in Oregon, agreed on April 8, 2015 to pay $9.5 million to settle claims made by the Securities and Exchange Commission (“Commission”) that it violated the Foreign Corrupt Practices Act by paying off government officials in the Middle East.
On the basis of this Order and FLIR’s Offer, the Commission found that in 2009 employees of FLIR provided unlawful travel, gifts and entertainment to foreign officials in the Kingdom of Saudi Arabia to obtain or retain business. The travel and gifts included personal travel and expensive watches provided by employees in FLIR’s Dubai office to government officials with the Saudi Arabia Ministry of Interior (the “MOI”). The extent and nature of the travel and the value of the gifts were concealed by certain FLIR employees and, as a result, were falsely recorded in FLIR’s books and records. FLIR lacked sufficient internal controls to detect and prevent the improper travel and gifts. Also, from 2008 through 2010, FLIR provided significant additional travel to the same MOI officials, which was booked as business expenses, but for which there is insufficient supporting documentation to confirm the business purpose. As a result of the unlawful conduct, FLIR earned over $7 million in profits from the sales to the MOI.
FLIR’s common stock is registered under Section 12(b) of the Exchange Act and is listed on the NASDAQ Global Select Market. FLIR, founded in 1978, develops infrared technology for use in thermal imaging and other sensing products and systems, night vision, and camera systems for government and commercial customers. On September 30, 2002, in connection with a settled accounting fraud case, the Commission ordered FLIR to cease and desist from violations of the anti-fraud and related provisions of the federal securities laws.
During the relevant time, FLIR had a code of conduct, as well as a specific anti-bribery policy, which prohibited FLIR employees from violating the FCPA. FLIR’s policies required employees to record information “accurately and honestly” in FLIR’s books and records, with “no materiality requirement or threshold for a violation.” FLIR employees received training on their obligations under the FCPA and FLIR’s policy, although the company did not ensure that all employees completed the required training.
FLIR had few internal controls over travel in its foreign sales offices at the time. Although FLIR had policies and procedures over travel for its domestic operations, there were no controls or policies in place governing the use of foreign travel agencies. Instead, FLIR foreign sales employees worked directly with FLIR’s foreign travel agencies to arrange travel for themselves and others. Sales managers were solely responsible for expense approvals for their sales staff.
FLIR also had few controls over the giving of gifts to customers, including foreign government officials. Sales staff and managers were responsible for all expense approvals for gifts and accounts payable was not trained to flag expenses that were potentially problematic. To the contrary, the initial expense submission for the watches was labeled in large English print “EXECUTIVE GIFTS: 5 WATCHES” for a total of $7,123, and was accompanied by email confirmation that the watches were provided to 5 MOI “officers,” and was approved by a sales manager and processed and paid by FLIR accounts payable department.
Under Section 21C(a) of the Exchange Act, the Commission may impose a cease-and-desist order upon any person who is violating, has violated, or is about to violate any provision of the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, or would be a cause of the violation, due to an act or omission the person knew or should have known would contribute to such violation.
Section 30A of the Exchange Act prohibits any issuer with a class of securities registered pursuant to Section 12 of the Exchange Act, or any officer, director, employee, or agent acting on behalf of such issuer, in order to obtain or retain business, from corruptly giving or authorizing the giving of, anything of value to any foreign official for the purposes of influencing the official or inducing the official to act in violation of his or her lawful duties, or to secure any improper advantage, or to induce a foreign official to use his influence with a foreign governmental instrumentality to influence any act or decision of such government or instrumentality. [15 U.S.C. § 78dd-1].
Under Section 13(b)(2)(A) of the Exchange Act issuers are required to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the issuer. [15 U.S.C. §78m(b)(2)(A)].
FLIR violated Section 30A of the Exchange Act by corruptly providing expensive gifts of travel, entertainment, and personal items to the MOI officials to retain and obtain business for FLIR. FLIR also violated Section 13(b)(2)(B) of the Exchange Act, by failing to devise and maintain a sufficient system of internal accounting controls to prevent the provision and approval of the watches and the travel and the falsification of FLIR’s books and records to conceal the conduct. As a result of this same conduct, FLIR failed to make and keep accurate books and records in violation of Section 13(b)(2)(A) of the Exchange Act.
Pursuant to Section 21(B)(a)(2) of the Exchange Act, FLIR had to pay, within 10 days of the entry of the Order, disgorgement of $7,534,000, prejudgment interest of $970,584 and a civil money penalty in the amount of $1,000,000, for a total payment of $9,504,584, to the Securities and Exchange Commission. If timely payment is not made, additional interest shall accrue pursuant to SEC Rule of Practice 600 and 31 U.S.C. § 3717.