U.S. BODY ARMOR COMPANY ARMOR HOLDINGS SETTLES SEC CHARGES IN FOREIGN CORRUPT PRACTICES CASE

The following is an excerpt from the SEC website:

“Washington, D.C., July 13, 2011 – The Securities and Exchange Commission charged Armor Holdings, Inc. with violating the Foreign Corrupt Practices Act (FCPA) by participating in a bribery scheme from 2001 through 2006 to obtain contracts to supply body armor for use in United Nations (U.N.) peacekeeping missions. The SEC also charged Armor Holdings, a Florida-based manufacturer of military and law enforcement safety equipment, with failing to properly account for more than $4 million in commissions from 2001 through 2007 in violation of the books and records and internal controls provisions of the federal securities laws.

Armor Holdings agreed to settle the SEC’s charges by paying nearly $5.7 million in disgorgement, prejudgment interest, and penalties. Armor Holdings also agreed to pay a $10.29 million fine to settle a parallel criminal investigation announced by the U.S. Department of Justice today. Since 2010, the SEC has filed 32 FCPA cases, including the case against Armor Holdings, and obtained more than $600 million in penalties, disgorgement and interest.
“Illicit payments to U.N. officials are no less reprehensible than bribes to foreign government officials,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “The important process of selecting body armor for peace keepers should not be affected by which company pays the best bribes.”
Gerald W. Hodgkins, Associate Director of the SEC’s Division of Enforcement, added, “Armor failed to maintain adequate internal controls to prevent its subsidiary from making illegal payments to win U.N. supply contracts. Just as troubling, Armor improperly accounted for sales commissions for several years even after being warned that the accounting treatment was wrong.”
The SEC’s complaint alleges that certain agents of Armor Holdings caused its U.K. subsidiary to wire at least 92 payments, totaling approximately $222,750 to a third-party intermediary, with the understanding that part of these payments would be offered to a U.N. official who could help steer business to Armor Holdings’ U.K. subsidiary. The complaint alleges that agents of Armor Holdings caused its U.K. subsidiary to enter into a sham consulting agreement with the intermediary for purportedly providing legitimate services in connection with the sale of goods to the U.N. The complaint alleges that, through this bribery scheme, Armor Holdings derived gross revenues of $7,121,237, and net profits of $1,552,306.
The SEC alleges that another Armor Holdings subsidiary disguised in its books and records commissions paid to intermediaries who brokered the sale of goods to foreign governments. Even after being warned by internal and external accountants that this practice violated U.S. Generally Accepted Accounting Principles, Armor Holdings’ subsidiary continued the improper accounting practice. As a result, approximately $4 million in commissions was not properly disclosed in the books and records of the company.
On July 31, 2007, after the conduct alleged in the SEC’s complaint had occurred, Armor Holdings was acquired by BAE Systems, Inc., an indirect wholly owned U.S. subsidiary of Britain’s BAE Systems PLC. Accordingly, Armor Holdings is no longer an issuer of securities.
The SEC’s complaint charges Armor Holdings with violating Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting or denying the allegations, Armor Holdings consented to the entry of a permanent injunction against further violations and agreed to pay $1,552,306 in disgorgement, $458,438 in prejudgment interest, and a civil money penalty of $3,680,000. Armor Holdings also agreed to comply with certain undertakings regarding its FCPA compliance program. The settlement is subject to court approval. Armor Holdings conducted a thorough investigation to determine the scope of the improper payments and cooperated with the SEC’s inquiry.
Richard J. Kutchey and Gregory G. Faragasso conducted the SEC’s investigation. The Commission acknowledges the assistance of the Fraud Section of DOJ’s Criminal Division and the Federal Bureau of Investigation. The SEC’s investigation is continuing.”

SEC ALLEGES FIRM PAID $2.5 MILLION IN BRIBES TO CHINESE OFFICIALS

The following case is one which involves the alleged bribing of officials in China by a U. S. based manufacturer. It is unfortunate that on occasion in some nations bribery takes place. The following excerpt is from the SEC web page:

“ Washington, D.C., Jan. 31, 2011 — The Securities and Exchange Commission today charged energy-related products manufacturer Maxwell Technologies Inc. with violating the Foreign Corrupt Practices Act (FCPA) by repeatedly paying bribes to government officials in China to obtain business from several Chinese state-owned entities.

The SEC alleges that a Maxwell subsidiary paid more than $2.5 million in bribes to Chinese officials through a third-party sales agent from 2002 to May 2009. As a result, the subsidiary was awarded contracts that generated more than $15 million in revenues and $5.6 million in profits for Maxwell. These sales and profits helped Maxwell offset losses that it incurred to develop new products now expected to become Maxwell's future source of revenue growth.
Maxwell — a Delaware corporation headquartered in San Diego — has agreed to pay more than $6.3 million to settle the SEC's charges. In a related criminal proceeding, Maxwell has reached a settlement with the U.S. Department of Justice and agreed to pay an $8 million penalty.
"Maxwell's bribery allowed the company to obtain revenue and better financially position itself until new products were commercially developed and sold," said Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit. "This enforcement action shows that corruption can constitute disclosure violations as well as violations of other securities laws."
According to the SEC's complaint filed in U.S. District Court for the District of Columbia, Maxwell's wholly-owned Swiss subsidiary Maxwell Technologies SA paid the bribes to officials at several Chinese state-owned entities. The bribes were classified in invoices as either "Extra Amount" or "Special Arrangement" fees, and were made to improperly influence decisions by foreign officials to assist Maxwell in obtaining and retaining sales contracts for high voltage capacitors produced by Maxwell SA.
The SEC's complaint alleges that the illicit payments were made with the knowledge and tacit approval of certain former Maxwell officials. For example, former management at Maxwell knew of the bribery scheme in late 2002 when an employee indicated in an e-mail that a payment made in connection with a sale in China appeared to be "a kick-back, pay-off, bribe, whatever you want to call it, . . . . in violation of US trade laws." A U.S.-based Maxwell executive replied that "this is a well know[n] issue" and he warned "[n]o more e-mails please."
The SEC alleges that Maxwell failed to devise and maintain an effective system of internal controls and improperly recorded the bribes on its books. The illicit sales and profits from the bribery scheme helped Maxwell offset losses that it incurred to develop its new products. Maxwell made corrections in its Form 10-Q filing for the quarter ended March 31, 2009.
Without admitting or denying the allegations in the SEC's complaint, Maxwell consented to the entry of a final judgment that permanently enjoins the company from future violations of Sections 30A, 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, orders the company to pay $5,654,576 in disgorgement and $696,314 in prejudgment interest under a payment plan. The company also is required to comply with certain undertakings regarding its FCPA compliance program. Maxwell cooperated in the investigation.
Tracy L. Price and James Valentino of the SEC Enforcement Division's FCPA Unit conducted the investigation. The Commission acknowledges the assistance of the Department of Justice's Criminal Division-Fraud Section in its investigation, which is continuing.”

Clearly one way to get ahead of your competition is to pay bribes. It is a nasty situation when corporations pay bribes to foreign officials. However, it is even a nastier situation when corporations pay bribes to shameless U.S. lawmakers and judges in the form of campaign contributions and jobs for their relatives. It seems almost foolish to enforce laws overseas when the men who make and sit in judgment on such laws in the U.S. are perhaps some the most corrupt officials in the world.

ALCATEL PAYS $137 MILLION IN FINES TO SETTLE BRIBERY CHARGES

Paying bribes is the antithesis of capitalism. It allows very large established and often wasteful companies with incompetent management to out-bid smaller streamlined organizations that will get a job done faster, more economically and with better quality than their larger counterparts.

The following case excerpt was published on the SEC web site. It alleges that a major U.S. corporation violated the Foreign Corrupt Practices Act by paying off foreign officials. Please take a look at the details of this case:

"The Securities and Exchange Commission filed a settled enforcement action on December 27, 2010, in the U.S. District Court for the Southern District of Florida to resolve charges that Alcatel-Lucent, S.A. (Alcatel) violated the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act (FCPA) by paying bribes to foreign government officials to obtain or retain business in Latin America and Asia.

Alcatel, the provider of telecommunications equipment and services, has offered to pay a total of $137.372 million in disgorgement and fines, including $45.372 million in disgorgement to the SEC. In a related action, Alcatel will pay a $92 million criminal fine to the U.S. Department of Justice.

The SEC’s complaint, filed in the Southern District of Florida, alleges that Alcatel’s bribes went to government officials in Costa Rica, Honduras, Malaysia, and Taiwan between December 2001 and June 2006. An Alcatel subsidiary provided at least $14.5 million to consulting firms through sham consulting agreements for use in the bribery scheme in Costa Rica. Various high-level government officials in Costa Rica received at least $7 million of the $14.5 million to ensure Alcatel obtained or retained three contracts to provide telephone services in Costa Rica.

The SEC alleges that the same Alcatel subsidiary bribed officials in the government of Honduras to obtain or retain five telecommunications contracts. Another Alcatel subsidiary made bribery payments to Malaysian government officials in order to procure a telecommunications contract. An Alcatel subsidiary also made illegal payments to various officials in the government of Taiwan to win a contract to supply railway axle counters to the Taiwan Railway Administration.

According to the SEC’s complaint, all of the bribery payments were undocumented or improperly recorded as consulting fees in the books of Alcatel’s subsidiaries and then consolidated into Alcatel’s financial statements. The leaders of several Alcatel subsidiaries and geographical regions, including some who reported directly to Alcatel’s executive committee, either knew or were severely reckless in not knowing about the misconduct.

The SEC’s complaint charges that Alcatel violated Section 30A of the Securities Exchange Act of 1934 by making illicit payments to foreign government officials, through its subsidiaries and agents, in order to obtain or retain business. Alcatel violated Section 13(b)(2)(B) of the Exchange Act by failing to have adequate internal controls to detect and prevent the payments. Alcatel violated Section 13(b)(2)(A) of the Exchange Act by improperly recording the payments in its books and records. Alcatel violated Section 13(b)(5) of the Exchange Act when its subsidiaries knowingly failed to implement a system of internal controls and knowingly falsified their books and records to camouflage bribes as consulting payments. Without admitting or denying the SEC’s allegations, Alcatel has consented to a court order permanently enjoining it from future violations of these statutory provisions; ordering the company to pay $45.372 million in disgorgement of wrongfully obtained profits, and ordering it to comply with certain undertakings, including an independent monitor for a three year term.

The SEC acknowledges the assistance of the U.S. Department of Justice, Fraud Section; the Federal Bureau of Investigation; the Office of the Attorney General in Costa Rica; the Fiscalía de Delitos Económicos, Corrupción y Tributarios in Costa Rica; and the Service Central de Prévention de la Corruption in France."

The current SEC seems to have done well in recovering monies in this case. Alleged crimes like this seldom see the light of day and it is good the SEC published it on their web page.