Jacob Frenkel quoted in Law360 – FLIR’s $9.5M FCPA Settlement Reflects Cooperation With SEC
April 9, 2015
FLIR’s $9.5M FCPA Settlement Reflects Cooperation With SEC
By Stephanie Russell-Kraft
Law360, New York (April 08, 2015, 7:36 PM ET) — Oregon-based FLIR Systems Inc. agreed Wednesday to pay $9.5 million to settle the U.S. Securities and Exchange Commission’s claims that it violated the Foreign Corrupt Practices Act by paying off government officials in the Middle East, a payout experts say could have been higher had the firm not cooperated.
FLIR, a developer of infrared technology used in binoculars, violated the anti-bribery law by buying gifts and financing a “world tour” of personal travel for Saudi Arabian officials in order to earn more than $7 million in profits from sales they approved, according to an SEC order.
The $9.5 million settlement reflects disgorgement of $7.53 million prejudgment interest of $970,584 and a penalty of $1 million, according to the SEC. Under the terms of the deal, FLIR neither admitted nor denied to the SEC’s findings but agreed to report its FCPA compliance efforts to the agency for the next two years.
Although the SEC previously charged two FLIR employees in the case, the comparatively low penalty reflects the fact that FLIR-self-reported to the agency and cooperated with the SEC’s investigation, according to Day Pitney LLP’s Bob Appleton, a former federal prosecutor and United Nations investigator.
“Typical fines have been approximately 2.5 times the profits in FCPA fines,” he said. “A $1 million fine is much lower than the average case, indicating that a much lower multiple was applied. This was most likely the case as a result of the disclosure and cooperation.”
SEC and U.S. Department of Justice officials have made repeated calls for companies to self-report FCPA violations in recent months, highlighting the benefits of cooperation and the pitfalls of hiding from regulators and prosecutors.
Companies that have cooperated and substantially assisted in government investigations have received sizable reductions in penalties, SEC enforcement head Andrew Ceresney said at a March pharmaceutical industry conference in Washington.
In a $16 million February deal with the SEC, Goodyear Inc. settled charges that its subsidiaries violated the FCPA by paying bribes to make tire sales in Kenya and Angola. But the settlement, which did not include a penalty, also reflected the company’s self-reporting, remedial acts and “significant cooperation” with SEC investigators, the SEC said at the time.
But because it refused to cooperate with investigations, French conglomerate Alstom SA in
December paid $772 million, the largest fine ever in an FCPA case, for its pervasive Asian bribery scheme, Patrick Stokes, deputy chief of the DOJ’s FCPA unit, told lawyers at a Georgetown University Law Center event later in March.
The settlement announced between FLIR and the SEC on Wednesday is another example that cooperation can pay off, if only to an extent.
“The disgorgement and penalty just over the amount of the benefit clearly evidences the commission’s desire to balance rewarding cooperation and self-reporting while taking away the perceived ‘ill-gotten’ gain from the improper payments,” Jacob Frenkel of Shulman Rogers Gandal Pordy & Ecker PA said.
In FLIR’s case, that gain was additional business gained from the Saudi Arabia Ministry of Interior, according to the SEC.
The agency’s order alleged that two FLIR employees in the company’s Dubai, United Arab Emirates, office gave watches to members of the interior ministry and arranged for the company to buy them a 20-night excursion to Casablanca, Paris, Dubai, Beirut and New York City.
The value of the gifts and the extent of the travel were then falsely reported in the company’s books and records as legitimate business expenses, the SEC said. The agency also found that FLIR lacked the proper internal controls to catch the payments, despite documentation suggesting that extravagant gifts and travel were being purchased.
From 2008 to 2010, FLIR allegedly paid another $40,000 to send Saudi government officials on various trips, including multiple New Year’s Eve trips to Dubai, according to the SEC.
“FLIR’s deficient financial controls failed to identify and stop the activities of employees who served as de facto travel agents for influential foreign officials to travel around the world on the company’s dime,” Kara Brockmeyer, chief of the SEC enforcement division’s FCPA unit, said in a statement.
While the case will likely serve as a reminder to other companies operating overseas that cooperation will be seen favorably by the SEC, it may also make the books for being “classic FCPA,” according to Frenkel of Shulman Rogers.
“The allegations here will make every FCPA instructor’s PowerPoint slides for violations in a common arena — gifts and travel — compromising books and records and a high-risk business region, the Middle East,” he said.
The SEC is represented by Cameron P. Hoffman and Tracy L. Davis.
FLIR is represented by Bruce Yannett of Debevoise & Plimpton LLP.
The case is In the matter of: FLIR Systems, Inc., file number 3-16478, before the United States Securities and Exchange Commission.
–Additional reporting by Jimmy Hoover and Ed Beeson. Editing by Chris Yates and Christine Chun.
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