Harris Corporation: False Expenses for Hospital Gifts

In the 2016 Harris Corporation FCPA case, the China subsidiary’s former chairman and CEO agreed to a $46,000 civil penalty over an alleged scheme that used false expense claims to buy gifts for Chinese hospital officials. The Securities and Exchange Commission declined to charge Harris under the Foreign Corrupt Practices Act, crediting its discovery of the misconduct and its response. For someone who knows the sales expenses, the telling detail is how a gift for a hospital official became an ordinary cost in the parent’s accounts.

Hospital Sales Funded Through False Expenses

The Securities and Exchange Commission alleged that the subsidiary’s sales staff used bogus expense receipts to generate cash for gifts to officials at state-owned hospitals in China. The purpose was to influence the officials’ decisions to buy the subsidiary’s products and services. Harris was an international communications and information technology company.

The agency’s September 12, 2016 announcement put management inside the arrangement. According to the agency, the subsidiary’s chairman and CEO authorized the gift-giving practice, and he and the supervisors he managed approved expense claims they knew were fabricated. The allegation concerned people who knew what the cash was for approving paperwork that said something else.

We expect an expense review to catch false claims. Here, the managers reviewing the expenses allegedly knew that the expenses were false. Their approval helped give the spending an ordinary business appearance while sales staff used the money to influence customers’ purchasing decisions.

How the Expenses Reached Harris’s Books

The alleged concealment continued into the subsidiary’s books and internal accounting controls. The agency said the executive knew the false expenses were recorded as ordinary expenses or fees, hiding their true purpose from Harris. The subsidiary’s financial results then entered Harris’s consolidated accounts.

That is how a local reimbursement became a parent-company accounting problem. The expense description traveled into the larger company’s books while the reason for the payment stayed hidden. The agency said the executive caused Harris to fail to keep accurate books, records and accounts. Ownership records, approval records and the entries carried into the parent’s financial statements connect those responsibilities. An employee who can explain what an expense actually bought supplies information the expense label concealed.

The Securities and Exchange Commission’s announcement said its order found that the executive broke the law’s bribery and accounting rules. He agreed to stop those violations and pay the civil penalty. The agency pursued his role in authorizing the gifts and false expense claims while separately evaluating the company’s response.

Why the SEC Did Not Charge Harris

The Securities and Exchange Commission did not charge Harris in the resolution announced in September 2016 because it credited the company’s detection, prompt self-reporting, remediation and cooperation. Its account began with an acquisition: Harris had been able to conduct only limited checks before buying the subsidiary, then took immediate steps to train staff in China and bring the subsidiary into its accounting controls.

Those measures included an anonymous complaint hotline. The agency said Harris discovered the misconduct within five months of the acquisition. It credited the company’s efforts to uncover the problem, its thorough corrective work and its cooperation with the investigation when explaining the corporate outcome.

A 2022 article in the Journal of Forensic and Investigative Accounting, How to Avoid Inadvertently Violating the Foreign Corrupt Business Practices Act Abroad, recommends pairing preventive training with active monitoring of foreign operations. It emphasizes visibility into financial transactions and periodic reviews that can expose unusual payments. The Harris account gives that recommendation a concrete setting: integrating an acquired business meant examining how its expenses were approved and recorded.

The contrast within this case is between local management’s alleged concealment and the parent’s credited response after the acquisition. An insider’s knowledge can bear on both: what the expense system hid, and what happened when the problem reached people outside the sales operation.

RAE Systems and Receipts for the Wrong Expense

RAE Systems provides a closely matched China example. In its December 10, 2010 complaint, the Securities and Exchange Commission alleged that sales personnel used receipts for expenses other than the ones they had actually incurred. The complaint described the substitution directly:

The agency also alleged that personnel at another RAE operation, RAE-Fushun, gave government officials gifts including jade and fur coats to obtain or retain business. Separately, its complaint alleged that bribery warnings had failed to prompt significant changes to sales personnel’s cash advances or the controls over them. Those allegations put the spending, the paperwork and management’s response in the same picture.

The parallel is the mismatch between what a receipt appears to justify and what the money actually bought. In the RAE allegation, even a genuine receipt could support the wrong expense. In the Harris action, the agency described bogus expense claims approved by managers who knew their purpose. A person familiar with the actual spending can explain the difference that the reimbursement file hides.

What an Insider Can Connect

Useful whistleblower evidence connects the purchasing decision, the benefit and the false record. In the Harris account, sales staff, supervisors and the subsidiary’s chief executive occupied different parts of that chain. Someone may understand the hospital relationship, someone else the approval, and someone else the accounting entry that reached the parent.

We work with that specific knowledge. Expense claims and approvals can show how the cash was authorized, while the employee’s account of the gift and the customer decision can explain its purpose. The acquisition and subsequent review add another question: what did the company do when it learned how the business was operating?

Foreign-bribery evidence can support an SEC whistleblower reward in a qualifying enforcement action. We assess that opportunity with you, connecting what you know to the payments and accounting entries the agency can investigate.

If your knowledge also concerns false claims for U.S. government money, we examine that part of the case with you. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the Expense Really Bought

If you saw hospital gifts pass through expense claims, or knew why a manager approved them, talk with our whistleblower experts about what happened. We build your strongest whistleblower case around what you know of the sales and accounting decisions and bring in Foreign Corrupt Practices Act whistleblower lawyers who understand foreign subsidiaries and concealed payments. We stay beside you as that inside knowledge becomes a case the government can act on.