American Bank Note Holographics Inc: The Bribe in the Consulting Account

The American Bank Note Holographics Inc FCPA case involved a $239,000 payment that the Securities and Exchange Commission said the company booked as a consulting fee to conceal its purpose of influencing foreign officials and obtaining government business. The company’s settled SEC order connects the officers who authorized the transfer, the employee who sent it and the accounting entry that disguised it. For someone in sales or finance, that is a recognizable chain of decisions, with different people seeing different parts.

American Bank Note Holographics made secure holograms and had its principal executive offices in Elmsford, New York. The SEC also alleged false sales accounting: handwritten ledgers kept from auditors, revenue recorded on goods customers had not bought, and delivery records changed to make unfinished products look complete.

A Government Hologram Contract and a Consulting Fee

The SEC’s settled company order described an alleged Foreign Corrupt Practices Act violation involving a government hologram contract. According to the order, an agent told an employee about the bid opportunity in late 1998, former officers directed the employee to wire money for foreign officials’ benefit, and the employee sent it.

According to the order, American Bank Note used regional agents to seek new business, generally paying them commissions on the business they generated. The SEC described the disputed transfer as an additional payment intended to influence the government’s decision, and said it represented nearly 40% of the contract’s value. Some consulting. In the SEC’s account, a substantial portion of the proposed business was being spent to influence the people controlling it.

The country details appear in the SEC’s April 10, 2003 announcement of a separate executive action. That announcement described the allegation that the former president caused the company to send the payment to a Swiss bank account to influence Saudi Arabian officials or their government. In that allegation, Switzerland was where the money went. Saudi government business was what it was meant to buy.

We see the point of the disguise in the entry itself. A consulting fee tells the accountant that the company bought a service, while the SEC alleged that the company paid for official influence. The employee who knows why a payment was requested can explain something the account label conceals.

The Company’s Order and the Executive’s Separate Case

The Securities and Exchange Commission resolved the company’s proceeding through a July 18, 2001 cease-and-desist order covering alleged bribery, false financial reporting, inaccurate books and failed accounting controls. It credited the company’s corrective action and cooperation when accepting the settlement.

The later executive action concerned the former president and director of American Bank Note Holographics, who had also been an executive vice president of its parent, American Banknote Corporation. In that civil complaint, the SEC alleged participation in inflated revenue, false audit confirmations and the Saudi payment. A finance employee’s account of who gave an instruction can matter alongside the company’s record of what it paid.

The Books Told Different Stories to Different Readers

The SEC alleged that American Bank Note’s books and records concealed both the official payment and false sales. Its order identified the consulting-fee entry alongside improperly recorded consignment sales, premature sales and transactions that never took place. The accounting findings reached the company’s financial reporting as well as the foreign payment.

The SEC described a concrete motive for the alleged false sales: meeting the parent’s earnings forecasts and making the hologram business look attractive for sale or a public offering. According to its order, the July 1998 offering raised approximately $107 million, all of which went to the parent to reduce debt. The order said the financial statements used for that offering overstated 1997 net income by 167%. Investors bought the earnings story, and the parent got the cash.

The consignment sales described in the SEC order show the alleged split between the real business and the reported one. According to the order, customers received holograms but agreed to pay only for the quantities they used, with monthly billing based on usage. The SEC alleged that American Bank Note nevertheless recorded revenue on whole shipments before those customer obligations existed.

Someone still had to know what the customers actually owed. The SEC order describes the records used for that job:

According to the order, those ledgers tracked invoices issued after customers reported their usage. The initial invoices supporting the reported sales had not been sent to customers, and the separate records were kept from the parent’s auditors. We find the SEC’s account telling: the business kept records of what customers actually owed while showing auditors a different sales story.

The Factory Could Disprove the Sales Entry

The SEC also alleged that American Bank Note recorded revenue on holograms that were still unfinished at year-end. The production details matter because the order shows exactly what completion required: rolls had to be cut into smaller reels, numbered and labeled as belonging to the customer. A roll in a subcontractor’s plant had more work ahead of it before it became the finished product the books described.

In the bill-and-hold transaction described by the SEC, the customer agreed to buy holograms that the seller would retain until shipment was requested. American Bank Note subcontracted much of the manufacturing, but the subcontractor could produce only rolls, without the capacity to cut them into reels and number the holograms. Its agreed production schedule continued into January, and the SEC alleged that American Bank Note knew the goods would not be complete by the December year-end.

In the SEC’s account, the paperwork then caught up with the fiction. The company allegedly backdated receiving documents and altered the subcontractor’s delivery receipts. It also allegedly fabricated vault receipts showing rolls cut into numbered reels.

For a production or warehouse employee, those are familiar records with a specific contradiction. The production schedule, the equipment available and the date goods reached the plant could explain why the claimed finished inventory could not exist. In the SEC’s account, the same books turned an official payment into consulting and unfinished holograms into completed sales.

The Invoice Difference That Opened the Investigation

According to the SEC, the discrepancy that brought auditors into the problem was a mismatch between customer invoices and the company’s copies. During pre-audit work in November 1998, auditors requested information from customers and received responses showing different dollar amounts on versions of the same invoices. That prompted an inquiry and an internal investigation overseen by the audit committee.

The order also describes what happened when the accounting story began to unravel in public. After American Bank Note announced that it would restate results, its stock lost 69.4% of its value in a single day’s trading in January 1999.

The Securities and Exchange Commission said American Bank Note promptly reported the discovered conduct and accounting irregularities, shared its findings and cooperated with the agency. The company replaced its former senior management and introduced new policies, including a written business conduct code. The commission credited that company response in its resolution.

A 2019 working paper, Do Corporate Whistleblower Laws Deter Accounting Fraud?, available through MIT Sloan, studied companies held by state pension funds as states adopted False Claims Acts. It found that exposure to those whistleblower laws reduced the likelihood of accounting fraud. The American Bank Note case shows why knowledge inside the business matters: in the SEC’s account, customer invoices, handwritten ledgers and production records contradicted what management showed auditors.

Another Saudi Deal With a Payment Through Another Country

The SEC’s complaint against Embraer describes a later alleged use of foreign intermediaries to pay a Saudi customer official. Its account makes the difference between the payment’s destination and its purpose explicit:

The complaint alleged that this route bypassed Embraer’s restrictions on payments directly to customer employees and to accounts in jurisdictions the company considered tax havens. The connection to American Bank Note is the commercial question hidden by the transfer: whose decision was the payment intended to influence? An intermediary’s location and an expense description can leave that question unanswered while someone inside the sales team knows the answer.

What an Insider Can Explain

American Bank Note’s case gives an insider several concrete ways into the story: the instruction to wire money, the consulting entry, the customer usage records and the changed receiving documents. We connect what you saw in those records to the business being sought, the people approving the transactions and the version shown to auditors. Knowledge of the product and the customer can make a false entry understandable.

Foreign bribery reporting and False Claims Act cases over U.S. government money follow different programs, and we assess which fits your information with you. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the Consulting Entry Left Out

If you know whose decision a consulting payment was meant to buy, bring that knowledge to our whistleblower experts. We work alongside you to connect the commercial purpose with the payment and the books, and bring in FCPA whistleblower lawyers who understand overseas sales and accounting evidence. Speak to us about who that payment was meant to reach, and let us build your strongest FCPA whistleblower case.