Bruker Corporation: Research Without Results, Training With Sightseeing

In the Bruker Corporation FCPA case, the scientific-instruments manufacturer agreed to pay $2,399,969 to settle Securities and Exchange Commission allegations involving sightseeing trips and purported research payments for Chinese government customers’ officials. The alleged benefits passed through familiar sales expenses: training, conferences and collaboration agreements. If you knew what the customer actually received, you could see what the expense description left out.

The Commission announced the Foreign Corrupt Practices Act settlement on December 15, 2014. Its case concerned inaccurate books and records and inadequate internal accounting controls at Bruker, a NASDAQ-listed company headquartered in Billerica, Massachusetts. The company made analytical tools and life-science and materials-research systems, including infrared spectrometers and microscopes.

The Customers’ Officials Could Authorize the Sale

The Commission alleged that employees in the China offices of four Bruker subsidiaries paid approximately $230,938 to Chinese government officials employed by state-owned customers from at least 2005 through 2011. The purpose, according to the settled SEC order, was to obtain or retain those customers’ business. The order says those offices sold primarily to state-owned entities, putting customer officials at the center of the alleged arrangement.

The order identifies Shanghai and Beijing representative offices of the Asia-based subsidiaries of Bruker Optics, Bruker BioSpin, Bruker Daltonics and Bruker Materials, formerly Bruker AXS. It describes officials working inside customer organizations who could influence purchases: trip recipients who authorized purchases, a contract signer whose travel included shopping and sightseeing, and collaboration recipients involved in purchasing. The benefit and the buying decision could sit with the same person.

That connection matters to anyone selling instruments into a state-owned customer. A sales employee may know who signed the contract, while finance sees the payment request and a product specialist knows what demonstration or research was expected. We help you connect those views into a case.

Training Expenses Paid for Sightseeing

The Commission alleged that Bruker’s China offices paid approximately $119,710 for 17 trips, most of which lacked a legitimate business purpose. It attributed $1,131,740 in profit to contracts obtained from customers whose officials took those trips. The travel bill was small beside the profits it allegedly helped generate.

The trips show how customer travel and hospitality can disappear inside a business itinerary. In 2006, according to the order, a China office paid purported training expenses for an official who signed a sales contract for a state-owned customer. The reimbursement included sightseeing, tour tickets, shopping and other leisure activities in Frankfurt and Paris.

The order alleges that in 2007, a China office paid for three officials to attend a conference in Sweden. The trip also included several days of sightseeing in Sweden, Finland and Norway. A conference appeared on the itinerary, but the company also picked up the leisure travel.

Other trips allegedly dispensed with the business component altogether. The order alleges that in 2009, a China office paid for two officials to travel to New York, where Bruker had no facilities, and to Los Angeles for sightseeing. We see the problem in that comparison: a trip charged to the business could take a customer somewhere the business had nothing to show them.

The itinerary gives an insider something more specific than an expense category to recognize. A person arranging training can know which sessions occurred, while the person approving reimbursement sees what the company paid for. In Bruker’s case, the Commission alleged that the books recorded the trips as business expenses without indicating that they were primarily sightseeing and other leisure activities.

Research Agreements Without Research

The Commission alleged that a Bruker China office paid $111,228 to government officials under 12 suspect collaboration agreements from 2008 through 2011. The stated exchange was research on Bruker products or use of the products in demonstration laboratories. The order then describes what those agreements left out:

According to the order, some agreements were signed directly with an official rather than the customer organization, and some payments went directly to the official. At times, the people signing the agreements or receiving the money also participated in buying Bruker products. The Commission attributed approximately $583,112 in profit to contracts obtained from customers whose officials received these payments.

We see a striking omission in the alleged arrangement: payment for research with no defined work to earn it. A signed agreement supplied the appearance of a commercial exchange, while the missing deliverable exposed what that appearance concealed. For someone who worked on product research or demonstrations, the useful question is what the customer actually produced for the money.

Business Expenses Reached the Parent’s Books

The Commission alleged that Bruker’s China offices recorded the benefits as legitimate business and marketing expenses and consolidated those entries into the parent company’s accounts. That made the local description a parent-company accounting issue. The Commission’s books-and-records and internal-controls allegations concerned both the false descriptions and the lack of independent checks on the people approving the payments.

The problem appears again at RAE Systems, where the SEC’s complaint alleged that sales personnel submitted genuine receipts, called fapiao, for expenses other than the ones incurred. The complaint shows why authentic paperwork can still give a false account of a payment:

Local Managers Controlled Their Own Approvals

The Commission alleged that Bruker left senior China-office employees with unsupervised control over compliance. According to its order, the offices lacked independent compliance staff or an internal-audit function with authority to intervene in management decisions. It also described local personnel approving nonemployee travel and contract changes, including the suspect payments.

The language problem reached beyond the training room. According to the order, Bruker had not translated its FCPA policy, training presentations, Code of Conduct or employee handbook into local languages, including Mandarin. Its employee hotline was also unavailable in Mandarin, and the company relied mainly on China-based managers to explain the implications of doing business with state-owned customers.

We see the weakness in that design: the company relied on local managers to explain the rules and allowed those same managers to approve the suspect spending. The missing independent review mattered because the disputed expenses concerned officials at the offices’ principal customers. A policy elsewhere in the organization did little to challenge the person approving the payment.

What Bruker Agreed to Pay and Change

Bruker’s settlement required it to surrender $1,714,852 in profits and pay a $375,000 civil penalty. We see a modest penalty beside the profits the company had to give back. The order directed payment to the U.S. Treasury and expressly tied the decision to limit the penalty to Bruker’s cooperation in the investigation.

The discovery began with a different concern. The order says Bruker found the improper payments in 2011 while investigating employees’ misappropriation of company funds at a China office. Its board initiated an independent investigation, and Bruker reported preliminary results to the SEC and the Justice Department.

The order says Bruker then reviewed the China operations of other divisions and shared additional findings. The Securities and Exchange Commission credited the company’s cooperation, and its Boston Regional Office conducted the agency investigation.

The remedial measures addressed the same decisions that had allegedly escaped scrutiny. The order describes new approval processes for nonemployee travel and significant contract changes, a new internal-audit function and a new global whistleblower hotline.

What an Insider Can See Behind the Expense

The useful whistleblower evidence in an arrangement like this connects the customer’s purchasing authority to the benefit, the claimed business purpose and the accounting entry. A product specialist may recognize research that never arrived. A sales or finance employee may know why an official received a payment, who approved it and how it reached the books.

Research offers a reason to take that knowledge seriously. The 2019 working paper Do Corporate Whistleblower Laws Deter Accounting Fraud?, hosted by MIT Sloan, studied companies exposed to state whistleblower laws through state-pension-fund ownership. It found a 5% to 9% reduction in estimated accounting-fraud likelihood.

Bruker’s settlement was an SEC accounting action, and we work through the SEC whistleblower reward questions with you when your information concerns payments and records like these. The SEC program can reward information about securities-law violations, while the False Claims Act covers fraudulent claims for government money. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know What the Customer Received

If you saw customer sightseeing billed as training or payments for research nobody delivered, talk to our whistleblower experts about the transaction. We build the case with you, bring in FCPA whistleblower lawyers who understand overseas instrument sales, customer benefits and consolidated accounts, and stay beside you throughout the case. Bring us the gap between the paperwork and what the customer actually received.