Elbit Imaging: Millions in Fees, No Evidence of the Work

In the Elbit Imaging FCPA case, the company agreed to a $500,000 civil penalty over alleged false accounting and failed controls for payments to offshore consultants and sales agents. The SEC said Elbit and its subsidiary paid millions without evidence that the recipients had performed the contracted work. If you know who did the work, who approved the invoice or who owned the recipient, this case shows why that knowledge matters.

The SEC’s Accounting Case Against Elbit Imaging

The Securities and Exchange Commission’s March 9, 2018 order addressed books and records and internal accounting controls under the Foreign Corrupt Practices Act. Its allegations followed payments connected to a Romanian development project and the sale of American shopping centers. The SEC said the companies recorded the payments as legitimate expenses even though some or all of the money may have gone to Romanian officials or been embezzled.

The order describes Elbit as an Israeli holding company with real estate businesses and NASDAQ-traded shares. Elbit included the financial statements of its then majority-owned indirect subsidiary, Plaza Centers, in its SEC reports during the payment period. Plaza developed shopping and entertainment centers in Central and Eastern Europe, putting the subsidiary’s project expenses inside the parent’s financial reporting.

The accounting issue was concrete: what the books said the company bought, and what supported that description. The SEC’s order alleged failures in both the records and the controls over spending. Possible bribery or embezzlement concerned where the money went. The accounting allegations concerned what the companies said they bought.

The Casa Radio Project and the Missing Consulting Work

According to the SEC, Plaza sought development rights in the Casa Radio project in Bucharest, Romania, in 2006. A property consultancy projected that those rights would be highly profitable. The order says that, at the direction of Elbit’s chief executive, who also served as Plaza’s executive director, Plaza hired an offshore consultant to help secure an invitation from the Romanian government and the approvals needed for development.

The SEC said that in February 2007, Plaza acquired a 75% interest with the government’s consent, paying approximately $40 million and agreeing to build a Romanian public authority building at its own expense. The SEC said there was no documentation or other evidence that the offshore consultant had provided services for that transaction. The project had a valuation, a purchase and an obligation to construct a public building, but the consultant’s contribution was missing from the account.

The SEC alleged that in September 2011, the same executive directed Plaza to hire another offshore consultant. This contract again covered government approvals and also contemplated buying the Romanian government’s additional 15% interest. The SEC said there was no evidence of due diligence on either consultant before the respective contracts. It also said neither attended meetings between Plaza and Romanian officials or appeared to submit materials showing consulting work.

The SEC alleged that Plaza nevertheless paid the consultants approximately $14 million between 2007 and 2012. According to the order, top officers authorized the payments even though the supporting documents did not identify the services provided, and Plaza booked them as legitimate business expenses. For someone working on the development, the useful comparison is between the consultant’s promised role and the meetings, approvals and work product the project actually generated. An executive’s approval explains who let the money out. It does not supply the missing work.

The U.S. Property Sale Had an Adviser Who Actually Worked

The American transaction gave the SEC a direct comparison between paid services and unsupported fees. According to the order, in 2011 a joint venture that included Elbit and Plaza sought to sell a portfolio of 47 shopping center properties in the United States. The venture hired a financial institution to advise on the sale. About a month and a half later, Elbit and Plaza separately hired an offshore sales agent for nearly the same services.

According to the order, the offshore agent was supposed to prepare marketing materials, find buyers and help negotiate the sale. The SEC alleged that Elbit and Plaza performed no due diligence on the agent, and that the executive signed the contract without the second signature required by Elbit’s authorization policy. The SEC said the financial adviser fulfilled its contract. The SEC said there was no evidence that the offshore agents provided any known financial advisory services for the sale.

The fee comparison is the part we find particularly hard to excuse. The order records Elbit’s announcement that the portfolio sold for $1.428 billion. The order says Elbit and Plaza paid the offshore agent $13 million in commissions and expenses, nearly double the $6.75 million the venture paid the financial adviser that actually provided services. The SEC said the documents supporting the larger fee did not identify the services performed. More money, less explanation.

The SEC also described an undisclosed payment route beyond the named agent. The SEC said the agent assigned its contract rights and obligations to another offshore entity the day after signing. According to the order, that second entity was indirectly owned by the executive who had directed the hiring, and he disclosed neither the subcontract nor his interest to Elbit or Plaza. After receiving its fee, the first agent paid the second entity $12.75 million, a transfer the order says nobody else at either company knew about. In the SEC’s account, the joint venture had bought real advisory services while Elbit and Plaza separately funded an agent whose subcontract led back to their own executive.

The SEC’s Allegations About Controls Before Payment

We find the civil penalty strikingly small beside the approximately $27 million in unsupported payments the SEC described. Its order identified an accounts payable process that failed to maintain accountability for assets, limited legal-department involvement in Plaza’s consultant contracts, and an absence of policies and procedures to detect corruption risks. The SEC also said employees received little, if any, anti-corruption compliance training during the relevant period.

Those allegations connect the transaction to the people who handled it. A missing approval signature concerns who could commit the company. Missing service documentation concerns what it was paying for. The undisclosed ownership of the onward recipient concerns who benefited. In the SEC’s account, the books made those payments look like ordinary business expenses.

A 2022 review in the Journal of Forensic and Investigative Accounting, How to Avoid Inadvertently Violating the Foreign Corrupt Business Practices Act Abroad, explains why accounting provisions matter alongside anti-bribery provisions. Its observation fits the distinction in Elbit’s case:

For an insider, that distinction gives the service records their own importance. The person who knows that an invoice lacks supporting work may explain an accounting failure even without witnessing a conversation with a government official.

The SEC said an independent investigation into Casa Radio uncovered more information about the American sales-agent payments and the ownership of the onward recipient. A question about one project’s expenses had reached a separate property sale and the executive’s undisclosed financial interest. The order credited Elbit’s investigation and cooperation in limiting the civil penalty.

Panasonic’s Auditors Found the Same Missing Work

Panasonic Avionics supplies a pointed comparison for anyone who has seen invoices paid after auditors asked for deliverables. In the statement of facts attached to its criminal deferred prosecution agreement, Panasonic admitted that auditors could not locate work product for a consultant who had been a foreign official. The company’s account explained why:

The same statement of facts describes a version of the audit report that omitted a concluding FCPA recommendation and a recommendation to consult procurement before hiring consultants or vendors. Panasonic admitted that it failed to conduct significant follow-up despite repeated circulation of the reports. That adds another question to payments for unsupported consulting work: what happened after someone inside the company noticed the gap.

What Your View of the Payments Can Add

Evidence from inside the business can connect the project work to the accounting description. A project employee may know which consultant attended the government meetings. A finance employee may know what accompanied the payment request. Someone involved in the sale may know that another adviser performed the work, or that the named recipient passed the money onward. We work with you to establish what those connections show.

Elbit’s case was an SEC accounting action. We work with you to assess what your information about concealed payments could mean under the SEC whistleblower reward program. A separate program, the False Claims Act, can pay a whistleblower 15% to 30% of what the government recovers in a whistleblower case. We help you connect what you know to the program that fits the conduct.

You Know What the Fee Was Supposed to Buy

If a consultant’s invoice tells a different story from the work you saw, speak with our Whistleblower Experts about where the fees went. You bring your knowledge of the work and the payments; we bring the judgment to develop the case with you and FCPA whistleblower lawyers who understand offshore payments and corporate accounting. We stay beside you through that process, so you have experienced partners as you decide how to speak up.