In September of 2012, Tyco International agreed to pay more than $26 million in penalties to settle charges from the US Department of Justice and Securities Exchange Commission of violating the Foreign Corrupt Practices Act (FCPA). Between 2000 and 2008, numerous Tyco subsidiaries around the world paid hundreds of thousands of dollars in bribes to foreign officials to win or retain business, particularly in the Middle East and Asia. Tyco pocketed an estimated $10.5 million in profits from these illicitly obtained contracts. Furthermore, Tyco conspired to hide the bribes by falsifying records and accounting for bribes as “commissions” paid to third party intermediaries. As is common in FCPA cases, the penalty consisted of $13 million each to the DOJ to settle criminal charges for the actual bribery, and a like amount in civil penalties from the SEC for the accounting fraud, a “books and records” violation, used to hide it.
The 2012 Tyco settlement is interesting for a number of reasons. What jumps out immediately is that this is Tyco’s second FCPA settlement, with the first one coming in 2006, when they settled with the SEC for $50 million. While that case was primarily focused on Tyco artificially inflating its revenue with accounting voodoo, it also included an FCPA component for bribing Brazilian officials for mining contracts. In addition to the $50 million penalty Tyco paid the government, shareholders sued the company for its accounting deceptions, which resulted in a $3 billion payout.
Not only is Tyco a repeat offender, but it appears that the latest misconduct was occurring even as they were under a court injunction while the 2006 case was ongoing. So while a court ordered Tyco to stop fudging the numbers to deceive shareholders, numerous subsidiaries continued to cook the books to hide their rampant bribery. Despite this recidivism, the Justice Department agreed not to press criminal charges against any individual Tyco employees. It seems that to some degree the Justice Department considers the actions of Tyco subsidiaries “business as usual”, much like Tyco’s executives did when one wrote in an email: “Hell, everyone knows you have to bribe somebody to do business in Turkey.” Perhaps the arms-length distance between Tyco International and its subsidiaries gives the Justice Department pause in holding executives criminally liable. However, the stiff monetary penalties certainly send a message that meaningful FCPA compliance programs for foreign subsidiaries are a smart investment for multinationals.
Also worth noting about the Tyco case for FCPA followers is:
- The DOJ continues to consider doctors at state hospitals to be foreign officials. Therefore bribing them constitutes an FCPA violation. The DOJ complaint notes Tyco subsidiaries committed this misconduct in Saudi Arabia, China, and Poland.
- Even low-level employees of government-run companies can be “foreign officials”. The settlement states that bribes were paid to a security officer for a government-run mining company in Mauritania- hardly the first type of person who would come to mind when thinking of FCPA violations, but still covered by the statute’s definitions.
- The accounting provisions of the FCPA make it difficult to hide behind a shield of ignorance: “In Thailand, Tyco’s subsidiary had a contract to install a CCTV system in the Thai Parliament House in 2006, and paid more than $50,000 to a Thai entity that acted as a consultant. The invoice for the payment refers to “renovation work,” but Tyco is unable to ascertain what, if any, work was actually done.” These accounting requirements can shift the burden of proof to the defendant, forcing corporations to prove that payments were legitimate, rather than the government needing to prove the payments were not. As the complaint notes elsewhere: “Tyco failed to devise and maintain internal controls sufficient to detect the violations.” (Which also violated the injunction from the 2006 case.)
- The settlement money was split more or less evenly between the SEC and DOJ. With criminal and civil penalties being evenly split, it seems to indicate that the level of cooperation for the “dual enforcement” of the FCPA is high. When the DOJ investigators say “hey, that money you paid for these services was used for a bribe”, the usual response is “Oh we thought we were paying for consulting.” Thanks to the accounting provisions the SEC can come back with “well you need more than a receipt for $50k in consulting fees.”
Third parties acting as bagmen to deliver bribes, FCPA violations across numerous countries, and bribery as a cost of doing business – “everyone knows you have to bribe somebody to do business in …” – are seemingly far too commonplace amongst large multinational corporations. Tyco is a recidivist company, having paid its second FCPA settlement in 6 years, and one would imagine there are many other companies that will join the ranks of repeat offenders when it comes to violations of the Foreign Corrupt Practices Act. Increasing this likelihood is the SEC Whistleblower Program, barely in its infancy, under which whistleblowers can receive between 10% and 30% of the proceeds that the SEC and DOJ collects based on the information provided by a whistleblower. The scale is clearly tipped in the direction of having far more recidivist companies when it comes to FCPA settlements, and we’re guessing Tyco will have plenty of company over the coming years.
Whistleblower Justice Network Can Help You
Whistleblower Justice Network partners with whistleblowers worldwide to expose worldwide bribery schemes that violate the Foreign Corrupt Practices Act. Utilizing the SEC Whistleblower Program, we aid whistleblowers in bringing corporations that expand their business interests through bribery to justice.
If you have meaningful information regarding corporate bribery that you believe is in violation of the FCPA, Whistleblower Justice Network can help. Working alongside world-class legal counsel, we will ensure you are protected to the fullest extent of the law and that you receive credit for the information you bring to the U.S. government. Partnering with whistleblowers is all we do. Visit us at www.whistleblowerjustice.net, or call us at 844-WJN-4ALL, to learn if we can help you.