FLIR Systems: The Factory Test Came With a World Tour

The FLIR Systems FCPA case required the company to pay $9,504,584 to settle Securities and Exchange Commission allegations involving luxury gifts, personal travel for Saudi government officials and false expense records. The trip had a business reason on paper: a factory acceptance test before the customer took delivery of thermal binoculars. The agency alleged that employees built a holiday around it, then supplied false paperwork when questions arose. If you handled the booking, approved the reimbursement or questioned the invoice, this is a case about the difference between what you saw and what the company recorded.

FLIR, an Oregon-based supplier of infrared technology, sold thermal-imaging, night-vision and camera systems to government and commercial customers. Its Foreign Corrupt Practices Act settlement covered the benefits allegedly provided to the customer, the records that concealed them and the controls that let the expenses through. The company proceeding followed a separate commission action against two sales employees in its Dubai office.

What the Saudi Customer Was Buying

The Saudi Ministry of Interior was buying thermal binoculars under a November 2008 contract worth approximately $12.9 million, according to the commission’s company order. The contract required a factory acceptance test attended by ministry officials before delivery. FLIR expected successful delivery and a service center to help bring another order.

The people receiving the hospitality had influence over that business. The commission identified the head of the ministry’s technical committee and a senior engineer on the committee as participants in the trip who played a key role in awarding FLIR the business.

There was another sale in view. In May 2009, FLIR signed an agreement worth approximately $17.4 million to integrate its cameras into another company’s products for the ministry. The same FLIR sales employees worked on those negotiations, and the agency alleged that they viewed the gift recipients as important to both the binocular and camera sales.

The Gifts and the Trip Behind the Factory Test

Watches Named on the Expense Report

The alleged gifts were visible in the original paperwork. The commission said FLIR’s local agent bought five watches in Riyadh at the sales employees’ direction, and the employees gave them to ministry officials during business discussions in March 2009. Two recipients later joined the trip.

The reimbursement request called the purchases “EXECUTIVE GIFTS: 5 WATCHES.” The commission’s order records a total of $7,123 on the submission and an accompanying email confirming that the recipients were ministry officers. The sales manager’s superior approved it, and accounts payable processed and paid it. We see the problem in that sequence: the gift and the government customer were already on the page when the approval came through.

A Factory Inspection Inside a World Tour

The commission alleged that personal travel attached to the factory visit took the officials through Casablanca, Paris, Dubai and Beirut, with a weekend trip to New York during their Boston stay. According to the order, FLIR paid airfare and luxury hotel costs for a 20-night itinerary, while the equipment inspection occupied a single five-hour day.

The company order also describes shorter factory visits and hotel meetings during the Boston portion. It says the stops outside Boston had no business purpose. A U.S.-based vice president responsible for global sales to foreign governments suggested the New York visit, according to the commission.

The full routing accompanied the request for approval. The commission alleged that the manager directed separate expense submissions to make the cost look smaller. Finance received an itinerary showing the Paris and Beirut stops and paid the approved airfare the next day. Nobody in that approval and payment chain questioned the itinerary at that stage, according to the order.

The order says the ministry authorized shipment of the binoculars after the Boston inspection. It later ordered additional binoculars for approximately $1.2 million.

The order also describes additional Saudi official travel from 2008 through 2010, including New Year holidays in Dubai, booked as business expenses without complete supporting records. The same officials who took the world tour received the Dubai hospitality, according to the commission.

The commission alleged a similar problem with Egyptian defense officials’ travel in 2011. A FLIR partner paid for a trip built around a factory acceptance test in Stockholm that also included a non-essential Paris visit. FLIR then reimbursed most of the partner’s travel costs on cursory invoices without supporting documentation, according to the order. Here the expense reached FLIR through a business partner, another place an insider could see the trip disappear behind a bill.

What Changed When Finance Asked Questions

The commission alleged that a later finance review produced a cheaper version of the watch purchase on paper. During an unrelated review of Dubai expenses in July 2009, finance flagged the reimbursement. The office head then said the reported $7,000 cost should have been 7,000 Saudi riyals, about $1,900. The commission alleged that the employees obtained a false invoice carrying the lower amount and that the local agent backed the explanation in responses to finance.

The travel acquired its own revised story. According to the commission, the employees said the officials had booked personal travel through FLIR’s travel agency and that the agency had mistakenly charged the company. They used the local agent to make it appear that the ministry had paid, and submitted false and misleading replacement documentation. Finance then made an additional payment to the travel agency for remaining costs.

Those revisions matter to an insider who saw more than the final accounting entry. The original invoice, the question from finance, the replacement invoice and the agent’s answer describe different stages of the same expense. The books-and-records issue lies in the explanation the company ultimately accepted and recorded, as well as the benefit the customer received.

The Company Settlement and the Employee Penalties

FLIR’s company settlement came in a Securities and Exchange Commission order dated April 8, 2015. It resolved the agency’s anti-bribery, books-and-records and internal-accounting-controls allegations. Against $7,534,000 in profits FLIR had to surrender, the civil penalty was $1,000,000. We see a penalty far smaller than the profits the company was required to give back.

The employee settlement announcement, dated November 17, 2014, concerned the head of FLIR’s Middle East office and the business-development employee who reported to him. The office head agreed to a $50,000 financial penalty and the other employee to $20,000. The commission said their settlement addressed bribery, internal controls, false records and causing FLIR’s books-and-records violations.

The company order traces FLIR’s investigation to a complaint letter from its local agent in November 2010. FLIR subsequently reported the conduct to the commission and cooperated with the agency’s investigation. The order also described changes to gift policies, finance training and travel approvals, and required reports on overseas compliance work over a two-year period.

What the Approval Trail Shows

The alleged control failure sat inside ordinary sales and expense work. FLIR had an anti-bribery policy and requirements for accurate records, and the commission’s employee announcement said the two employees had received training specifically identifying luxury watches and side trips as prohibited gifts. The later company order added that FLIR had not ensured completion of all required training. We see the absurdity: the training named the gifts to avoid, and the expense report named the watches for approval.

According to that order, foreign sales employees dealt directly with foreign travel agencies, without policies governing those agencies. Sales managers approved their staff’s expenses, and accounts payable employees had not been trained to flag potentially problematic gifts. The company had written prohibitions, while the people seeking the sale still controlled much of the spending approval.

For someone working in aerospace and defense sales, the useful connections run from the customer’s authority to the acceptance test, the benefit and the accounting entry. A sales employee may know why a particular engineer’s approval mattered. A travel coordinator may know who requested the extra stops and who actually paid for them. A finance employee may know why the first explanation was questioned and who supplied the replacement. We connect those views through the transaction records.

When the Invoice Tells a Different Story

The same split between the transaction and its description appears in Embraer. In its civil complaint, the Securities and Exchange Commission alleged that the aircraft manufacturer disguised payments tied to a Dominican government sale as commissions for sales in Jordan, where the supposed contract was never awarded. The complaint described the invoices this way:

The FLIR allegations concern a different disguise: an inspection itinerary carrying personal travel, followed by paperwork making the customer appear to have paid. In both accounts, someone familiar with the commercial transaction could explain why the invoice’s description failed to match the business behind it.

A 2017 teaching case in the Journal of Forensic & Investigative Accounting, A Teaching Case Using the Elements of the Foreign Corrupt Practices Act, makes that mismatch concrete in a fictional firearms-sales scenario. Officials receive a week of resort-style accommodation with four hours of classes, while payments are categorized as “firearms testing costs.” The exercise brings the business activity and its accounting label together. That is the comparison a person who arranged the visit or attended the demonstration can help us make.

Whistleblower Rewards for Different Kinds of Fraud

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Foreign-bribery information has separate whistleblower programs, and we work through the program that fits your information with you.

You Know What Happened on the Trip

If the itinerary you arranged or the invoice you questioned tells a different story from the approved expense, speak with our whistleblower experts. We build the case around your knowledge of the customer, the spending and the decisions inside the business, and bring in FCPA whistleblower lawyers who understand overseas government sales. We stay beside you from that first account of the trip through the work of pursuing your strongest case.