Quad/Graphics, Inc.: The Invoices Management Did Not Want

In the Quad/Graphics, Inc. FCPA case, the company agreed to pay $9,895,334 to settle Securities and Exchange Commission allegations involving overseas bribery and false records. The SEC described vendors billing for printing work that other people performed, agents collecting commissions without providing services, and a finance executive who heard about improper payments but told the local manager not to send him the invoices. If you know who did the work, approved the bill or raised the concern, this case shows why that knowledge matters.

Printing Contracts, Equipment Sales, and Acquired Subsidiaries

Quad/Graphics was a marketing and printing services company headquartered in Sussex, Wisconsin. The SEC’s September 26, 2019 announcement described conduct at its Peruvian and Chinese subsidiaries, along with concealed sales to Cuba. Its settlement order addressed Foreign Corrupt Practices Act allegations involving bribery, false books and records, and inadequate internal accounting controls.

The businesses sold different things. Quad Peru’s Lima plant printed and assembled educational textbooks and exam packets, along with directories and other publications. Quad/Tech China sold automated systems for printers, including equipment that improved the quality and efficiency of printing presses. Both subsidiaries’ accounts flowed into the parent’s financial statements.

The acquisition of an overseas business mattered to the Peru story. Quad bought World Color in July 2010, acquiring Latin American plants and more than 16,000 employees while becoming a publicly traded company. The SEC alleged that the expansion came without meaningful checks on third parties, sufficient accounting controls or an effective anti-corruption program.

Peru’s Printing Contracts and Vendors Without Operations

The SEC alleged that Quad Peru paid or promised more than $1 million through sham vendors to obtain contracts, producing more than $4.4 million in gains. The payments began with an approach to the subsidiary’s head sales executive by an intermediary offering influence over a contract with the Peruvian National Institute of Statistics and Information. The general manager allegedly gave verbal approval, and the arrangement continued from 2011 to January 2016.

According to the SEC, four supposed vendors, all owned by the same person, supplied the invoices. Three shared an address and none had real business operations. Their bills mostly described pre-press, modulation or packaging services connected to the government contracts, but Quad Peru’s own employees or unrelated contractors performed the work.

The alleged bribes to officials at the statistics agency ran at approximately 13% of each government contract work order. The head sales executive and general manager allegedly approved the fake invoices routinely, and the senior finance manager arranged payment. The SEC said the payments reached the books primarily as pre-press or related services.

For a printing employee, that invoice describes recognizable work. The useful comparison is between the vendor being paid and the people who actually prepared or packaged the job. We see the absurdity in paying an outside company for work the plant already did, especially when that company had no operations at all.

The same vendors allegedly helped Quad Peru buy relief after contracts had been awarded. The SEC described payments to Ministry of Education officials to reduce penalties and extend delivery dates, along with a separate vendor-funded pool used to avoid penalties for failing to meet contract terms. The advantage reached both winning public work and escaping the cost of failing to deliver it as promised.

The Warning Reached the United States

According to the SEC, around 2013, the senior finance manager in Peru contacted a U.S.-based finance executive for Latin America about the improper conduct. The executive told him not to forward invoices directly, said he would look into it, and provided no follow-up. The commissions allegedly continued.

The costs also appeared in ordinary management reporting. According to the order, a monthly presentation sent to the United States identified two sham vendors as the subsidiary’s second- and third-largest costs for that period. The SEC alleged that the finance executive still failed to inquire about them.

The order describes a different response when concerned managers brought suspicious invoices to a new senior finance manager in late 2015. The bills included matching dates and amounts and consecutive invoice numbers. He refused approval and raised the matter in January 2016, after which the finance executive escalated it to his supervisor and the company’s U.S. legal department.

A Tax Dispute and Alleged False Service Bills

The SEC separately alleged judicial bribery tied to a dispute with SUNAT, Peru’s tax authority, over value-added tax on book sales to the Ministry of Education. The disputed tax, interest and penalties exceeded $12 million, an exposure the agency compared with roughly two years of Quad Peru’s profit. Its account describes an initial $20,000 payment for a judge routed through an unnamed local law firm. Vendors that had performed legitimate work submitted fake invoices, received payment and returned part of the money to company managers, who used it to fund the payment.

Later payments carried descriptions such as extraordinary fees and success fees. According to the SEC, an invoice seeking funds for additional judicial bribes moved from the Peru finance manager to finance and operations executives in the United States for approval. Part of the payment then traveled from Quad Peru’s Miami bank account, normally used for supplies, and the finance executive directed how to record it because he was concerned about its appearance in variance reports.

The order put improper payments through the law firm at approximately $209,752 and described the judicial bribery scheme as failed. It separately recorded that the Peruvian Supreme Court ultimately decided the tax dispute in Quad Peru’s favor in March 2018.

China’s Technical-Service Fees and Alleged Customer Payoffs

Quad/Tech China’s alleged scheme used sales agents to pass money to employees of private and state-owned customers. The SEC put the improper commissions paid or promised at approximately $182,000 and the resulting gains at approximately $1,087,322. The conduct ran from 2010 to 2015.

The equipment business helps explain the route. Quad/Tech China sold systems that attached to printing machinery, and its customers included press manufacturers and end users in traditional and packaging printing. The SEC described a small potential customer base, with payments aimed at employees who could steer purchases of those systems.

According to the SEC, the supposed agents generally billed 2% of the sales order as technical service fees. They performed no genuine services and had no role in Quad/Tech China’s business operations. Their identities remained hidden from most employees, while the sales executive, general manager and finance manager knew about the payments.

The subsidiary allegedly paid those invoices without proof of services or checks on the agents, then booked the payments as commissions. An employee familiar with installation or service work could recognize the gap between a technical-service bill and what anyone actually supplied. That is the practical point of examining the work behind a service contract.

Cuba Disappeared From the Reports, Not the Printing Job

The Cuba transactions concerned telephone directories sold to ETECSA, a state-owned telecommunications company. The SEC alleged that the business continued after Quad acquired World Color despite U.S. sanctions and export controls. The Foreign Corrupt Practices Act accounting allegation concerned false paperwork used to hide the sales.

The order reproduced an email in which a U.S.-based operations executive invoked the legal department while telling colleagues how to describe the customer:

The SEC also described what the legal department actually told that executive: the acquired subsidiaries could no longer sell to Cuba, and he should confirm that the ETECSA work had stopped. According to the order, he gave that confirmation despite knowing of plans to continue through a Peruvian intermediary. In the SEC’s account, management wanted Cuba out of the reports while the directories kept shipping.

The alleged disguise changed the customer on paper. A Peruvian agent contracted with ETECSA and hired Quad Peru as a subcontractor, while Quad Peru printed, packaged and arranged shipment of the directories to Cuba. The SEC said the agent served as a pass-through and that the revenue appeared in Quad Peru’s books as a sale to that agent.

Contracts, shipping documents, invoices and journal entries were allegedly inaccurate. The goods and their destination supplied a way to compare the real sale with the reported one. For someone in the printing or shipping operation, the customer on the invoice was only part of the story.

How the Alleged False Entries Reached the Parent

The books-and-records allegations connected local payment descriptions to Quad’s consolidated accounts. The SEC tied the bribery charge to Peru. It also alleged that false paperwork from the overseas businesses reached the parent company’s accounts.

The SEC described invoices without purchase orders, rounded amounts, unusually large bills for the stated services and consecutive invoice numbers. It also said internal audit had no visible role in anti-corruption testing after the acquisition.

The pattern extends beyond printing. In Fresenius Medical Care, the SEC alleged that a senior manager discouraged the word bonus for Chinese incentive payments because of internal legal compliance concerns. The 2022 Journal of Forensic and Investigative Accounting study Fresenius Medical Care: A Case Study on the FCPA describes an internal audit identifying payments to an agent without reports showing proof of service. The study’s account shows why the expense label and evidence of actual work belong in the same inquiry.

The SEC Settlement and the Justice Department’s Declination

The civil settlement required Quad to give up $6,936,174 in gains, pay $959,160 in interest and pay a $2 million civil penalty. The SEC put Quad’s gains from the schemes at approximately $7 million. We see a penalty smaller than the gain the agency attributed to the conduct. The SEC credited Quad’s voluntary disclosure, cooperation and remedial work.

The Justice Department separately listed Quad/Graphics among its 2019 corporate declinations. That decision to decline prosecution sat alongside the SEC’s civil resolution, which addressed both the alleged payments and the accounting failures.

What an Insider Can Connect

In this case, the evidence ties a payment to the decision behind it. A plant employee may know who performed the work, a sales employee may know what the customer demanded, and a finance employee may know who approved the invoice after concerns surfaced. The value lies in connecting those observations to the same transaction.

The SEC whistleblower program can pay eligible whistleblowers a combined 10% to 30% of qualifying sanctions collected in a successful action. Our whistleblower experts work with you to build your strongest case and bring in FCPA whistleblower lawyers who understand overseas payments and corporate accounting.

You Know What the Invoice Left Out

If you saw a vendor paid for somebody else’s work or a warning disappear while the payments continued, talk with our whistleblower experts about what happened inside the business. We build your strongest case with you around the transactions you know, match it with FCPA whistleblower lawyers, and stay beside you through the process.