Titan Corporation: FCPA Matters

Titan Corporation agreed to pay $15,479,195 in disgorgement and prejudgment interest to resolve civil Foreign Corrupt Practices Act allegations involving payments toward Benin’s presidential reelection campaign. The Securities and Exchange Commission’s report gives that civil amount and says Titan settled without admitting or denying the complaint’s allegations. Separately, Titan’s criminal plea supplies admissions about how company money reached the campaign and how false invoices concealed its purpose.

The Titan Corporation FCPA case connects a telecommunications contract, a politically connected agent and a promised increase in the company’s management fee. For finance and business insiders, the details run through familiar records: consulting agreements, invoice approvals, bank transfers, project accounts and audit warnings.

A Telephone Network That Needed Government Approval

In its corporate plea agreement, Titan admitted that it entered the Benin telephone project in 1998 and understood that the project required government approval. Titan later acquired Afronetwork’s rights and obligations to develop and operate a wireless telephone system. The network would pass to the Benin government after Titan received full payment for its equipment and services.

Benin’s Postal and Telecommunications Office had to obtain sites, secure authorization for wireless frequencies and assist with customs and tax exemptions on imported equipment. The project therefore depended on decisions by the same government whose officials and advisers dealt with Titan. A steering committee brought together senior Titan personnel, the office’s director general and Titan’s local agent.

Titan admitted hiring that agent without formally checking his background, qualifications, other employment or government relationships. Employees already knew he advised Benin’s president. The consulting agreement described marketing, business development and financing services, but Titan paid an early invoice without evidence that the stated services had been performed or the expenses incurred.

Social Payments Became Campaign Money

Titan’s plea explains how development subsidies became the label for political payments. The inherited project agreement required part of the profits to support sectors such as health, education and agriculture, with the details worked out through the responsible Benin ministries. Titan personnel called these obligations social payments.

At a steering committee meeting in December 2000, the agent and the telecommunications office’s director general demanded that Titan accelerate those payments before the coming presidential election. The subsidies were not yet due, and the required consultations with the ministries had not occurred. Titan nevertheless agreed to make expedited payments in exchange for an increase in its management fee from 5% to 20% of the value of equipment supplied under the contract.

The company admitted that a senior officer caused the payments to be made in installments and supported by false invoices. Some of the money bought T-shirts bearing the president’s picture and instructions to vote for him. We see the mismatch in Titan’s own admissions: money described as support for public development helped pay for campaign merchandise while the company sought a larger fee.

Titan also admitted that it demanded approval of the fee increase as a condition of continuing the payments. A later agreement falsely described substantial contributions to social programs and confirmed the fee increase retroactively. The paperwork did more than describe the money after it moved: it connected the payments to the commercial benefit Titan wanted.

False Invoices, Offshore Transfers and Cash

The criminal information charged that invoices concealed the payments as customs exemptions and other services. Titan’s plea admitted the same mechanism, including two invoices that omitted the campaign purpose. The company admitted making seven payments totaling approximately $2.1 million between January and May 2001 while knowing the money would support the president’s reelection effort.

A senior officer directed two wire transfers of $500,000 each from a Titan bank account in San Diego to the agent’s offshore account in Monaco. Other payments reached the agent as cash in Benin, including money drawn through checks payable to employees and a payment from petty cash. The named payee on a company check could therefore be an employee even when the company knew the proceeds would go to the agent.

Those details put the invoice, the transfer approval and the eventual use of the funds in the same story. The corporate plea admitted that Titan kept false books describing the campaign money as social payments through at least January 2004. An insider’s knowledge of why a payment was requested could explain what the accounting description concealed.

Audit Warnings Reached the Company

Titan admitted receiving warnings that connected weak controls to specific suspected misconduct. Written allegations sent to company officers in 2001 and 2002 described forged invoices and bills and bribes in Benin. An external auditor also reported that it could not substantiate payments and could not issue an opinion on Titan Africa’s financial statements for the relevant years.

The plea says Titan failed to investigate these warnings properly, take corrective action or report the issues to its audit committee. Titan also admitted that it had not provided FCPA training and had not maintained due diligence files on foreign agents during the stated period. The warnings matter because they show what had reached people inside the company while the payment records continued to carry false descriptions.

The Entries Reached the Tax Return

Titan’s plea also traces the payments into its federal income tax reporting. The company recorded the improperly described Benin payments as a receivable called “Reimbursable Operating Expenses.” When Titan exited its telecommunications business and settled outstanding project receivables, it wrote off the remaining receivables, including part of those payments.

Titan admitted deducting that write-off on its tax return. It also admitted knowingly causing a corporate return for tax year 2002 to include improper Benin payments within the bad-debt deduction. The connection for an accounting insider is concrete: the description in the project books carried forward into a claim for a federal tax deduction.

The Justice Department’s announcement identifies the investigators as the Federal Bureau of Investigation’s San Diego Division, Internal Revenue Service Criminal Investigation and the Defense Criminal Investigative Service. Those agencies and the Justice Department worked with the SEC’s parallel civil investigation. The company’s admitted conduct involved bribery, false books and a false tax return, each tied to the same underlying payments.

An Executive’s Plea Identified the Invoice Decision

The companion executive plea agreement adds the perspective of Titan’s Benin program manager, who also served as president and chief executive of Titan Africa. He admitted causing a false invoice to be submitted on the agent’s letterhead at a senior Titan officer’s direction. The invoice described consulting services while omitting the supposed social payments and subsidies.

The executive admitted knowing that the services described in the invoice had not been rendered. He also admitted using the scheduling and payment of the funds, together with a senior official at Titan, to obtain the increased management fee. His admissions connect the person directing the invoice to the company approvals and payment decisions described in Titan’s own plea.

The Civil Case and the Merger Disclosure

The SEC’s litigation release describes civil allegations against Titan covering bribery, inaccurate books and inadequate internal controls. The SEC alleged that a senior officer directed the agent to submit false consulting invoices and spread the payments into smaller installments. Titan resolved those civil allegations without admitting or denying them, while its separate criminal plea admitted the Benin conduct described above.

The SEC’s merger report also recounts Titan’s agreement for Lockheed Martin to acquire the company, subject to conditions. Titan represented that, to its knowledge, the company and its subsidiaries, officers, employees and agents had not taken actions that would violate the FCPA. That representation appeared in materials filed with the SEC and sent to shareholders.

According to the report, the merger documents were amended during the SEC and Justice Department investigations, but the FCPA representation remained unchanged. Lockheed Martin terminated the agreement in June 2004. The SEC used the report to explain why a statement in a merger agreement can matter to investors once the company publishes it, extending the significance of the payment records beyond the project accounts.

Titan’s civil case was an SEC enforcement action under the FCPA, separate from the false-claims cases that recover government money. An FCPA tip to the SEC can earn 10% to 30% of sanctions over $1 million; where a government contract is involved, a False Claims Act case can pay 15% to 30% of what the government recovers.

Talk About the Payments You Saw

If you saw an agent’s false invoices, political payments or instructions to disguise company expenses, speak with our whistleblower experts about those payments. We work with you to connect what happened inside the company to its records and bring in FCPA whistleblower lawyers with the experience your case needs.