Tyco: FCPA Case

Tyco agreed to pay more than $13 million in its civil FCPA settlement over illicit payment schemes at subsidiaries around the world. The SEC’s announcement of the later case described fake commissions, third-party agents and accounting that concealed the payments. The conduct surfaced through a review begun around an earlier settlement, yet improper payments continued.

The company’s non-prosecution agreement with the Justice Department contains admitted facts about those transactions. They show several routes to the same problem: a customer employee, a designer or an intermediary received money that company records described as an ordinary business expense. For an insider, the revealing detail was often who actually provided the supposed service.

Two Tyco Matters With Different Scope

The SEC’s earlier corporate case combined accounting fraud, disclosure failures and foreign-bribery allegations. It alleged improper acquisition accounting, misuse of reserves and security-monitoring transactions without economic substance. Its FCPA allegations concerned payments by employees or agents of Earth Tech Brasil to Brazilian officials to obtain or retain business.

The later SEC case addressed additional conduct uncovered by Tyco’s global review and investigation. The SEC said the misconduct occurred, or its benefit to Tyco continued, after the earlier injunction. The later settlement therefore concerned a different group of transactions, rather than a new label for every allegation in the earlier accounting case.

Tyco’s admitted statement also distinguished business units that remained in the company from units separated or sold. Its healthcare and electronics segments separated from Tyco, while other businesses were later divested. The transaction account follows the units involved at the relevant time, rather than assigning every historical payment to an unchanged corporate group.

Valve Sales and Fictitious Expenses

Tyco Valves & Controls Middle East marketed valves and actuators for oil, gas, water and other industrial uses. Tyco admitted that the subsidiary made direct and indirect cash payments to customer employees in Saudi Arabia, the United Arab Emirates and Iran. The recipients included employees of Saudi Aramco, the government-owned oil and gas company.

The subsidiary’s local sponsor also acted as its distributor and office in Saudi Arabia. Tyco admitted that the sponsor created false invoices and bills to support the payments. Those documents described consultancy costs, commissions and unexpected equipment costs, and the subsidiary carried the same false descriptions into its books.

This placed the concealment inside familiar purchasing and sales processes. An employee might recognize the project and the distributor but know that the supposed consulting work or equipment expense never occurred. The subsidiary’s own criminal plea agreement separately records its admitted role, distinct from the parent’s broader agreement.

Paying the People Who Wrote the Specifications

Tyco admitted that a Chinese thermal-controls subsidiary paid designers at government-owned or government-controlled design institutes. Its books described the payments as technical consultation or marketing promotion expenses. Another payment arrangement used an agent’s commission to pay a project team at a state-owned corporation.

The account also described Tatra, a Slovakian business selling pipes, fittings and valves. Tatra paid an agent to seek inclusion of its products in tender specifications while the same agent was being paid by the government customer to prepare those specifications. The company recorded its payments as commissions.

That is a conflict an insider in technical sales could recognize before a purchase order was issued. The person shaping the customer’s requirements was also receiving money from the supplier trying to satisfy them. The advantage was built into the description of what would be bought, rather than waiting until the final purchasing decision.

An Agent’s Invoice Could Conceal No Service at All

The admitted statement identified payments by Keystone to a sales agent in connection with sales to Sinopec even though the agent supplied no legitimate services. It also described agencies owned by Keystone sales employees that received money and passed cash or gifts to customer employees. The business’s own sales staff and its supposed outside agencies could therefore overlap.

In another business, Isogard paid a security officer employed by a government-owned mining company to introduce it to buyers in Africa. The money went to the officer’s personal account in France without a written contract or invoice. Tyco also admitted sham commissions to other intermediaries, including employees or relatives of employees of customers.

Those arrangements put different evidence in different hands. Someone maintaining the agent file could see the missing services or documents, while someone in sales could know the recipient’s actual connection to the customer. The case shows why a payment’s label can be less informative than the relationship behind it.

Surveys and Renovation Work That Did Not Happen

Tyco’s admitted facts described payments by ADT Thailand that were recorded as site surveys for a government traffic project in Laos but went to other recipients. In a separate contract for a CCTV system at the Thai Parliament House, the subsidiary and a consultant created invoices for renovation work that was never performed. Other survey payments were supported by false invoices without evidence that the work occurred.

A project employee would be in a different position from an accounts-payable reviewer. The invoice might fit the project’s broad subject, while the employee who managed the actual work would know whether anyone conducted the survey or renovation. The connection between the job history and the invoice explains how an ordinary expense category could carry a concealed payment.

The Customer Benefit Could Be Travel or a Markup

The admitted statement described false receipts and itineraries used by a Chinese healthcare business to work around internal limits on expenses for publicly employed healthcare professionals. A Saudi healthcare operation used a distributor’s account to fund payments it directed to hospitals and doctors. Some expenses were recorded as promotion or sales development.

A different arrangement involved microwave equipment sold through a representative in Turkey. The representative received a commission and a markup on the equipment, then transferred part of those amounts to a government official to obtain orders. The channel supplying the money was the representative’s commercial margin, alongside its commission.

These transactions broaden what an insider might recognize as the payment. A false travel description, a distributor-controlled account and a reseller’s markup can each connect company revenue to someone able to influence the customer. Tyco’s admitted facts identify the particular route in each business instead of treating them as one identical scheme.

Warnings Did Not End the Payments

Tyco acknowledged earlier weaknesses in its companywide compliance program and controls. Its admitted statement said improper payments and false accounting continued despite awareness of a high probability of those problems. The later SEC announcement credited disclosure and remedial measures, including employee terminations and changes to business lines and compliance systems.

We see the practical issue in the gap between a company’s stated controls and its continuing transactions. The expense description, the recipient and the work supposedly performed still have to agree. Employees who know why those details diverged can explain conduct that a high-level review might otherwise see only as a collection of invoices.

You Know Whether the Work Happened

If you know why an agent was paid, who controlled a distributor account or whether an invoiced service ever occurred, bring that knowledge to our whistleblower experts. We help build the case with you and bring in FCPA whistleblower lawyers who understand complex corporate operations and the people working inside them.