Universal: Buying the Sale and the Right to Buy

In the Universal FCPA case, Universal Corporation agreed to pay more than $4.5 million in disgorgement to settle the Securities and Exchange Commission’s tobacco-bribery and inaccurate-books allegations. The alleged payments reached both sides of the tobacco business: securing sales to a government-owned buyer in Thailand and securing purchasing rights in Mozambique. If you work in sales, purchasing or finance, the question is familiar: what did the payment actually buy, and what did the books say it bought?

The commission’s August 6, 2010 announcement described a Richmond, Virginia tobacco merchant whose subsidiaries’ business crossed several borders. Its foreign-bribery allegations covered Thailand, Mozambique and Malawi. The commission investigated with assistance from the Justice Department’s Fraud Section and the FBI. Its allegations under the Foreign Corrupt Practices Act concerned both the official payments and how the company recorded them.

The Thailand Tobacco Contracts

The Securities and Exchange Commission alleged that Universal paid approximately $800,000 to officials of the government-owned Thailand Tobacco Monopoly to secure approximately $11.5 million in tobacco sales contracts for subsidiaries in Brazil and Europe. The alleged Thailand scheme ran from 2000 through 2004. Those figures put the payment beside the business it allegedly bought: access to substantial sales through the people acting for the buyer.

The government-owned customer is central to that account. The agency described payments to the monopoly’s officials in exchange for contracts with the monopoly. We see the distortion plainly: the people on the customer’s side of the sale allegedly had a private reason to favor the seller. A competitor trying to win the order on commercial terms was competing against that private benefit, too.

The SEC also alleged coordination with Dimon and Standard Commercial, competitors that later merged to form Alliance One. More than one seller was allegedly buying the same customer.

Mozambique Payments for Access to Supply

In Mozambique, the Securities and Exchange Commission alleged that Universal’s payments primarily sought an exclusive right to purchase tobacco from regional growers and legislation beneficial to its business. From 2004 through 2007, the alleged payments to government officials totaled more than $165,000 and moved through corporate subsidiaries in Belgium and Africa. Here the commercial prize lay in access to the crop and the rules governing the business.

A tobacco merchant can have an interest in the government’s decisions before it has a customer order to fill. The alleged exclusive purchasing right would shape who could buy from those growers, while favorable legislation could shape the conditions under which the company operated. That gives a purchasing employee or someone handling government relations a different view of the alleged scheme from the person booking export sales.

Malawi Payments Reached the Books

The Securities and Exchange Commission alleged that Universal subsidiaries paid $850,000 to high-ranking Malawian government officials between 2002 and 2003 and did not record those payments accurately in Universal’s books. Its announcement also alleged inaccurate recording of the Mozambique payments. The alleged payments reached the officials, but the books did not tell that story.

That matters to someone whose job involves recording or approving payments. The person who understands an entry may know a different part of the transaction from the person who dealt with the official. An accounting description can make a payment appear ordinary to someone reviewing it elsewhere in the group. An insider’s knowledge of its actual purpose can expose what that description leaves out.

The Company Receiving the Benefit May Be Elsewhere

The Securities and Exchange Commission alleged transactions that crossed corporate borders as well as national ones. In its account, the Thailand sales benefited subsidiaries in Brazil and Europe, while the Mozambique payments went through subsidiaries in Belgium and Africa. The country of the official, the location of the company moving money and the location of the business benefiting from it answer different questions.

The Justice Department and SEC’s resource guide describes a commercial setting involving parents, subsidiaries, agents and government purchasers. Approvals, budgets, accounting entries and transfer records can connect roles spread across those entities. That is why we examine the payment’s route through the business alongside the official decision it was meant to influence.

A finance employee may understand which entity approved or recorded the expense. A sales or purchasing employee may understand why the business wanted the official’s decision. Those accounts become more useful together, especially when the payment and the commercial benefit appear in different parts of the group.

Genuine Paperwork Can Tell a False Story

The RAE Systems case shows why a receipt’s existence does not settle what a payment was for. In its separate complaint against that company, the commission alleged that sales personnel supported expenses with genuine receipts issued for other transactions. The complaint described the substitution directly:

Real receipts, wrong expenses. We care about that distinction because a file can look complete while giving a false account of the transaction. The person who knows what the money actually paid for can explain something the paperwork alone conceals.

Universal’s alleged inaccurate recording and RAE Systems’ alleged receipt substitutions illustrate the same evidence question: does the accounting support describe the actual use of the money? A purchasing decision, a customer’s demand or a conversation about an official payment may explain why the recorded description is wrong. That is what we build a case around.

What an Insider Adds to the Accounts

An insider can connect a recorded transaction with the decision and purpose behind it. For this kind of tobacco business, that might mean knowing who controlled a sales contract, why the company sought exclusive purchasing rights, or how an official payment appeared in a subsidiary’s accounts. Our work starts with that specific knowledge and connects it to the records that explain the transaction.

A March 2019 working paper hosted by MIT Sloan, Do Corporate Whistleblower Laws Deter Accounting Fraud?, studied companies exposed to state False Claims Acts through state pension-fund investments. Using financial-statement measures of fraud risk, it found a lower predicted likelihood of accounting fraud after exposure to those laws. The study supports a broader point we take seriously: the prospect of someone explaining the books from the inside can change incentives to falsify them.

For foreign-bribery information, eligible SEC whistleblowers can receive 10% to 30% of collected monetary sanctions. A whistleblower case under the separate False Claims Act can pay 15% to 30% of what the government recovers. We work through the relevant reward program with you and FCPA whistleblower lawyers, using the conduct and information you know to assess the case.

You Know What the Payment Bought

If you know how an official payment connected to a tobacco contract, purchasing right or false accounting entry, speak to one of our Whistleblower Experts about what the payment bought. We bring in FCPA whistleblower lawyers who understand payments across subsidiaries, and stay beside you through the process. Start with the part of the business you know, and we will connect it to the rest to build your strongest FCPA whistleblower case.