Veraz Networks: The Gift Scheme Had an Approval Email

In the Veraz Networks FCPA case, the company agreed to a $300,000 civil penalty to settle Securities and Exchange Commission allegations about improper gifts and payments in China and Vietnam. The alleged conduct ran through records a sales or finance employee would recognize: a supervisor’s approval email, a proposed consultant fee and reimbursed customer expenses.

Veraz sold telecommunications products that helped service providers transport and manage data. The San Jose, California company went public in April 2007 and sold through both its own sales force and indirect channels. According to the Commission’s complaint, offices outside the United States generated most of its revenue.

In China, the complaint alleged that a consultant sought business from a government-controlled telecom company. In Vietnam, it alleged that a Veraz employee used a Singapore-based reseller to make or offer payments to another government-controlled telecom customer’s chief executive.

China Gifts With a Supervisor’s Approval

The complaint alleged that Veraz’s consultant provided approximately $4,500 in gifts to officials at the Chinese telecom customer in late 2007 to secure a business deal. The consultant requested funding approval from his Veraz supervisor by email. The complaint described the supervisor’s response this way:

We find the approval more revealing than the nickname. In the Commission’s account, the consultant brought the gifts into the company’s decision process and received permission to fund them. A gift scheme, approved.

The complaint alleged a separate offer around January 2008. The consultant offered an improper payment to officials at the same customer to secure a deal worth approximately $233,000. An email among people involved in the transaction described the proposed payment as a “consultant fee,” set at fifteen percent or approximately $35,000.

The customer awarded Veraz the contract even though its bid was higher than competing bids, according to the complaint. Lower bidders lost the order while the consultant was offering a personal benefit to the buyer’s officials. That is the competitive harm in the Commission’s account: the higher bid won alongside an improper payment offer.

The complaint also says Veraz discovered the improper offer before receiving any money from the transaction and canceled the sale. The Commission nevertheless alleged that the company had failed to keep accurate records of the earlier gifts and maintain effective controls. The canceled order and the approved gifts were separate events, with separate records for an insider to explain.

Vietnam Payments Through a Singapore Reseller

The Vietnam allegations involved a reseller between Veraz and its government-controlled customer. During 2007 and 2008, Veraz sold products to that customer through a Singapore-based reseller, and the complaint alleged that a Veraz employee used the same channel to make or offer illicit payments to the customer’s CEO to win business.

Here, the Commission alleged that the sales channel also carried the improper payments. That makes the employee’s dealings with the reseller part of the payment story, alongside the relationship with the customer buying the products.

The complaint’s Vietnam allegations also reached the expense process. Veraz allegedly approved and reimbursed its employee for questionable expenses involving the customer, including gifts and entertainment for its employees and flowers for the CEO’s wife. An employee processing those reimbursements could see a different part of the relationship from the person handling the reseller’s sales.

The Commission alleged that Veraz’s books failed to reflect the improper payments accurately and that its controls failed to prevent or detect violations. For an insider, the connection runs from who benefited to who approved the expense and how the company recorded it. A reimbursement request can identify a personal benefit inside what the business presents as customer spending.

Why the Books and Controls Mattered

The Securities and Exchange Commission brought the Veraz action under the Foreign Corrupt Practices Act’s books-and-records and internal accounting controls provisions. Its complaint alleged inaccurate recording of the improper payments and an ineffective system for preventing them.

The complaint tied the controls to familiar business decisions: whether management authorized transactions and whether the company recorded them properly for its financial statements and accountability for its assets. The Chinese gift email makes the problem tangible. According to the complaint, a supervisor approved funding for the very conduct the company’s controls should have prevented.

The 2022 article How to Avoid Inadvertently Violating the Foreign Corrupt Business Practices Act Abroad, in the Journal of Forensic and Investigative Accounting, explains why the accounting provisions matter independently: a company can face accounting liability even when every element of an anti-bribery violation cannot be proved. For a finance employee, that makes the accuracy of the entry and the approval process central to understanding the case.

The government connection also sat inside the customer relationship. The complaint described both telecom customers as government-controlled and the recipients as foreign officials. An insider who knows the customer’s government role can explain a relationship that a sales account labeled only as a customer would leave out.

BHP’s Hospitality Forms Left Out the Government Connection

The Securities and Exchange Commission described a similar problem in BHP Billiton‘s Olympic hospitality program. In its 2015 order, the agency described hospitality applications that identified state-owned enterprise employees as customers but omitted their government role. Other answers denied business dealings even when officials were involved in pending negotiations or decisions they could influence.

The order also described employees failing to update a hospitality application when negotiations began with an invited minister over a mining permit. In that account, the approval paperwork missed the business relationship as it changed. The parallel to Veraz is the information inside the approval process: who the recipient was, what decision the company wanted and what the approver knew.

The SEC’s Civil Resolution

The Commission announced the settled action on June 29, 2010. Veraz consented to a judgment requiring the civil penalty and permanently barring future violations of the accounting provisions at issue. The Commission’s San Francisco Regional Office investigated the case, with assistance from the Department of Homeland Security.

What an Insider Can Connect

The strongest foreign bribery whistleblower evidence connects the benefit, the business decision and the company’s account of the payment. In Veraz’s China allegations, the supervisor’s email connects the consultant’s gift request to approval. The separate fee email and contract award connect an offered payment to a purchasing decision. In Vietnam, the employee’s reseller dealings and approved reimbursements connect different parts of the same customer relationship.

Your knowledge explains what those records meant inside the business. A sales employee may know why a fee appeared beside a bid, while someone in finance may know the explanation used to approve and record the expense. We use those connections to build your case around who approved the payment, what reached management and what decision the company wanted from the customer.

Whistleblower rewards depend on the law behind the case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For Foreign Corrupt Practices Act matters, we assess separate whistleblower reward programs with you against the conduct and the information you can contribute.

You Know Why the Expense Was Approved

If a gift request, reseller payment or customer expense came across your desk with a story the paperwork concealed, speak to our foreign bribery whistleblower experts about how it was approved. We use your knowledge of the sale and the approval chain to develop your strongest foreign bribery whistleblower case and bring in Foreign Corrupt Practices Act whistleblower lawyers who understand overseas sales channels. You have partners from the first conversation through the pursuit of your case.