Wabtec: Cash Behind the Railway Bids

In the Wabtec FCPA case, the company agreed to an $87,000 civil penalty over improper payments for Indian railway business. The Securities and Exchange Commission alleged that its Indian brake-block subsidiary paid government employees to get competitive bids granted or considered. It charged Wabtec under the Foreign Corrupt Practices Act. If you handled the tender, the inspection schedule or the delivery certificate, you know the business decisions behind those payments.

Westinghouse Air Brake Technologies Corporation, known as Wabtec, manufactured brake subsystems and other products for locomotives, freight cars and passenger transit vehicles. At the time of the case, it was headquartered in Wilmerding, Pennsylvania, and listed on the New York Stock Exchange. Its subsidiary Pioneer Friction Limited manufactured low and high friction brake blocks in India. The business connected a local rail supplier, an Indian government customer and the financial statements of an American public company.

Cash Payments Behind Competitive Bids

The SEC alleged that Pioneer made more than $137,400 in improper cash payments to Indian government employees from at least 2001 through 2005. According to the SEC’s account of its complaint and administrative order, the purpose was to have competitive bids for government business granted or considered. The allegation reached the opportunity to compete as well as the award itself.

That is a particularly ugly way to run a competitive tender. An honest supplier competes on product and price, while a payment to the decision-maker buys consideration that the bid was supposed to earn. We see the unfairness in the SEC’s description: cash allegedly entered a process presented as competition for public business.

For someone in sales or procurement, the useful connection is between the payment and the pending decision. A tender file describes what the customer wanted and when it would choose a supplier. Payment approvals and the people involved can explain what the business was doing alongside that formal process. The commercial purpose of the payment matters as much as the fact that cash changed hands.

Inspections and Delivery Certificates Were Part of the Business

The Justice Department’s announcement of the criminal non-prosecution agreement described payments beyond winning contracts. It said Wabtec acknowledged responsibility under the agreement for the actions of Pioneer and its employees and agents, who paid officials of the Indian Railway Board, a government agency within India’s Ministry of Railroads.

In that account of the agreement, the payments helped Pioneer obtain and retain business, schedule pre-shipping product inspections and secure product delivery certificates. They also sought to curb what Pioneer considered excessive tax audits. Those purposes put the payments at different points in the subsidiary’s dealings with government, including the steps surrounding shipment and delivery of its goods.

A rail-equipment sale involves more than the order. Here, the government’s account identified pre-shipping inspections and delivery certificates, giving an insider concrete decisions to connect to the money. Someone responsible for shipping could understand why an inspection date mattered. Someone handling delivery paperwork could know which official controlled the certificate and who inside the supplier was pressing for it.

That is why we follow the business decision along with the payment’s route through the company. A sales employee, an agent and a finance employee may see different parts of the same transaction. We work with you to connect the decision, the payment and the accounting record, so the expense can be understood beyond its ledger description.

The Subsidiary’s Accounts Reached the Parent

Pioneer’s financial results were included in Wabtec’s consolidated financial statements. The SEC alleged that Wabtec failed to keep accurate books and records and failed to maintain effective internal accounting controls in connection with the improper payments.

For books, records and accounting controls, the gap between an expense’s stated purpose and its actual use matters. In a government-facing business, the people who approve an expense may hold different information from the people who record it. A description in the ledger can be compared with the underlying request, the recipient and the government decision the payment was meant to influence.

For an insider, that makes the connection between the commercial file and the accounting file valuable. Who requested the expense, who approved it and what the approver knew are questions about actual decisions inside the business. We build on that knowledge when examining how a local payment reached the parent’s accounts.

Oracle’s Railway Deal Had a Different Paper Trail

Oracle supplies a closely matched example of records contradicting the stated reason for a payment arrangement. In its settled 2022 order, the SEC alleged that Oracle India sales employees sought a 70% software discount for a transaction with a transportation company majority-owned by India’s Ministry of Railways. They claimed intense competition threatened the deal, and an employee in France approved the request without requiring further documentary support.

The SEC alleged that the customer’s public procurement website showed it required Oracle products, eliminating the supposed competition. It also described an internal record of what the discount could make available:

In the SEC’s account, the public tender called for Oracle, while the internal request invoked competitors. Some competition. The alleged payment reserve appeared in a salesperson’s spreadsheet. Tender terms, approval records and a working file could tell an insider more together than any one of them showed alone.

The SEC Proceedings and the Justice Department Agreement

On February 14, 2008, the SEC announced two settled enforcement proceedings against Wabtec. Its federal civil action sought a civil penalty, while its administrative order addressed the profits and required an independent consultant to review its compliance policies and procedures. Both concerned the Foreign Corrupt Practices Act’s anti-bribery, books-and-records and internal accounting controls provisions.

The SEC alleged that Pioneer earned $259,000 in profits from contracts awarded in 2005 and ordered Wabtec to surrender that amount in the administrative proceeding. We see a civil penalty smaller than the profit from those contracts.

The Justice Department’s separate criminal agreement supplied the acknowledgment of responsibility described earlier. Its announcement said Wabtec investigated after discovering the payments, voluntarily disclosed its findings and cooperated with the department. The department credited that work and the company’s remedial efforts.

Why an Insider’s Knowledge Matters to Accounting Controls

The March 2019 working paper Do Corporate Whistleblower Laws Deter Accounting Fraud?, hosted by MIT Sloan, estimated a 5% to 9% reduction in accounting-fraud likelihood after companies became exposed to state False Claims Acts. It studied that exposure through state pension-fund ownership, using financial-statement measures of fraud risk.

In a smaller sample, the paper found little evidence that greater investment in internal auditing explained the reduction. That gives us a reason to value an employee’s knowledge alongside the formal audit process. Someone who understands why a payment was requested can supply information a ledger description leaves out.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Foreign-bribery information has a separate SEC whistleblower award program for us to assess with you. We match what you hold to the right program and to foreign bribery whistleblower lawyers with the expertise your case needs.

You Know What the Payment Was For

If you saw cash tied to a railway bid, an inspection or a delivery certificate, speak to one of our Whistleblower Experts about the decision behind the payment. We build your strongest foreign bribery whistleblower case around that knowledge. We bring in FCPA whistleblower lawyers who understand overseas subsidiary accounts and stay beside you through the case.