Tyco International Ltd., and is subsidiary Tyco Valves & Controls Middle East Inc. settled FCPA charges after voluntarily reporting, conducting an extensive world wide investigation and cooperating with enforcement officials. Tyco entered into a non-prosecution agreement with the DOJ while its subsidiary pleaded guilty to one count of conspiracy to violate the FCPA bribery provisions. The parent company also settled with the SEC. Collectively the two companies will pay over $26 million in fines, disgorgement and prejudgment interest as part of the settlements. U.S. v. Tyco Valves & Controls Middle East Inc., Case No. 1:12-cr-00418 (E.D. Va. Filed Sept. 24, 2012); SEC v. Tyco International Ltd., Case No. 1:12-cv-01583(D.C. Filed Sept. 24, 2012).
Tyco, through various subsidiaries, engaged in a scheme which began as early as 2004 and continued for years in several countries including Turkey, China, Germany, France, Thailand, Malaysia, Egypt, Saudi Arabia and Poland, according to the court papers. Typically payments were made by a subsidiary or through an agent without the knowledge of the parent to secure business or for entertainment and were not properly recorded in the books and records of the company or lacked adequate documentation. Examples of wrongful conduce include:
Turkey: made payments which were improperly booked through its subsidiary TE M/A-Com, Inc., in connection with a September 2006 sale of microwave equipment to an instrumentality of the government.
China: two subsidiaries entered in a contract with the Chinese Ministry of Public security for $770,000 which was obtained through the payment of $3,700 to a “site project team” of a state owned corporation. The amount was improperly recorded as a commission when in fact it was passed to the end user.
Germany: through a subsidiary paid or promised to pay parties to secure agreements or avoid penalties in seven different countries for projects on-going from October 2004 through 2009. The payments were booked as commissions and in a manner that did not reflect the ultimate recipients of the funds.
France: through Tyco Fire & Integrated Solutions France or its agents payments were made to individuals over a four year period beginning in 2005 which ultimately were deposited by a government official for “business introduction services.” The payments were not supported by written contracts or invoices and were thus alleged to have been improperly recorded.
Egypt: beginning in 2004 an Egyptian agent of a subsidiary wired $282,022 to a former employee’s personal bank account to be used in connection with entertainment expenses for a representative of a company in which the government owned the majority interest. Portions of the funds were used for lodging, meals, transportation and entertainment for the official on two trips to the UK and two trips to the U.S. The books and records of the subsidiary did not reflect the uses of the funds.
The SEC’s complaint alleged violations of the bribery and books and records provisions of the FCPA.
As part of the settlement with the DOJ, the parent and its subsidiary agreed to pay a fine of $13.68 million. In connection with the settlement with the SEC Tyco consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Sections 30A(a), 13(b)(2)(A) and 13(b)(2)(B). The company also agreed to pay disgorgement of $10,564,992 and prejudgment interest.
The DOJ and the SEC acknowledged the extensive cooperation of the company. The case arose out of a review conducted by the company under a 2006 SEC consent decree entered in a financial fraud action. As the FCPA violations were discovered in connection with that inquiry the company voluntarily disclose the matter to enforcement officials. The company then took what the SEC termed “significant, broad-spectrum remedial measures.” Those included an FCPA review of every Tyco legal operating entity which totaled 454 entities in 50 countries; actively monitoring and evaluating all company agents and relevant third party relationships; conducting quarterly ethics and compliance training for over 4,000 middle managers; conducting site reviews of higher risk entities; creating a corporate Ombudsman’s office; exiting several business operations in high-risk areas; and terminating over 90 employees based on compliance concerns. Neither the DOJ nor the SEC specified the precise benefits which followed from voluntarily reporting and the extensive cooperation.