Tyco International Ltd. and a subsidiary will pay nearly $27 million to settle charges related to 10 years of alleged foreign bribery, according to the Justice Department and the Securities and Exchange Commission.
Tyco and several subsidiaries allegedly arranged illicit payments to foreign officials in a dozen schemes worldwide and made more than $10.5 million as a result of the bribes, according to documents released today by U.S. enforcers.
In 2006, the company paid $51 million to settle allegations of accounting fraud, disclosure and Foreign Corrupt Practices Act violations with the SEC. Tyco had committed to reviewing its FCPA compliance worldwide and, as a result, discovered additional potential FCPA violations in the period between 2006 and 2009.
“We discovered these through our internal review,” said Brett Ludwig, Tyco’s director of external communications. “We’re quite pleased to have reached a final resolution on this.”
The Swiss-based company agreed today to pay $13.1 million to settle with the SEC and an additional $13.68 million in a settlement with the Justice Department, which includes a non-prosecution agreement and a $2.1 million fine from a U.S.-incorporated subsidiary based in Dubai.
According to the SEC’s complaint, filed today in the District of Columbia, the schemes involved improper conduct in Africa, Asia and Europe.
“Tyco’s subsidiaries operating in Asia and the Middle East saw illicit payment schemes as a typical way of doing business in some countries, and the company illicitly reaped substantial financial benefits as a result,” said Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement, in a statement.
The FCPA prohibits payments to foreign officials to win business.
Subsidiary Tyco Valves & Controls Middle East Inc. pleaded guilty today in the Eastern District of Virginia to making improper payments between 2003 and 2006 to foreign officials employed by Saudi Aramco. The criminal complaint alleges a conspiracy to bribe employees at state-controlled companies in the United Arab Emirates and Iran, according to the Justice Department.
Tyco itself did not admit guilt in the civil or criminal cases.
The SEC investigation outlines a number of other schemes where Tyco subsidiaries used fake commissions and third party agents to improperly secure lucrative contracts. They payments were concealed as “commissions” in the company’s books and records.
Tyco’s most profitable scheme was in Germany, the SEC said, where the company made more than $4.6 million as a result of the alleged scheme.
In China, a Tyco subsidiary allegedly paid $3,700 to a “site project team” of a state-owned corporation for a $770,000 contract. The amount was improperly recorded as a commission, the SEC said.
A Tyco subsidiary in Turkey hired a New York-based sales agent to pay off officials related to the sale of microwave equipment, which the SEC said earned the company $44,513.
The SEC said employees at the subsidiary knew of the scheme.
“Hell, everyone knows you have to bribe somebody to do business in Turkey. Nevertheless, I’ll play it dumb if [the sales agent] should call,” an internal email said, according to the SEC.
In France, a subsidiary made payments to individuals beginning in 2005 and recorded them as “business introduction services.” Some of those payments were deposited into the personal bank account of a security officer at a government-owned mining company, the SEC said.
In 2006, a Tyco subsidiary paid more than $50,000 to a Thai entity on a project to install a closed-circuit television system in the Thai Parliament House. Tyco said an invoice marks the payment for “renovation work,” though Tyco said it couldn’t determine if any work had been completed, according to the SEC.
As a result of the schemes, Tyco made misstatements in its books and records and failed to devise and maintain adequate anti-bribery controls. The SEC complaint alleges that payments in Turkey violated the FCPA’s anti-bribery provision.
The SEC and Justice Department said they considered Tyco’s efforts to identify violations and conduct a global internal investigation for potential FCPA violations. The results were voluntarily disclosed to the government.
Tyco and Tyco Valves & Controls Middle East Inc. have agreed to report to the Justice Department on the implementation of enhanced controls to prevent FCPA violations.
The Justice Department settlement stipulates that Tyco fire employees and sever ties to third-party agents involved in the FCPA violations and close subsidiaries due to compliance failures.
And the agreement includes apparently now-standard language from the government requiring Tyco to “conduct appropriate risk-based due diligence” before completing a merger or acquisition, and also report any potential corruption at the newly acquired entity to the Justice Department.
Martin J. Weinstein, partner at Willkie Farr & Gallagher LLP represented Tyco International.
The SEC’s case was investigated by David Frohlich, Stephen E. Jones, Matthew B. Greiner and Brent S. Mitchell. The Justice Department case was prosecuted by trial attorneys Kathleen M. Hamann and Daniel S. Kahn of the Criminal Division’s Fraud Section, and Assistant U.S. Attorney Charles F. Connolly of the Eastern District of Virginia.