BAE SUBSIDIARY ARMOR HOLDINGS SETTLES FCPA ACTIONS
Armor Holdings, Inc. resolved FCPA charges with the Department of Justice and the SEC. The charges stem from bribes paid by subsidiaries to obtain three contracts to supply body armor for U.N. peacekeepers. In a bit of irony the DOJ noted that the company will not be required to have a monitor because it has incorporated the compliance systems of its new parent BAE which was fined $400 million for FCPA violations just last year.
Armor Holdings is an issuer which manufactures body armor. Two subsidiaries of the company involved here are Armor holdings Products, LLC or AHP, headquartered in Florida, and Armor Products International, Ltd or API, owned by a U.K subsidiary of AHP. Between 2001 and 2006 API was awarded two contracts and an extension on one by the U.N. to supply body armor. The first was in October 2001 while the second was in February 2003. In 2006 the company secured the one year extension. From these contracts the company obtained gross revenue of about $7.1 million and profits of about $1.5 million.
According to the SEC’s complaint, the contracts were obtained as a result of a scheme involving an AHP vice president and an API senior officer who were allegedly acting as agents of Armor Holdings.. The two officers caused API to enter into a sham consulting agreement with a third party intermediary for purported services in connection with obtaining the U.N. contracts. Beginning in 2001 API received various invoices from the third party intermediary supposedly rendered in connection with securing the contacts. The commissions charged were as high as 20% of the value of the goods Agents of Armor Holdings “knew or consciously disregarded that some portion of these commissions would be offered to a U.N. official,” according to the Commission. This is because in September 2001 the intermediary instructed API to provide a signed, but otherwise blank, pricing sheet that would be completed after learning from a U.N. procurement official about the non-public bids submitted.
The commissions were not properly accounted for in the books and records. Typically AHP sent the foreign-government customer an invoice which included the sales prices plus the commission. Internally the company recorded the sale net of the commission. GAAP however requires that the sales be recorded at the full sales price with the commission shown as a separate entry. The difference between the booked amount and the payment would be transferred through a series of accounts and then disbursed to the third party sales intermediary. Those amounts were never recorded as commissions on the books and records of Armor Holdings. Over the period about $4.3 million was paid in commissions in 92 transactions.
Armor Holdings resolved the matter with the Department of Justice by entering into a deferred prosecution agreement and paying a fine of $10.2 million. The company also agreed to continue implementing the policies and procedures of BAE and report to the DOJ on the status of those efforts. The settlement reflects the fact that the company self-reported, conducted an internal investigation, cooperated with the Department and the SEC and extensively implemented the systems of BAE according to the DOJ.
To settle with the SEC, Armor Holdings consented to the entry of a permanent injunction prohibiting future violations of the anti-bribery and books and records and internal controls provisions of the FCPA. The company also agreed to pay disgorgement of $1,552,306 along with prejudgment interest and a civil penalty of $3,680,000. Armor Holdings was also ordered to comply with certain undertakings regarding its FCPA compliance program. The Commission noted that the company conducted a through internal investigation and cooperated with its inquiry. SEC v. Armor Holdings, Inc., Case No. 1:11-cv-01271 (D.D.C. Filed July 13, 2011).