Two FCPA Settlements: The Need To Have And Comply With Procedures
The FCPA settlement announced on Friday by the Commission emphasized the necessity for adequate internal controls and compliance procedures and proper due diligence in retaining foreign agents and for adherence to procedures once they are instituted. SEC v. Wurzel, Civil Action No. 09-Civ-01005 (D.C.C. Filed May 29, 2009); In the Matter of United Industrial Corporation, Adm. Proc. File No. 3-13495 (Filed May 29, 2009). United Industrial Corporation is a Delaware corporation with headquarters in Hunt Valley, Maryland. ACL Technologies, Inc. is an indirect, wholly owned subsidiary of UIC. Thomas Wurzel served as president of ACL from 1992 through 2004.
Beginning in late 2001 and continuing through 2002, UIC, through ACL, made payments to a former Egyptian Air Force official retained as an agent, in connection with a military aircraft depot the subsidiary was building for the Egyptian Air Force in Cairo, Egypt. The agent had been retained earlier as a consultant.
According to the Commission’s papers, Mr. Wurzel authorized the payments to the agent, although he knew or disregarded the fact that the payments were going to Egyptian Air Force officials. There were three forms of payments: 1) payments to the agent claimed to be for labor subcontracting work; 2) a $100,000 advance payment to the agent in June 2002 ostensibly for equipment and materials; and 3) a $50,000 payment to the agent in November 2002 for so-called marketing services. As a result, ACL was awarded a Contract Engineering Technical Services contract. Gross revenue from that contract was $5.3 million, while net profits were $267,571.
The SEC claims that at the time the payments were authorized by Mr. Wurzel, UIC lacked meaningful controls to prevent or detect the illicit payments to the agent. Mr. Wurzel was able to approve payments to the agent as early as September 1997 in the absence of a written contract with that agent and while maintaining no written record of having conducted any due diligence. Although UIC instituted policies in late 1999 requiring any employee seeking to engage a foreign agent to submit due diligence forms for the agent to corporate counsel prior to the retention of the agent, ACL did not submit the appropriate forms until 2002. The forms submitted at that time were largely prepared by the agent.
The legal department of UIC approved the retention of the agent despite the fact that the person had been previously used by the company, without adequate due diligence and contrary to company policy. In fact, the agreement for the retention of the agent approved by the legal department did not contain the FCPA provisions required by corporate policy until 2003, and even then the representations were incomplete. The missing representations were that the consultant was aware of the FCPA, that UIC’s auditors and accountants would be granted access to the consultants’ books, and that the consultant would sign a statement of continuing FCPA compliance prior to each commission or other compensation payment. The payments to the agent were mischaracterized on the books of the company according to the SEC’s papers.
To resolve the administrative proceeding in which it was named as a respondent, UIC consented to the entry of a cease and desist order from committing or causing any violations of Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) and to disgorge the profits from the contract along with prejudgment interest. No penalty was imposed. The Commission acknowledged the cooperation and remedial actions of the company.
Mr. Wurzel consented to the entry of a permanent injunction prohibiting future violations of Sections 30A and 13(b)(5) and from aiding and abetting violations of Sections 30A and 13(b)(2). He also agreed to pay a $35,000 civil penalty.