SEC Charges FCPA Bribery Scheme–Feds Collect $15 Million

The SEC Whistleblower Program encompasses not only classic securities violations, but also violations of the Foreign Corrupt Practices Act (“FCPA”), a topic we have followed closely.

This past week, the SEC filed and settled an FCPA case against Armor Holdings, Inc., and collected more than $5.6 million, while the Department of Justice added almost $10.3 million in criminal fines.

The SEC charged that Armor Holdings, Inc. engaged in a bribery scheme to sell body armor to U.N. peacekeeping missions. The Commission also alleged that Armor Holdings violated the federal securities laws’ books and records and internal controls provisions by failing to account properly for commissions in 2001-2007.

Demonstrating the SEC’s increased emphasis on FCPA enforcement, this case is one of 32 FCPA cases the Commission has filed since 2010. Bribery of foreign government officials for business is having increased repercussions.

According to the SEC’s Complaint, through a U.K. subsidiary Armor Holdings paid more than $200,000 through an intermediary to a United Nations official who could send it business, and used a sham consulting agreement to disguise its actions. The result was more than $7 million in additional revenues, and more than $1.5 million in additional profits, according to the SEC.

An Armor Holdings subsidiary allegedly failed to disclose in its books and records some $4 million in commissions, even after being warned by its accountants. .

According to the SEC, Armor Holdings violated Sections 30A, 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.

If the court approves the settlement, Armor Holdings will consent to a permanent injunction prohibiting future violations, and will pay disgorgement of more than $1.5 million, prejudgment interest of more than $450,000, and a civil penalty of more than $3.6 million. The company’s FCPA compliance program apparently will add new obligations. The SEC stated that the company cooperated with its inquiry.

Many more FCPA cases are expected, as the SEC Whistleblower Office (which opened for business last week) will undoubtedly continue to receive credible information about bribery of foreign government officials, and corresponding violations of the books and records provisions of the federal securities laws.

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