Oregon-based defense contractor FLIR Systems Inc. agreed to pay more than $9.5 million to settle charges by the Securities and Exchange Commission (SEC) that the company violated the Foreign Corrupt Practices Act (FCPA) by financing a “world tour” of personal travel and gifts for Middle East government officials. FLIR, which develops infrared technology for use in binoculars and other sensing products, allegedly earned more than $7 million in profits from sales influenced by the improper travel and gifts. In addition to the payment, FLIR also agreed to report its FCPA compliance efforts to the agency for the next two years. See SEC Press Release.
According to the SEC, two employees in its Dubai office provided expensive watches to government officials with the Saudi Arabia Ministry of Interior in 2009. They also arranged for the company to pay for a 20-night excursion by Saudi officials that included stops in Casablanca, Paris, Dubai, Beirut, and New York City. The gifts and travel were then falsely recorded in FLIR’s financial records as legitimate business expenses. The company’s internal controls failed to catch these improper payments despite documentation suggesting that extravagant gifts and travel were being provided. Indeed, the SEC found FLIR had few internal controls over gifts and travel out of its foreign sales offices.
In addition, the SEC also found that from 2008 to 2010, FLIR paid approximately $40,000 for additional travel by Saudi government officials, including multiple New Year’s Eve trips to Dubai with airfare, hotel, and expensive dinners and drinks. FLIR also accepted cursory invoices from a FLIR company partner without any supporting documentation to pay extended travel of Egyptian officials in mid-2011. According to Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit, “FLIR’s deficient financial controls failed to identify and stop the activities of employees who served as de facto travel agents for influential foreign officials to travel around the world on the company’s dime.”
The SEC charged FLIR with violating the anti-bribery provisions of Section 30A of the Securities Exchange Act of 1934 and the internal controls and books-and-records provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. FLIR self-reported the misconduct to the SEC and cooperated with the SEC’s investigation. FLIR agreed to pay disgorgement of $7,534,000, prejudgment interest of $970,584 and a penalty of $1 million for a total payment of $9,504,584. The SEC previously charged with these same violations two former FLIR employees, Stephen Timms and Yasser Ramahi, who worked in sales out of FLIR’s Dubai office. They agreed to settle the matter by paying financial penalties of $50,000 and $20,000 respectively.
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