FLIR FCPA Action Highlights Continued Focus on Penalizing Improper Expenditures for Government Officials

FLIR Systems, Inc. (“FLIR”), a publicly traded company based in Oregon, agreed to pay approximately $9.5 million to settle allegations of violations of the Foreign Corrupt Practices Act (“FCPA”) on April 8, 2015. The U.S. Securities and Exchange Commission’s (“SEC”) order found that FLIR provided improper travel and gifts to Saudi Arabian government officials, including a “world tour” for certain officials, in exchange for contracts worth more than $7 million, and that these expenses were not properly recorded in the company’s books and records. Notably, the overwhelming majority of the $9.5 million settlement resulted from disgorgement of profits rather than civil penalties, reflecting significant mitigation awarded for the company’s voluntary disclosure of violations. 

According to the SEC’s order, from 2008 to 2010 FLIR paid approximately $43,000 for travel by Saudi government officials, including multiple trips involving airfare, hotels, and expensive meals. One trip for Saudi officials spanned 20 days, including stops in Casablanca, Paris, Dubai, Beirut, and New York City en route to a Factory Acceptance Test in Massachusetts. FLIR also provided watches valued at approximately $7,000 to Saudi government officials. These travel and gifts resulted in FLIR securing a multi-million dollar contract to provide thermal binoculars to the Saudi government in November 2008. The expenses associated with the travel and gifts were improperly recorded in FLIR’s books and records as legitimate business expenses, and the company’s internal controls failed to detect the improper payments despite documentation suggesting that extravagant gifts and travel were being provided. The SEC order stated that FLIR failed to detect and address red flags such as an expense report for the gifts stating, “EXECUTIVE GIFTS: 5 WATCHES”. 

In order to settle allegations of improper conduct, FLIR consented to pay disgorgement of $7,534,000, prejudgment interest of $970,584 and a civil money penalty in the amount of $1,000,000, for a total payment of $9,504,584, to the SEC. 

The FLIR settlement is in keeping with the U.S. Government’s aggressive enforcement of the FCPA. The FCPA broadly prohibits providing, among other things, “anything of value” to government officials to secure improper benefits. As FLIR and other recent settlements demonstrate, “anything of value” includes travel and entertainment (“T&E”). Recent settlements involving the Bruker Corporation ($2.4 million) and Avon Products, Inc. ($135 million), among others, rely upon allegedly lax internal controls and the failure to detect benefits which the DOJ claimed violated the FCPA. 

The FLIR order and these other recent enforcement actions highlight a few important lessons: 

1. Self-Reporting and Cooperation: companies can receive significant credit for self-reporting misconduct and cooperating with enforcement officials if/when any investigation results. FLIR self-reported the alleged misconduct to the SEC and subsequently cooperated with the SEC’s investigation. Accordingly, FLIR’s $9.5 million penalty reflects mostly disgorgement of approximately $7.5 million in ill-gotten gains. (FLIR also self-reported to the U.S. Department of Justice, which declined to pursue the case.) 
2. Detailed Compliance Policies and Language-Specific Compliance Training: companies should review their travel and gift policies to ensure these policies comply with applicable bribery laws and regulations. In connection with FLIR’s internal investigation, FLIR implemented a variety of remedial measures to prevent recurrence of the misconduct, including foreign language compliance training and enhancements to its travel approval system to ensure only bona fide business expenditures are approved. 
3. Internal Controls: Policies and procedures may be necessary but not sufficient. SEC-registered “issuers” must maintain sufficient internal controls to detect and stop acts of non-compliance with applicable laws. “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,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit in a press release accompanying the settlement. The SEC order noted that despite the existence of policies and procedures related to anti-bribery compliance, FLIR maintained “few” internal controls over travel in its foreign sales offices and with respect to the giving of gifts to customers, including government officials. 
4. Individual Enforcement: the US Government will pursue employees of public companies. In November, the SEC sanctioned Stephen Timms and Yasser Ramahi, two-former FLIR employees based in Thailand and the United Arab Emirates, respectively, for their role in the misconduct. Without admitting or denying the findings, Timms and Ramahi consented to the entry of the order and agreed to pay financial penalties of $50,000 and $20,000, respectively. Timms and Ramahi were also terminated by the company for their role in the prohibited activity. 

How Dechert can help 

Dechert has a unique depth of expertise in helping clients to achieve full compliance with applicable anti-corruption laws (US, as well as UK and others) in ways which are proportionate to their level of risk, integrated with other trade compliance requirements (including export controls, economic sanctions, AML) and which minimize the impact on their business. 

We benefit from a global network of both top-ranked international trade lawyers and senior former negotiators and regulators with practical experience of designing and implementing the regulations, and close links to the senior officials who continue to fulfill these roles. Our extensive experience advising clients on anti-bribery compliance includes: 

• auditing compliance programs to understand the risks, to identify gaps and to develop efficient procedures tailored to the business’ structure, resources and risk profile; 
• clarifying what activities might involve greater risk under applicable anti-bribery laws; 
• drafting appropriate compliance provisions in contracts or terms and conditions to mitigate any liabilities; drafting tailored policies and procedures and providing related training; and 
• conducting international reviews and, as appropriate, preparing voluntary disclosures and engaging with enforcement agencies.