Tyco busted in bribes-for-deals schemes
in Saudi Arabia, China, Turkey, Thailand, say federal criminal prosecutors, SEC
Tyco busted in bribes-for-deals schemes
Tyco International Ltd., a multinational manufacturer based in Switzerland for tax and legal purposes but run by CEO Ed Breen, a Bucks County resident, from offices near Princeton, has agreed to pay the government $26 million in fines and penalties "for falsifying books and records" in connection with illegal payments to corrupt officials in Saudi Arabia, Turkey, Thailand, China and other countries, the Justice Department says in this statement. Tyco had no immediate comment.
Breen, a former Motorola and ITT executive who until last year served on Comcast's board, was hired 10 years ago to fix Tyco's reputation, damaged when high-living ex-CEO Dennis Kozlowski was convicted of using millions of dollars worth of company assets for his personal use. Under Breen, Tyco has sold or spun off a series of profitable business units to benefit investors.
Tyco Valves & Controls Middle East Inc., which sells valves and other equipment to oil, water and construction companies, "pleaded guilty this morning before U.S. District Judge Claude M. Hilton for conspiring to violate the anti-bribery provisions" of the U.S. Foreign and Corrupt Practices Act, Justice says. "The company paid bribes to officials employed by Saudi Aramco, an oil and gas company controlled and managed by the government of the Kingdom of Saudi Arabia, in order to obtain contracts with Saudi Aramco.
“For more than 10 years, various Tyco entities bribed foreign officials and cooked the books to hide the payments,” said Neil H. MacBride, federal prosecutor for eastern Virginia.
According to Justice, "a number of Tyco’s subsidiaries made payments, both directly and indirectly, to government officials in order to obtain and retain business with private and state-owned entities, and falsely described the payments in Tyco’s corporate books, records and accounts as legitimate charges. From 1999 to 2009, Tyco knowingly conspired to falsify its books and records in connection with these payments."
At the same time, the Securities and Exchange Commission says it has "charged Tyco International Ltd. with violating the Foreign Corrupt Practices Act when subsidiaries arranged illicit payments to foreign officials in more than a dozen countries." Justice Department statement here.
The SEC says units of Tyco, "perpetuated schemes that typically involved payments of fake commissions or the use of third-party agents to funnel money improperly to obtain lucrative contracts."
Tyco "reaped illicit benefits amounting to more than $10.5 million" in 12 schemes during 2006-09, and has "agreed to pay more than $26 million to settle the SEC’s charges and resolve a criminal matter announced today by the U.S. Department of Justice."
For Tyco, "illicit payment schemes" were "a typical way of doing business" in parts of Asia and the Middle East, Scott W. Friestad, Associate Director of the SEC’s Division of Enforcement, said in a statement.
"The most profitable scheme occurred in Germany, where agents of a Tyco subsidiary paid third parties to secure contracts or avoid penalties or fines in several countries. These payments were falsely recorded as 'commissions' in Tyco’s books and records when they were in fact bribes to pay off government customers...
"Tyco’s subsidiary in China signed a contract with the Chinese Ministry of Public Security for $770,000 but reportedly paid approximately $3,700 to the “site project team” of a state-owned corporation to be able to obtain the contract. This amount was improperly recorded as a commission.
"Tyco’s subsidiary in France recorded payments to individuals from 2005 to 2009 for 'business introduction services.' However, one of the individuals receiving payments was a security officer at a government-owned mining company in Mauritania, and many of the earlier payments were deposited in the official’s personal bank account in France.
"In Thailand, Tyco’s subsidiary had a contract to install a CCTV system in the Thai Parliament House in 2006, and paid more than $50,000 to a Thai entity that acted as a consultant. The invoice for the payment refers to “renovation work,” but Tyco is unable to ascertain what, if any, work was actually done...
"Another scheme occurred in Turkey, where Tyco’s subsidiary retained a New York City-based sales agent who made illicit payments involving the sale of microwave equipment in September 2006 to an entity controlled by the Turkish government. Employees at Tyco’s subsidiary were well aware that the agent was paying foreign government customers to obtain orders. One internal e-mail stated, 'Hell, everyone knows you have to bribe somebody to do business in Turkey. Nevertheless, I’ll play it dumb if [the sales agent] should call.'...
"The SEC’s complaint alleges that Tyco’s books and records were misstated as a result of the misconduct," though it's not clear the sums were material. "Tyco failed to devise and maintain internal controls sufficient to detect the violations. The complaint also alleges that the payments by the sales agent to Turkish government officials violated the anti-bribery provisions" of US law.
The SEC praised Tyco's "efforts to identify and remediate its wrongdoing. Tyco conducted a global review and internal investigation for potential FCPA violations and voluntarily disclosed its findings to the SEC while implementing significant, broad-spectrum remedial measures. Tyco consented to a proposed final judgment that orders the company to pay $10,564,992 in disgorgement and $2,566,517 in prejudgment interest... In the parallel criminal proceedings, the Justice Department entered into a Non-Prosecution Agreement with Tyco in which the company will pay a penalty of approximately $13.68 million."