On October 11, 2024, the United States Securities and Exchange Commission (the “SEC”) announced its settlement of cease-and-desist proceedings against Moog, Inc. (“Moog”), a New York-based global manufacturer of motion control systems for aerospace, defense, industrial, and medical markets. Moog agreed to pay approximately $1.7 million to settle the SEC's charge that Moog violated the Foreign Corrupt Practices Act's internal accounting and control provisions based on misconduct by its wholly owned Indian subsidiary, Moog Motion Controls Private Limited (“MMC”). The SEC's order (the “Order”) alleged that MMC bribed Indian officials to win public tenders. The settlement highlights the risks that U.S. companies face in connection with bribery committed by their foreign subsidiaries even without the direct involvement of the parent or its U.S.-based personnel.
The SEC's Enforcement Action
According to the Order, from 2020 through 2022, MMC employees bribed Indian officials to win public tenders by colluding with third parties. The Order alleges that, in 2020, a third-party agent for MMC rigged a public tender to secure a contract valued at $34,323 by bribing officials at India's state-owned South Central Railway (“SCR”) ~$3,432 US to influence tender specifications in MMC's favor. The Order indicates that MMC funded the bribe by inflating commission payments to the agent. The Order further stated that MMC secured a $1.3 million US contract with Hindustan Aeronautics Limited (“HAL”), a state-owned aerospace and defense Company, by bribing HAL officials 10 lakhs (~$13,333 US) with cash generated from fabricated and inflated distributor invoices. The associated expenses were recorded in Moog's books as legitimate, and the financials of MMC rolled up into those of Moog.
The SEC concluded that Moog violated the FCPA's internal control and accounting provisions and highlighted what it described as a “breakdown in internal accounting controls, training, compliance, and tone at the top of the subsidiary.”
Without admitting or denying these findings, Moog agreed to settle the matter and to cease and desist from violating the books and records and internal control provisions of the FCPA. Moog also agreed to pay a monetary penalty of $1,100,000 US, disgorgement of $504,926 US (despite the lack of bribery charges) and prejudgment interest of $78,880 US, for a total payment of $1,683,815 US.
Key Takeaways
- Moog's Limited Culpability: As in several other FCPA enforcement actions against a listed parent for the conduct of its subsidiary, there is no finding in the Order that Moog or its personnel participated in or were aware of bribery by MMC employees. The case highlights the low bar for misconduct applied to listed parent companies and the need for a parent's compliance program to permeate the operations of its subsidiaries.
- Importance of Culture and Tone at the Top: The Order highlighted that MMC employees openly engaged in discussions regarding other attempts to influence the public tender bidding process for government contracts by bribing government officials. The SEC noted that the open discussions of misconduct reflected “a prevailing culture to win business at any cost, including improper means.”
- Public Tender Bribery: The Moog case is the latest in a series of FCPA enforcement actions (including last year's resolutions with Albemarle and Philips China) involving bribery in connection with bid rigging and public tenders. The trend suggests an area of focus for the SEC and DOJ going forward.
- Voluntary Disclosure: In accepting Moog's settlement offer, the SEC considered that Moog voluntarily disclosed the misconduct to the DOJ and subsequently cooperated with a review conducted by the SEC.
- Internal Investigations and Remediation: The settlement underscores the importance of being proactive in investigating allegations of corruption. In accepting Moog's offer of settlement, the SEC also took into consideration that Moog proactively shared the results of its own internal investigation of the matter, including sharing key documents and witness statements. The SEC also highlighted the remedial actions taken by Moog, including (i) terminating the involved employees and third parties; (ii) enhancing accounting controls; (iii) enhancing third-party diligence policies; (iv) increasing training of employees; and (v) mandating management approval for all distributor and reseller agreements.
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