Nov 19

“World Tour” FCPA Compliance Lesson: Review Employee’s Expense Reports

On Monday, the SEC sanctioned two former defense contractors, Stephen Timms and Yasser Ramahi, for violating the Foreign Corrupt Practices Act. Timms and Ramahi worked in sales for FLIR Systems Inc., a company headquartered in Oregon that produces thermal imaging, night vision, and infrared cameras and sensor systems. The heart of the prohibited conduct is that Timms and Ramahi took Saudi government officials on a “World Tour” in order to secure business for the company. Timms and Ramahi agreed to settle the SEC’s charges and pay financial penalties.

According to the SEC press release:

            Timms and Ramahi traveled to Saudi Arabia in March 2009 and provided five      officials with expensive luxury watches during meetings to discuss several business opportunities. Timms and Ramahi believed these officials were important to sales of both the binoculars and the security cameras. A few months later, they arranged for key officials, including two who received watches, to embark on what Timms referred to as a “world tour” of personal travel before and after they visited FLIR’s Boston facilities for a factory equipment inspection that was a key condition to fulfillment of the contract. The officials traveled for 20 nights with stops in Casablanca, Paris, Dubai, Beirut, and New York City. There was no business purpose for the stops outside of Boston, and the airfare and hotel accommodations were paid for by FLIR. Prior to providing the gifts and travel to the Saudi Arabian officials, Ramahi and Timms each had taken FCPA training at the company that specifically identified luxury watches and side trips as prohibited gifts.

      In addition to this, Timms and Ramahi then falsified records to try and hide their misconduct. In fact FLIR’s own finance department “flagged the expense reimbursement request for the watches during an unrelated review of expenses in the Dubai office and questioned the $7,000 cost, Timms and Ramahi obtained a second, fabricated invoice showing a cost of 7,000 Saudi Riyal (approximately $1,900 in U.S. dollars) instead of the true cost of $7,000 in U.S. dollars.” Then, the men also directed “FLIR’s local third-party agent to provide false information to the company to back up their story that the original submission was merely a mistake.” The SEC’s investigation into this is “ongoing” but so far, FLIR has not been subject to any SEC action. Instead, two former employees of the company consented to the entry of the order by the SEC.

The SEC’s enforcement action demonstrates the value of a rigorous training and compliance program, as well as employing responsible and astute people within your company’s finance department. An effective compliance program not only educates employees on company policies and legal obligations, but also enables employers to monitor and detect policy or legal violations. Most bad acts within the realm of the white collar world leave a trail of discoverable evidence behind them. There is often some sort of cover-up after the fact that the government can trace, and this can lead to multiple indictments. Companies who routinely review records, and hire outside help if necessary when issues are discovered can avoid legal ramifications.


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