The Indian subsidiary of New York-based defence and aerospace giant Moog has agreed to pay a $1.1m civil penalty to settle major bribery charges. It was alleged the bribes were paid to officials in order to secure contracts and shut out competitors.

Moog is a global manufacturer of motion control systems for the aerospace, defense, industrial, and medical sectors.

An SEC announcement specified that Moog Inc’s wholly owned Indian subsidiary, Moog Motion Controls Private Limited, paid bribes to officials associated with railway and aeronautics services between 2020 and 2022.

Illicit cash was funneled through third-party agents and, the SEC says, Moog India employees discussed negotiations around the amount and timing of bribe payments over an array of instant messages. The payments were falsely recorded as legitimate contractor services.

The settlement resolves the SEC’s charges that the company violated the Foreign Corrupt Practices Act (FCPA). Moog has also agreed to payb $600,000 in disgorgement and prejudgment interest.

Misconduct discussed on text and audio

The SEC said in its order that internal discussions were circulated about the importance of winning certain contracts and inducing officials to help disqualify other bidders. “By any means, we must take the order of HAL [an Indian public sector aerospace and defense company],” one text message read. And in response: “We need to eliminate everybody other than [a Moog competitor]. For that, we need to make some commitment to [HAL official].”

Some recordings showcased employing a third-party agent to make bribe payments to officials, and others discussed engaging in further misconduct to remove a competitor from the supplier list, the SEC alleged.

“Employees freely discussed their misconduct, which reflected a prevailing culture to win business at any cost, including improper means.”

SEC

The SEC said in its order that employees openly discussing their misconduct reflected a culture at the subsidiary in which internal accounting controls, training and compliance had broken down. 

“Employees freely discussed their misconduct, which reflected a prevailing culture to win business at any cost, including improper means. The widespread misconduct at [Moog India] reflected a breakdown in internal accounting controls, training, compliance, and tone at the top of the subsidiary,” the order says.

“The SEC’s action against Moog highlights the need for issuers operating internationally to have appropriate compliance and internal accounting controls over third parties and third-party payments, as weaknesses in those systems heighten corruption risk,” said Charles Cain, the SEC’s FCPA enforcement chief.

Violations

The SEC charged Moog with violating the books and records provisions of the FCPA, Section 13(b)(2)(A) and (B) of the Exchange Act; Part (A) requires every issuer to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect their transactions and disposition of their assets.

And Part (B) requires issuers to devise and maintain sufficient internal accounting controls over third-party payments. Failure to do so allowed these bribery schemes to continue undetected over multiple years.

Cooperation credit

The SEC afforded Moog some cooperation credit in determining the penalty in the case, noting that the business initially reported certain misconduct to the US Justice Department and that it provided SEC staff with facts gleaned during its own internal investigation. Moog’s cooperation also included identifying and producing key documents and sharing witness statements.

Moog’s remediation efforts included the termination of employees and third parties involved in the misconduct and enhancing its internal accounting controls over third-party payments.

Moog also;

• strengthened its global compliance organization;
• enhanced its policies and procedures regarding the due diligence process and the use of third parties;
• increased the frequency of its audits and monitoring of distributor and intermediary activities;
• mandated management approval for all distributor and reseller agreements;
• created new positions to address potential risks; and
• increased its training of employees on anti-bribery issues.

“We have strengthened our relevant controls and continue to review opportunities to reinforce the importance of compliance and ethics, and doing what’s right in how we do business at Moog,” said a company spokesperson about the settled charges.