The internal review came in the wake of the scandal involving former Tyco chief executive L. Dennis Kozlowski, who was convicted on multiple criminal counts of looting the company. Tyco paid $50 million in 2006 to settle related civil fraud charges brought by the SEC in that matter. By then, the company’s management team had started reviewing its businesses to make sure they complied with a federal law that bans firms listed on U.S. stock exchanges from bribing foreign officials.
Through this process, the company discovered a dozen illicit payment schemes at its subsidiaries in Central Asia, the Middle East and other parts of the world, the SEC said. The schemes collectively reaped $10.5 million for Tyco from 2006 until 2009, the agency said.
The civil penalty that Tyco agreed to pay the SEC equals the allegedly ill-gotten gains plus an additional $2.6 million in accrued interest accrued. Tyco agreed to pay an additional $13.68 million to Justice in a separate criminal proceeding involving similar activities.
The SEC and Justice acknowledged that Tyco took steps to address practices that contributed to the alleged wrongdoing. The SEC cited the review, which covered more than 450 entities in 50 countries. Tyco also dropped several lines of business in high-risk areas of the world and got rid of more than 90 employees, including supervisors, the SEC said.
“Nevertheless, the conduct is conduct the SEC could not ignore,” said David Frohlich, an assistant director in the SEC’s enforcement division who supervised the agency’s case.
The German subsidiary — which sold industrial valves for the water, gas, sewage, chemical and processing industries — bribed government employees in various countries to secure contracts and avoid paying fines, the SEC alleged. It then reported those fines as “commissions.” The arrangement led to nearly $5 million in benefits for Tyco.
In Turkey, a subsidiary hired a New York-based sales agent who paid foreign government customers to obtain orders for microwave equipment, the SEC alleged. One internal company e-mail stated: “Hell, everyone knows you have to bribe somebody to do business in Turkey,” according to the SEC.
The SEC settlement awaits court approval.
In its dealings with Justice, Tyco and a subsidiary in the Middle East pleaded guilty to criminal charges. For 10 years, the subsidiary paid bribes to employees of an oil-and-gas company controlled by Saudi Arabia to win valuable contracts, Justice said.
As part of that settlement, which is final, Tyco will not be prosecuted if it continues to improve its efforts at complying with the law and reports to Justice periodically.
Brett Ludwig, Tyco’s spokesman, said the company is pleased to have reached a final resolution. “We’re committed to maintaining our rigorous compliance programs across all business activities,” Ludwig said.