SEC sanctions Moog Inc. for alleged bribes, accounting flaws in India

Dive Brief:

The Securities and Exchange Commission said Friday that it ordered publicly traded Moog Inc. to pay a $1.1 million civil penalty to resolve charges that it violated the Foreign Corrupt Practices Act because of bribes paid by its subsidiary in India.
The SEC alleged that from 2020 to 2022 employees at Moog Motion Controls in India bribed railway, aeronautics and other officials to exclude rivals and win contracts, funneling illicit cash through third-party agents. Moog manufactures motion controls systems for defense, aerospace and other systems.
“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,” Charles Cain, chief of the FCPA unit at the SEC’s Enforcement Division, said in a statement. “Weaknesses in those systems heighten corruption risk.”

Dive Insight:

The SEC and Justice Department filed 21 enforcement actions last year alleging violations of the FCPA, well below the 10-year average of 36, according to a project by Stanford University Law School and Sullivan & Cromwell.

At the same time, the number of so-called FCPA Matters, or groups of enforcement actions that share a common bribery scheme, rose last year to 12, the highest level since 2020, according to data from Stanford Law School and Sullivan & Cromwell.

In the case of Moog’s India subsidiary, “employees freely discussed their misconduct, which reflected a prevailing culture to win business at any costs, including improper means,” the SEC said in an order dated Oct. 11.

For example, employees in May 2021 discussed the amount and timing of a bribe to Hindustan Aeronautics Limited aimed at excluding rivals and winning a contract exceeding $1.3 million.

The Moog subsidiary landed the contract and a few months later, in January 2022, a distributor sent a fabricated invoice to the subsidiary for the construction of a specialized table that the distributor, which “was not in fact capable of constructing the table,” never delivered, the SEC said.

The Moog subsidiary in March 2022 paid the distributor approximately $18,600, which was channeled to the Hindustan Aeronautics official, the SEC said. “The invoice was falsely recorded as a legitimate expense, and falsely booked as a cost under the HAL contract,” according to the SEC.

The alleged bribe and other irregularities “reflected a breakdown in internal accounting controls, training, compliance and tone at the top of the subsidiary,” the SEC said.

In addition to the civil penalty, the company will pay disgorgement and prejudgement interest totaling nearly $600,000, the agency said.

Moog cooperated with the SEC while neither admitting nor denying the agency’s findings, company spokesperson Aaron Astrachan said Friday.

The company “took appropriate remedial actions against India-based employees and third parties,” he said in an email response to questions.

“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,” Astrachan said.