Moog Stumbles into Some FCPA Problems in India
Moog Inc. makes technology for the aerospace and defense markets. It’s headquartered in East Aurora, New York, but has operations in 26 countries, including a wholly owned Indian subsidiary, Moog Motion Controls Private Limited (“Moog India”). After settling FCPA accounting charges with the SEC, it sounds like they’ll be a little more careful with that subsidiary going forward.
South Central Railway
In early 2020, Moog India wanted to win a contract with the Indian government-owned South Central Railway. To even bid on one, another agency called the Research Design and Standards Organization (“RDSO”) has to approve you first. In May 2020 staff at Moog India had a meeting and someone wrote, “start working in railways and will find some wayout [for SCR] to buy from Moog India.” Because I just watched an episode of Netflix’s hilarious Tires where stressed-out car shop guys strategize upselling in a back room, I imagine this was scribbled on a whiteboard, but it could have been anywhere. To get on the RDSO supplier list, the employees devised a scheme that involved using third-party Agent A to make bribe payments to South Central Railway officials. But first they needed an introduction to Agent A from another third party (a fourth party?).
To recap, the plan was: (1) whiteboard sketch à (2) introducer à (3) Agent A à (4) bribes to railway officials à (5) RSDO approval à (6) contract with the railway.
In July Moog India executed Part (3) with a deal in which Agent A would get 10% of any contract Moog India made with the railway. Two months later, Moog was added to the railway’s supplier list, along with one other competitor, for an upcoming project. Were the Moog India staff satisfied? They were not. One said, “My next target would be to remove [the competitor] from railways.” The order doesn’t say if they were able to pull that off.
In September Moog India won a railway contract for $34,323. Agent A’s bill didn’t come due for another 19 months, when Agent A sent an invoice for “commission charges” that were really illicit payments to government officials.
Hindustan Aeronautics Limited
In April 2021, Hindustan Aeronautics Limited (“HAL”), a government-owned aerospace and defense company, announced an RFP with a contract value of over $1.3 million. The next month Moog India employees noted that bribe payments to a HAL official would have to be in cash and said, “We need to eliminate everybody other than [a Moog competitor]. For that, we need to make some commitment to [the HAL official].” In November, HAL awarded Moog India a contract valued at $1,399,328 for parts and services.
To pay the bribe, Moog India’s had “Distributor B” draw up an invoice for 1,540,000 rupees (about $18,326 today) to build a specialized table that Moog India never asked for. In March 2022, Moog India paid Distributor B $18,614, which went to the HAL official.
Other Schemes
The SEC apparently found some audio recordings where Moog India personnel discussed more attempts to bribe railway and HAL officials. No other successfully executed bribes are discussed but the employees seemed very eager. They talked a lot about how to cut out competitors and also about the right percentages for bribes and how to make them.
Upshot
DOJ appeared here but hasn’t filed anything and the case isn’t criminal, at least so far. Moog Inc. is escaping bribery charges entirely and settling to internal controls and books-and-records charges under Sections 13(b)(2)(B) and (A) of the Exchange Act. They’re paying disgorgement and prejudgment interest of almost $600,000 and a civil penalty of $1.1 million.
Questions and Lesson
I have some questions.
In the Cooperation and Remediation section, we see this sentence: “Moog initially reported certain misconduct to DOJ and subsequently provided SEC staff with facts developed during its own internal investigation.” The press release doesn’t tout this case as a self-reported one so I wonder what “initially reported misconduct to DOJ” means.
Where did the audio come from? Did the employees just record themselves generally? If so, why? Did they learn nothing from Richard Nixon? Or Stringer Bell? Did an internal whistleblower get anxious and start recording surreptitiously?
The culture at Moog India seems to have been fairly horrendous. If the internet is right, Moog Inc. has had operations in India since 1991. Did they break bad in 2020? I guess it doesn’t matter, but what was going on for the previous 30 years? I bet it wasn’t pretty.
If you’re at headquarters in East Aurora, what do you do here? Moog’s remediation includes a lot of the things you’d expect from a company in its position. But from an accounting perspective, Moog Inc. had over $3 billion in revenue last year. How do you catch a fake invoice for a table the company will never see?
One useful rule might be to apply a LOT of scrutiny to contracts with new public sector customers in high-risk jurisdictions. India currently ranks 122nd out of 194 countries on TRACE’s country risk matrix. It’s not exactly low risk. Ask the questions you think may not go anywhere but make someone respond and be accountable for the answers.
In re Moog Inc., Admin. Proc. File No. 3-22237 (Oct. 11, 2024)