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In re United Industrial Corp.

 
:
United Industrial Corp.
:
SEC Civil
:
May 29, 2009
:
In re United Industrial Corp.
:
In re United Industrial Corp., SEC Administrative Proceeding File No. 3-13495 (May 29, 2009)
:
In this matter the parent company was held responsible for the subsidiary company's violations of the FCPA anti-bribery provision, as well as internal controls and books and records violations, due to internal controls failures.
:
Aerospace/Defense
:
Egypt
:
2001; 2002
:
Egyptian Air Force officials
:
United Industrial Corporation ("UIC") settled this action with the SEC without admitting or denying the following facts alleged in the SEC's order. From late 2001 through 2002, Thomas Wurzel was President of California-based ACL Technologies, Inc. ("ACL"), an indirect, wholly-owned subsidiary of UIC. The cease-and-desist order alleges that during that time, Wurzel authorized multiple payments to an ACL foreign agent in connection with a military aircraft depot ACL was building for the Egyptian Air Force ("EAF") in Cairo, Egypt, while he knew or consciously disregarded the high probability that the agent would offer, provide, or promise at least a portion of such payments to active EAF officials for the purpose of influencing such officials to obtain or retain business for UIC through ACL.

According to the cease-and-desist order, during this time, UIC lacked meaningful controls to prevent or detect Wurzel's authorization of illicit payments to the agent. The UIC legal department approved the retention of the agent despite a lack of documented due diligence and the failure of the agent to comply with corporate policy. In addition, a UIC official approved at least one payment to the agent and UIC mischaracterized illicit payments in its books and records as legitimate business expenses.

Allegedly as a result of illicit payments, EAF recommended to the US Air Force and a defense contracter that ACL be awarded a Contract Engineering Technical Services contract with gross revenues to ACL of approximately $5.3 million and net profit of $267,571.

UIC consented to the SEC issuing an order requiring it to cease and desist from future FCPA violations and to pay disgorgement.
:
Anti-bribery (Issuer), Books and records (Issuer), Internal controls (Issuer)
:
Civil Settlement, Disgorgement, Injunction/Cease and desist, Prejudgment Interest
:
Disgorgement of $267,571 and prejudgment interest of $70,108.
:
337,679
:
0
:
Issuer
:
U.S.
:
Contract Procurement/Retention
:
5,300,000
:
Wire/check
:
Sales Agent/Consultant
:
Not stated.
:
Egypt
:
United States
:
The insufficient internal controls excercised by the parent company, UIC, were sufficient here for the government to charge a violation of the FCPA's anti-bribery provisions for the actions of the subsidiary company, not just internal controls and books and records violations. Among the allegations supporting the theory that UIC possessed the requisite mental state were the following: (1) UIC excercised insufficient financial oversight by, for example, failing to inquire into the justification or requiring supporting documentation for unusually large payments and (2) UIC's legal department approved the agent's contract despite the absense of due diligence measures and audit rights in the contract that might have allowed monitoring of the agent's activities.
:
No