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U.S. v. Titan Corp.

 
:
Titan Corporation - Titan Corp.
:
DOJ Criminal
:
March 1, 2005
:
U.S. v. Titan Corp.
:
U.S. v. Titan, No. 05-0411 (S.D. Cal. 2005)
:
This was an early M&A FCPA enforcement action, which is notable because the first acquiror withdrew from the transaction, apparently being unable to satisfy its concerns about corruption. Thereafter, Titan pled guilty to anti-bribery violations and subsequently was acquired by L-3 Communications.

In the plea agreement, the DOJ emphasized that the lack of an effective FCPA compliance program constituted a lack of internal controls. In particular, the DOJ noted that, apart from a statement of policy, Titan had no FCPA compliance program, did not maintain due diligence files on agents, did not conduct training, and did not follow up on auditors' warnings.

The plea agreement, rather than having the usual carve out of tax matters, provided that Titan would plead guilty to income tax related crimes related to the deduction of the improper payments to the Benin agents.

At the time, the $28.5 million in penalties were the largest ever imposed on a company in the history of the FCPA.
:
Telecommunications-Mobile
:
Benin
:
1999; 2000; 2001
:
Advisor to the President of Benin, the President's election campaign, the President's wife, an official of the World Bank, the Director General of Benin's telecommunications agency, an official of the World Bank, and three Benin consultants.
:
In September 2003, Titan announced that it had agreed to be acquired by Lockheed. During pre-closing due diligence, the companies discovered potential FCPA issues and reported them to the authorities. After several deferrals of the closing, Lockheed withdrew from the proposed transaction in mid-2004. The following year, Titan pled guilty to anti-bribery violations and was subsequently acquired by L-3 Communications, Inc in July 2005.

Titan Corp. ("Titan") violated the FCPA by paying over $3.5 million to its agent in Benin, Africa, to secure contracts for telecommunications services in Benin and also improperly recording those payments on its books and records.

Titan is a Delaware Corporation headquartered in San Diego, CA, that provides military intelligence and communications solutions worldwide. In October 1998, Titan established a joint venture with Afronetwork, a Benin telecommunications company, to build a satellite-based telephone system in Benin. In a November meeting between Titan and Afronetwork, Titan was introduced to a business advisor to the president of Benin.

In July 1999, Afronetwork assigned Titan all its rights to the modernize Benin's telecommunications infrastructure, and Titan hired the Benin President's advisor as its agent to help it fulfill the contract. Titan would pay the agent 5% of all equipment installed in Benin. Before Titan could install any equipment or the agent could perform any services, the agent submitted an invoice for $399,919, which Titan paid via a wire transfer to an account in the name of one of the agent's relatives.

In August 1999, Titan executed a contract that would govern its work in Benin thereafter. In November 1999, Titan assigned its contract rights to a wholly-owned subsidiary. The contract would earn Titan 98.2 million in revenus between 1999-2001.

Titan's contract in Benin also required it to pay part of its profits as subsidies for development of Benin's infrastructure. Benin's Health and Education "sectors" would each receive "social payments" of 2% of the profits from Titan's contracts.

In December 2000, Titan's agent told Titan to accelerate the social payments so that they were paid in full before the Benin 2001 election. Titan made over $2,381,551 in payments by 2001 directly to its agent. Two of these payments were made to the agent's Monaco bank account. The remaining five payments were made in cash in Benin. Internally, Titan recorded the payments as "consulting services" and broke them into smaller increments to make them appear paid out over time. Benin's President used the money to run his relection campaign, including to produce and distribute T-shirts adorned with his name and picture. After Benin's president won re-election, he executed a new contract with Titan that would pay it a 20% management fee for all telecommunications work done in Benin at a value of not less than $9,100,000.

Although not charged, the plea agreement's statement of facts recount information to indicate a potential internal controls violation of the FCPA.
:
Anti-bribery (Issuer), Books and records (Issuer)
:
Tax
:
Compliance Monitor, Disgorgement, Fine, Plea, Probation
:
13,000,000
:
0
:
Issuer
:
U.S.
:
Contract Procurement/Retention
:
98,200,000
:
Cash, Gifts, Political contribution, Wire/check
:
Direct, Sales Agent/Consultant
:
3,500,000
:
Benin
:
United States
:
Yes
:
No