Quick Overview

  • The U.S. Securities and Exchange Commission (SEC) announced on Friday (October 11) that it has ordered publicly traded company Moog Inc. to pay a $1.1 million civil penalty to settle charges that its Indian subsidiary violated the Foreign Corrupt Practices Act (FCPA) due to bribery.
  • The SEC alleged that between 2020 and 2022, employees of Moog Motion Controls (India) bribed railway, aviation, and other officials todisplace competitors and win contracts, and funneled illegal funds through third-party agents. Moog manufactures motion control systems for defense, aerospace, and other systems.
  • Charles Cain, head of the SEC Enforcement Division's FCPA Unit, said in a statement: "The SEC's action against Moog highlights that issuers operating internationally must establish appropriate compliance and internal accounting controls over third parties and third-party payments. Weaknesses in these systems can increase corruption risk."

In-Depth Analysis

According to a statistic from Stanford Law School and Sullivan & Cromwell, the SEC and the Department of Justice filed 21 enforcement actions alleging FCPA violations last year (2023), well below the 10-year average of 36. Meanwhile, the number of so-called "FCPA matters" (groups of enforcement actions sharing the same bribery scheme) rose to 12 last year, the highest level since 2020.

In the case of Moog's Indian subsidiary, the SEC noted in its October 11 order that "employees openly discussed their misconduct, reflecting a pervasive culture of winning business at all costs, including through improper means."

For example, in May 2021, employees discussed the amount and timing of bribes to Hindustan Aeronautics Limited, aiming to displace competitors and win a contract worth over $1.3 million. Moog's subsidiary ultimately obtained the contract. A few months later, in January 2022, a distributor sent a false invoice to the subsidiary for the construction of a dedicated workbench, which the distributor "was not actually capable of building," and it was never delivered.

The SEC stated that Moog's subsidiary paid the distributor approximately $18,600 in March 2022, and this money was transferred to officials at Hindustan Aeronautics. The SEC said: "The invoice was falsely recorded as a legitimate expense and incorrectly charged to costs under the HAL contract."

The SEC noted that the alleged bribery and other violations "reflected a breakdown in the subsidiary's internal accounting controls, training, compliance, and tone at the top."

In addition to the civil penalty, the company will also pay approximately $600,000 in disgorgement and prejudgment interest, the SEC said.

Moog spokesperson Aaron Astrachan said on Friday that Moog cooperated with the SEC's investigation but neither admitted nor denied the agency's findings. In an email responding to questions, he said the company "has taken appropriate remedial measures with respect to Indian employees and third parties."

Astrachan added: "We have strengthened relevant controls and continue to review opportunities to reinforce the importance of compliance and ethics, and doing the right thing in Moog's business."