In the biggest foreign-bribery penalty under U.S. law, Titan Corp. pleaded guilty and agreed to pay $28.5 million to settle allegations that it covered up payments in six countries, including millions of dollars funneled to an associate of an African president to influence a national election.
The case underscores the government's drive to heighten scrutiny of companies' foreign payments and corporate disclosure about potential corruption, particularly in materials distributed during mergers. The Securities and Exchange Commission is ratcheting up pressure on companies to reveal -- both publicly and to the government -- suspicious overseas payments by firms they are seeking to acquire. Titan's foreign bribery was uncovered by Lockheed Martin Corp. during acquisition negotiations. Though both companies cooperated with the ensuing investigation, delays in resolving the probe scuttled the $1.6 billion deal in June.
In yesterday's settlement, Titan pleaded guilty to three criminal charges stemming from a now-abandoned effort by the defense contractor to expand into telecommunications. The San Diego company agreed to pay $13 million in a plea with the Justice Department. It also agreed to pay $15.5 million to settle related SEC allegations without admitting guilt. While Titan's corporate responsibility is now settled -- and the Pentagon isn't barring it from future contracts -- the company agreed to cooperate with continuing criminal investigations of individuals.
The SEC civil action says "a senior Titan officer" and several former officers approved some of the illegal payments. The officers weren't identified.
Titan said in statement that it has strengthened its internal controls and stepped up ethics training. Under the settlement, Titan is required to turn over all evidence of possible wrongdoing uncovered by its own lawyers.
Court documents depict Titan as a company which for years ignored internal warnings of fraud and failed to "devise or maintain an effective system of internal controls" at one unit where commissions paid to overseas agents amounted to nearly half of its revenue in some years. Despite using more than 120 representatives in more than 60 countries, Titan "failed to have meaningful oversight over its foreign agents."
Titan set up a joint venture with a government company in the West African nation of Benin in 1998 to build a wireless telephone network. It soon hired as its local agent a man who was known as a business adviser to Benin's president, Mathieu Kerekou, according to court documents.
From 1999 to December 2001, the documents say, Titan paid more than $3.5 million to this agent, including some $2 million that was falsely invoiced as consulting services but actually was used for the president's re-election campaign. Some of the money was used to reimburse the agent's purchase of campaign T-shirts and to pay for a $1,850 pair of earrings for the president's wife.
The payments were made to win higher management fees for the telephone joint venture, though the government didn't accuse President Kerekou of knowing about corrupt payments. Some of the funds were transferred from Titan's San Diego headquarters to the agent's account in Monaco, the documents say. Other payments, totaling more than $1 million, were paid in cash to the agent in Benin.
A former senior Titan officer also hired a World Bank official as a consultant to the Benin project and wired $15,000 to him in an account under the name of the official's wife, according to documents filed by U.S. Attorney's Office in San Diego and the SEC.
In addition to Benin, Titan created false documents to disguise commissions to agents in Nepal, Bangladesh and Sri Lanka, the SEC said. It also said that an agent made payments to high-ranking military officials in the Philippines to obtain business, and that an agent in South Africa expressed concerns about the legality of certain payments but was told by a Datron official not to worry about it.
The government's case against Titan also alleged that the company ignored explicit warnings of corruption from as early as 2000, when external auditor Arthur Andersen identified lack of controls in tracking overseas payments. When Titan managers passed on allegations of forged invoices and bribes in Benin, a senior Titan officer failed to order an adequate investigation, both criminal and civil filings said. By 2002, the situation had deteriorated to the point that a Benin auditing firm identified $1.8 million in "missing cash," according to the documents.
Titan, which pleaded guilty to charges of bribery, false accounting and aiding and abetting filing a false tax return, had reached a draft agreement to settle its legal woes last June, but hurdles posed by the State Department and the SEC delayed the deal, and Lockheed pulled out of its purchase. The largest previous penalty for violations of the Foreign Corrupt Practices Act was $24.8 million paid by Lockheed in 1995.
Titan stock rose 4.5%, or 75 cents, to $17.35 in New York Stock Exchange 4 p.m. composite trading.
In a separate case, Northrop Grumman Corp. agreed to pay $62 million to settle 15-year-old allegations of overcharging the government for radar-jamming equipment. Northrop said it also has agreed to settle personal claims by two whistle-blowers, including their petition for attorneys' fees, as well as to reimburse the government for legal costs.
--John R. Wilke contributed to this article.
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.