Titan Pays for ITAR Failure to Report Commissions and FCPA Illegal Payments

So, you always get to the end of your license application and its time to check the box related to whether your company or its agents have paid reportable commissions, fees or political contributions. You never really know if anybody has paid it, and you actually have no information that tells you that they have, so you check “No” like you have for every application for the past five years.

Now, we’ve got an enforcement case that might encourage your company to put in place a reporting network to notify you if it has paid commissions, political contributions or fees related to an ITAR license/agreement application.

In March, 2005, Titan Corporation pled guilty to 3 violations of the Foreign Corrupt Practices Act of 1997. The violations resulted from bribes paid in the form of contributions to the election campaign of the then-incumbent President of the Republic of Benin. Over $2,000,000 in bribes were given in an attempt to maintain a business relationship with Benin , in which Titan would build and operate a wireless telephone network in their county. At Titan’s request, an agent of Benin submitted false invoices to Titan to facilitate the payment of these bribes. Payments were made under the false pretenses of the “betterment of the people of Benin.”

Following Titan’s guilty plea, it was required to pay over $15 million in disgorgement and prejudgment interest, and $13 million in criminal fines, in addition to 3 years of probation. (I’m not sure what a disgorgement is, but I surely wouldn’t want to be involved in one.)

Titan has now decided to settle additional charges that it neglected to report certain commissions in its ITAR export applications. On the applications in question, Titan allegedly made false statements that there were no reportable commissions paid to third parties. According to the DDTC charging letter, on three separate occasions between 2000 and 2003, Titan paid a combined $2,267,000 in commissions with respect to the sales or exports of defense articles to Access International Ltd., SurCom International BV , and AstroDesign, Inc.

If there is good news for L-3 and Titan in all this, it is that the DDTC did not impose the ITAR section 120.1(b) penalty making L-3 ineligible for export licenses due to its Foreign Corrupt Practices Act conviction. Debarment, as a penalty for the commissions charges, could also have been imposed, but was not. The settlement for the commissions charges was in the amount of $1.5 million. That breaks down to a $1 million cash payment and $500,000 to go toward the costs of a compliance program that L-3 will implement as a condition of the Consent Order.

The good news for you is that you now have an enforcement case that gives you a tangible basis for arguing your company needs to put in place communication channels.