United Industrial Corporation Settles FCPA Enforcement Action

03 June 2009 Publication

In May 2009, United Industrial Corporation ("UIC"), a Maryland-based defense company, agreed to a Securities and Exchange Commission cease-and-desist order (the "Order") finding that it violated the FCPA's antibribery, books and records and internal control provisions in connection with payments made by its indirect wholly owned subsidiary, ACL Technologies Inc. ("ACL"), to a foreign agent to obtain or retain business with the Egyptian Air Force ("EAF").

According to the SEC's findings, between 2001 and 2002, UIC, through ACL, made multiple payments to the agent (a retired EAF general) in connection with a military airport depot ACL was building for the EAF. As detailed in the Order, ACL was awarded the depot project as part of the U.S. Department of Defense's foreign military sale program, in which contracts are generally between a foreign government and the U.S. government for weapons or other defense items. According to the SEC, even though ACL did not have a formal contractual relationship with the EAF, the EAF submitted a "sole source" request for ACL's services and otherwise directed how money would be spent on the project.

The SEC found that Thomas Wurzel (ACL's former President) authorized payments to the agent while knowing or consciously disregarding the high probability that the agent would offer, provide or promise at least a portion of the payments to EAF officials for the purpose of influencing the officials to direct business to UIC through ACL and to continue to do business with the company. The SEC found that the payments to the agent resulted in ACL being awarded a contract with gross revenues of $5.3 million and net profit of approximately $270,000. According to the SEC, during the relevant time period: (i) UIC lacked meaningful controls to prevent or detect Wurzel's authorizations of the payments to the agent; and (ii) UIC's legal department approved the retention of the agent despite lack of documented due diligence and the failure of the agent agreement to comply with company requirements that such agreements contain FCPA compliance provisions. Further, the SEC found that a UIC official approved at least one payment to the agent (without inquiring into the purpose or justification for the payment) and that the payments to the agent were mischaracterized on UIC's books and records as legitimate business expenses.

Without admitting or denying the SEC's findings, UIC agreed to pay approximately $340,000 in disgorgement and prejudgment interest and to cease and desist from committing or causing future FCPA violations. In resolving the matter, the SEC noted the remedial actions UIC undertook and its cooperation in the SEC's investigation. During the relevant time period, UIC's stock was listed on the New York Stock Exchange. In 2007, UIC was acquired by an affiliate of Textron, Inc. ("Textron") and it remains an indirect wholly owned subsidiary of Textron. All of the conduct at issue occurred prior to Textron's acquisition of UIC.