On January 11, 2010, the Securities Exchange Commission announced it settled a civil action against NATCO Group Inc. (NATCO), a Texas-based oil and gas equipment and services company. NATCO had been charged with violating the books and records and internal controls provisions of the FCPA in an action filed in the U.S. District Court for the Southern District of Texas.
According to the SEC’s complaint, Louisiana-based TEST Automation & Controls, Inc. (TEST), a wholly owned subsidiary of NATCO, created and accepted false documents while paying extorted immigration fines and obtaining immigration visas in the Republic of Kazakhstan. Specifically, the complaint alleges that in February 2007 and September 2007, Kazakh immigration prosecutors claimed TEST Kazakhstan’s expatriate workers were working without proper immigration documentation, and threatened to fine, jail or deport the workers if TEST did not pay cash fines. Believing the prosecutor’s threats to be genuine, TEST Kazakhstan employees made cash payments of $25,000 in February and $20,000 in September. TEST subsequently reimbursed the employees for the payments, but in doing so, inaccurately described the payments as bonus payments and “visa fines” to disguise their true purpose.
In addition, the complaint alleges TEST Kazakhstan used an unlicensed consultant for immigration services who requested cash to help obtain visas from a contact at the Kazakh Ministry of Labor. Because Kazakh law requires companies seeking to withdraw cash from commercial bank accounts to submit supporting invoices, the consultant provided TEST Kazakhstan with bogus invoices for “cable” from third-party entities he controlled. Knowing the invoices mischaracterized the true purpose, TEST reimbursed TEST Kazakhstan in excess of $80,000 pursuant to the invoices.
According the the complaint, NATCO’s internal accounting controls system failed to ensure that TEST recorded the actual purpose of the payments, and NATCO’s consolidated books and records did not accurately reflect these payments. Without admitting or denying the allegations in the SEC’s complaint, NATCO agreed to pay a $65,000 civil penalty.
NATCO also consented to a related administrative cease-and-desist order filed against it. Without admitting or denying the SEC’s findings, NATCO consented to the issuance of an order that requires NATCO to cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act.