Eddie Money died last week. He was perhaps one of the most ubiquitous singers and sounds from the 70s. According to his New York Times (NYT) obituary, he had a “string of rock hits in the late 1970s and ’80s included “Baby Hold On” and “Two Tickets to Paradise.” About as unlikely rocker as there has been, he came out of Levittown Long Island and was “the son of a police officer, was headed for that career himself when he dropped out of the New York Police Academy to move to San Francisco in pursuit of rock stardom. He found it in 1978, when “Baby Hold On,” from his debut album, “Eddie Money,” reached No. 11 on the Billboard Hot 100 chart. Then came “Two Tickets to Paradise” and “Maybe I’m a Fool,” among other hits” and he went into the stratosphere of rock. While he was not a musician, Rock and Roll Heaven just got one heck of a singer.
We got a fair bit more clarity on the Cognizant Technologies Solutions Corporation (“Cognizant”) Foreign Corrupt Practices Act (FCPA) last week, when Sridhar Thiruvengadam, the Chief Operating Officer (COO) agreed to settle charges that he violated the FCPA by participating in a scheme to bribe an Indian government official. According to a Securities and Exchange Commission (SEC) Press Release, “a senior government official of the Indian state of Tamil Nadu demanded a $2 million bribe from the construction firm responsible for building Cognizant’s 2.7 million square foot campus in Chennai, India. The SEC’s order finds that four Cognizant executives, including Thiruvengadam, met by videoconference to authorize the bribe payment and devise a scheme to cover it up in the company’s books. The SEC order states that Thiruvengadam later helped to conceal the payment by signing false subcertifications to the management representation letters Cognizant provided to its independent auditor.”
According to the SEC Cease and Desist Order(Order), Thiruvengadam agreed to pay $50,000. Further, the Order stated and Thiruvengadam acknowledged, “the Commission is not imposing a civil penalty in excess of $50,000 based upon his agreement to cooperate in a Commission investigation and related enforcement action.” The Order also laid out with greater specificity the facts of the FCPA violation by Cognizant senior management.
The bribes involved a construction project in Chennai, referred to as KITS campus, represented the company’s largest owned facility in India. Cognizant engaged Contracting Firm-1 to build the facility and obtain all necessary government permits. Construction began in 2011, prior to the issuance of a required planning permit. “In 2014, during the course of construction, Real Estate Officer-1 was made aware that an Indian government official had made a $2 million bribe demand to Contracting Firm-1 as a condition for issuing the planning permit.
This information was passed along to Thiruvengadam. According to the Order, “On April 21 and 22, 2014, the demand was discussed by video conference among Senior Executive-1, Senior Legal Executive-1, Real Estate Officer-1, and Thiruvengadam. Senior Executive-1 and Senior Legal Executive-1 participated in the conference from the United States, while Real Estate Officer-1 and Thiruvengadam participated from India. Real Estate Officer-1 described the bribe demand in detail, asked Senior Executive-1 and Senior Legal Executive-1 for guidance on how to proceed, and suggested that Contracting Firm-1 could be reimbursed for the payment through a series of sham change order requests to its contract.”
Home office senior corporate officials approved both the payment of the bribe payment and the suggested method for disguising it within the company’s books and records. The Real Estate Officer-1, who was originally solicited for the bribe, was given the task of executing the scheme. It was specifically noted, “Thiruvengadam raised no objection to the proposed scheme during the two video conferences.”
But Cognizant’s illegal and unethical conduct did not end there as the Order stated, “In addition to discussing the bribe demand and the suggested method of disguising the reimbursement during the videoconferences, Senior Executive-1 directed his subordinates to withhold future payments to Contracting Firm-1 if it resisted paying the bribe on Cognizant’s behalf. Contracting Firm-1, which had been urging Cognizant to make the payment, ultimately yielded to Senior Executive-1’s pressure and made the payment in late May or early June 2014. Cognizant received the planning permit in November of that year.”
To bury the bribe payment in false books and records, “Cognizant concealed the $2.5 million reimbursement to Contracting Firm-1, including both the $2 million bribe and a $500,000 commission for paying it, through a series of falsified contract change orders. Real Estate Officer-1 selected change order requests from Contracting Firm-1 invoices that Cognizant had previously rejected and retroactively “accepted” them, adjusting the cost amounts so that they would total $2.5 million. The falsified invoices and supporting Excel spreadsheets were forwarded to Senior Executive-1 for approval, with copies provided to Thiruvengadam based on his position as chief operating officer. Senior Executive-1 approved payments in February and March 2015, and the payments were made to Contracting Firm-1 in installments between March 2015 and January 2016.”
Quite frankly there is much in this short description to unpack. The most obvious factor is the open discussion of a massive bribe payment by executives at the senior level of the organization. Did they just wake up on one day and say, “I am going to engage in illegal and unethical behavior today?” Most probably this means they had been engaging in dodgy behavior all along or had previously shown a propensity for doing so. Also note the involvement of “Senior Legal Executive-1”. Any lawyer involved in such activities deserves to be disbarred.
Finally, this FCPA enforcement action involving Thiruvengadam demonstrates the power FCPA Corporate Enforcement Policy. While many of us scratched our collective heads when the initial enforcement action involving Cognizant came out, more information has been released which shows the Department of Justice (DOJ) really wants to and does credit companies who self-report, engage in extensive remediation and investigations and disgorge ill-gotten gain. The two weeks from the time the Board of Directors was first made aware of this conduct to its self-reporting stands as a testament to the comeback a company can make in the face of some very, very bad facts.
This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at email@example.com.
© Thomas R. Fox, 2019