FCPA Alert: SEC and DOJ Sanction Faro Technologies, Inc. Following Self-Report of Improper Payments

June 10, 2008

On June 5, 2008, the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) announced the settlement of a Foreign Corrupt Practices Act (FCPA) investigation against Faro Technologies, Inc. (Faro) following the company’s self-reporting of improper payments to employees of a Chinese company that is partially state-owned. Faro is headquartered in Lake Mary, Florida and is an international designer and developer of portable, computerized measurement devices and software used to create digital three-dimensional models.

The settlement arose from a total of $444,492 in improper payments made by personnel at the company’s Chinese subsidiary to employees of Chinese state-owned companies in order to obtain or retain sales contracts. Faro’s Director of Asia-Pacific Sales authorized the payments, which resulted in realization of $1,411,306 in net profits. The payments at issue were made between 2004 and 2006, in some instances through third-party intermediaries. The Director also instructed employees to alter account entries related to the payments, resulting in inaccurate books and records and demonstrating a lack of effective accounting controls.

The SEC’s administrative order found violations of the anti-bribery, books-and-records, and internal controls provisions of the FCPA, and ordered disgorgement of the $1,411,306 in illicit profits, plus $439,637.72 in prejudgment interest. Faro must retain an independent consultant for two years who will review and recommend changes to the company’s FCPA compliance policies and procedures. Faro also entered into a Non-Prosecution Agreement with the DOJ, under which the company will pay an additional $1.1 million criminal penalty, and be subject to the same terms regarding the independent consultant.

While the Faro settlement did not involve dollar figures as high as several recent FCPA settlements, the penalties are substantial given that the company self-reported the violations and undertook prompt remedial actions including full cooperation with the Government’s investigation. The Faro settlement also highlights the pervasive FCPA risk associated with doing business in China that there is often extensive entanglement between the government and private sector in many industries, and it is often difficult if not impossible to conclusively determine whether a business is truly private or not. The fact that payments to employees of a Chinese business that is partially or wholly-owned by the Chinese government can result in FCPA liability cautions in favor of heightened vigilance and awareness of FCPA issues when doing business in China.

McGuireWoods has extensive experience in handling matters involving the FCPA, in dealing with the SEC and DOJ in situations such as that presented by the Faro investigation and settlement, and in helping companies to address FCPA-related concerns through advice, compliance auditing, internal investigations, and design and implementation of FCPA compliance programs. If you wish to discuss the Faro settlement in greater detail, or to receive assistance in an FCPA-related matter, you may contact any of the attorneys listed below.