RAE Systems Settles With SEC to Drop Bribe Charges

(CN) - A Delware company that makes gas- and chemical-detection equipment agreed to pay $1.2 million to settle charges that it bribed Chinese officials for government contracts between 2004 and 2008, the Securities and Exchange Commission announced.

The SEC claimed RAE Systems' Chinese joint ventures, RAE-KLH and RAE Coal Mine Safety Instruments, repeatedly violated the anti-bribery, books and records, and internal controls provisions of the Foreign Corrupt Practices Act. The company allegedly made more than $1 million in revenue tainted by bribery.

RAE, which is based in Delaware and has offices in San Jose, Calif., neither admitted nor denied the charges, the SEC said.

According to the SEC lawsuit, RAE knew that KLH employees regularly used fake invoices for cash advances to use as bribes before it joined forces with the company.

It uncovered similar corruption at RAE-Coal Mine Safety Instruments - known as RAE-Fushun - shortly after forming the joint venture, the SEC said.

Knowing about the bribery did not stop RAE's acquisition of KLH, according to the complaint.

After the merger was complete RAE did announce that the bribery had to stop, the SEC said. It also instructed its new employees to operate by "the norms of major multi-national companies doing business in China by utilizing finder's fees. Commissions, consulting fees, etc." that could be reported under standard accounting practices, according to the complaint.

But during a visit to the new company's offices in China, RAE's chief financial officer allegedly discovered that sales employees there had continued to use fake invoices to take nearly $500,000 in improper advances after the merger was complete.

In an email to RAE's U.S. headquarters, the officer wrote that "there is the possibility that cash may also be used for grease payments, to supplement sales employees' incomes and as bribes," the SEC said.

After that, the U.S. wing made sure that RAE-KLH employees went through Foreign Corrupt Practices Act compliance training but RAE-KLH continued with corrupt business as usual, billing bribes as travel and entertainment expenses, according to the SEC.

RAE-KLH managers later hid the bribes in more sophisticated ways. In 2006, it allegedly hired a company to provide technical consulting on a project in China's Dagnan oil fields, but actually used the deal as a conduit for bribes to officials in charge of the project.

Even after a recently sacked RAE joint venture general manager told his former bosses about the kickback scheme, the SEC said the firm didn't bother to perform an internal audit or impose any internal controls to limit the practice of giving cash advances to its salesmen.

Nor did RAE impose proper internal controls at RAE-Fushun when it discovered that employees there used the same tactics as their KLH counterparts to get money to pay bribes and give luxury gifts like jade, fur coats and kitchen appliances to government officials, the SEC said.

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