Securities Exchange Act of 1934
Release No. 51199 / February 14 2005
Accounting and Auditing Enforcement
Release No. 2186 / February 14, 2005
Admin. Proc. File No. 3-11827
In the Matter of
GE InVision, Inc. (formerly known as InVision Technologies, Inc.),
ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934
The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against GE InVision, Inc., formerly known as InVision Technologies, Inc. ("InVision" or "Respondent").
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over it and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
On the basis of this Order and Respondent's Offer, the Commission finds1 that:
1. This proceeding involves violations of the Foreign Corrupt Practices Act ("FCPA") by InVision, a California-based manufacturer of explosives detection systems used by airports. From at least June 2002 through June 2004, InVision, through its employees, sales agents and distributors, engaged in transactions in violation of the FCPA in three countries: the People's Republic of China, the Republic of the Philippines and the Kingdom of Thailand. In each of the transactions, InVision was aware of a high probability that its foreign sales agents or distributors paid or offered to pay something of value to government officials in order to obtain or retain business for InVision. Despite this, InVision authorized improper payments to the agents or distributors, or allowed them to proceed with transactions on InVision's behalf, in violation of the FCPA. During this period, InVision improperly accounted for certain payments to its agents and distributors in its books and records in violation of the FCPA, and failed to devise and maintain a system of internal controls with respect to foreign sales sufficient to assure compliance with the FCPA.
2. InVision, incorporated in Delaware and headquartered in Newark, California, designs and manufactures advanced explosives detection systems to scan checked baggage by airport security personnel in the United States and other countries. At the time of the conduct described below, InVision's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed on the NASDAQ National Market. InVision filed reports with the Commission pursuant to Section 13 of the Exchange Act.2
3. To facilitate its sales abroad, InVision retained local sales agents and distributors who were familiar with the business practices and customs of their respective countries. The sales agents and distributors negotiated with InVision's customers, including governmental aviation authorities, and typically reported to InVision through an InVision Regional Sales Manager. The Regional Sales Managers reported directly to an InVision senior sales executive (the "Senior Executive").
4. In November 2002, InVision agreed to sell two explosives detection machines for use at an airport under construction in Guangzhou, China. The airport is owned and controlled by the government of China. The sale to the airport was conducted through InVision's local distributor in China, which purchased the two machines from InVision for approximately $2.8 million. The distributor, in turn, negotiated the re-sale of the machines and was InVision's primary representative to the airport and associated governmental agencies.
5. Under the terms of the transaction, InVision was obligated to deliver the two machines by mid-2003. Due to problems in obtaining an export license from the United States government, however, InVision did not deliver the machines until October 2003. During the delay, the distributor in China informed the responsible Regional Sales Manager and the Senior Executive that the airport intended to impose a financial penalty on InVision. The distributor advised the Regional Sales Manager that, in order to avoid this penalty, it intended to offer foreign travel and other benefits to airport officials. The Regional Sales Manager notified the Senior Executive of the distributor's intention.
6. The distributor requested financial compensation from InVision to pay for penalties and costs that, it claimed, would be incurred as a result of the delay in shipment. The distributor's request included compensation for benefits that the distributor intended to offer to airport officials. In October 2003, the Senior Executive agreed to pay the distributor $95,000. Based on information provided by the Senior Executive and the Regional Sales Manager, InVision's finance department subsequently authorized the payment, which was completed in April 2004. At the time of the payment, based on the information provided to the Regional Sales Manager and the Senior Executive, InVision was aware of a high probability that the distributor intended to use part of the funds it received from InVision to pay for foreign travel and other benefits for airport officials.
7. InVision improperly recorded the payment in its books as a cost of goods sold. InVision realized profits of approximately $589,000 from the sale of the two machines in China.
8. InVision sold two explosives detection machines for use in an airport in the Philippines in November 2001. Although InVision had retained a sales agent in the Philippines since at least 1996, the sale was made directly by InVision to the subcontractor responsible for building the airport terminal baggage handling system.
9. Beginning at about the time of the November 2001 sale, InVision received repeated requests for a commission on the sale from its sales agent in the Philippines. At the same time, in communications with both the responsible Regional Sales Manager and the Senior Executive, the agent indicated that it was negotiating for additional sales of InVision products to other airports owned and controlled by the government of the Philippines. The agent indicated that it intended to use part of any commission it obtained in connection with the November 2001 sale to make gifts or pay cash to government officials in order to influence their decision to purchase additional InVision products.
10. In December 2001, the Senior Executive agreed to pay the Filipino sales agent a commission in the amount of approximately $108,000 in connection with the November 2001 sale. Based on information provided by the Regional Sales Manager and Senior Executive, InVision's finance department subsequently authorized the payment, which was completed in July 2002. At the time of the payment, based on the information provided to the Regional Sales Manager and the Senior Executive, InVision was aware of a high probability that the sales agent intended to use part of the commission to make gifts or pay cash to influence Filipino government officials to purchase InVision products. InVision improperly recorded the payment in its books as a sales commission. The Filipino agent did not complete any additional sales on behalf of InVision.
11. Beginning no later than 2002, InVision competed for the right to supply explosives detection machines to an airport under construction in Bangkok, Thailand. Construction of the airport is overseen by a corporation controlled by the government of Thailand. InVision retained a distributor in Thailand to lobby the airport corporation and the Thai government on InVision's behalf. Under the terms of the transaction, the distributor would purchase the explosives detection machines from InVision and then make its profit by reselling them at a higher price for use by the airport. The distributor was InVision's primary representative to the airport and associated governmental agencies.
12. From at least January 2003 through April 2004, in communications with the responsible Regional Sales Manager and the Senior Executive, the distributor indicated that it had offered to make gifts or payments to officials with influence over the airport corporation. Based on the information provided to the Regional Sales Manager and the Senior Executive, InVision was aware of a high probability that the distributor intended to fund any such gifts or offers out of the difference between the price the distributor paid InVision to acquire the machines and the price for which the distributor was able to resell them. Despite this awareness, InVision authorized the distributor to continue to pursue the transaction.
13. In or about April 2004, the airport corporation, through its general contractor, agreed to purchase 26 of InVision's explosive detection machines from the InVision distributor in a sale InVision valued at approximately $35.8 million. Consummation of the transaction was deferred after InVision received notification of possible FCPA violations. InVision has not recognized any revenue from the transaction and has agreed that the transaction will proceed, if at all, only as a sale directly to the airport corporation or another Thai governmental entity.
D. InVision's Lack of Internal Controls
14. During the period of the foreign transactions described above, InVision failed to develop an adequate process to select and train its sales agents and distributors employed outside the United States. In choosing foreign sales agents and distributors, InVision primarily relied on introductions by other American companies. InVision conducted little, if any, investigation into the backgrounds of its foreign sales agents and distributors.
15. InVision's standard agreement with its foreign agents and distributors contained a clause prohibiting violations of the FCPA. Beyond the contractual provision, however, InVision provided no formal training or education to its employees (including its Regional Sales Managers) or its sales agents and distributors regarding the requirements of the FCPA.
16. InVision also failed to establish a program to monitor its foreign agents and distributors for compliance with the FCPA. For example, InVision did not have a regular practice of periodically updating background checks or other information regarding foreign agents and distributors. With respect to the transactions described above, InVision failed to establish an internal system sufficient to prevent and detect violations of the FCPA.
17. The FCPA, enacted in 1977, added Section 30A to the Exchange Act in order to prohibit public companies from, among other things, making or authorizing payments to any person while knowing that all or a portion of such payments will be offered or given to any foreign official for the purpose of influencing the official's decision in order to obtain or retain business. See 15 U.S.C. § 78dd-1(a).
18. The FCPA also added Exchange Act Section 13(b)(2)(A) to require public companies to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer, and Exchange Act Section 13(b)(2)(B) to require such companies to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; and (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and to maintain accountability for assets. See 15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B).
19. In each of the transactions described above, based on the information provided to the responsible Regional Sales Manager and the Senior Executive, InVision was aware of the high probability that its foreign sales agents and distributors intended to make gifts or payments in order to obtain or retain business for InVision. In each instance, by proceeding with the transactions, InVision made or authorized the making of illegal payments to foreign officials, in violation of Section 30A. InVision violated Section 13(b)(2)(A) by improperly recording in its books and records payments it made in the transactions involving its distributor in China and its sales agent in the Philippines. Finally, InVision violated Section 13(b)(2)(B) by failing to devise and maintain an effective system of internal controls to prevent and detect violations of the FCPA.
20. In determining to accept the Offer, the Commission took into account InVision's cooperation afforded the Commission, including the fact that InVision brought this matter to the attention of the Commission's staff and the Department of Justice.
InVision and its corporate parent General Electric undertake to:
21. Incorporate InVision into General Electric's corporate compliance program, including its program designed to detect and prevent violations of the FCPA.
22. Retain and pay for an Independent Consultant not unacceptable to the staff of the Commission and the Department of Justice within 60 calendar days of the issuance of this Order.
23. Require the Independent Consultant to:
- Evaluate the efficacy of the integration by General Electric of InVision into General Electric's existing FCPA compliance program, including but not limited to the implementation of FCPA training for appropriate InVision employees; and
- Within 180 days of the issuance of this Order, report to the staff of the Commission (with a copy of any such written report being provided to General Electric) regarding General Electric's efforts to comply with Paragraph 23(a), above.
24. Cooperate fully with the Independent Consultant and provide the Independent Consultant with access to its files, books, records and personnel as reasonably requested for the Independent Consultant's evaluation.
25. Require the Independent Consultant to enter into an agreement that provides that for the period of engagement, and for a period of two years from completion of the engagement, the Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or other professional relationship with InVision, its successor-in-interest GE InVision, Inc., GE Security, Inc., General Electric, or any of these entities' present or former affiliates, directors, officers, employees, or agents acting in their capacity. The agreement will also provide that the Independent Consultant shall require that any firm with which the Independent Consultant is affiliated or of which Independent Consultant is a member, and any person engaged to assist the Independent Consultant in performance of Independent Consultant's duties under the Order memorializing the terms of this Offer, shall not, without prior written consent of the staff of the Commission's San Francisco District Office, enter into any employment, consultant, attorney-client, auditing or other professional relationship with InVision, its successor-in-interest GE InVision, Inc., GE Security, Inc., or any of these entities' present or former subsidiaries, directors, officers, employees, or agents acting in their capacity as such for the period of the engagement and for a period of two years after the engagement.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent's Offer.
Accordingly, it is hereby ORDERED that:
A. Respondent cease and desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 30A of the Exchange Act.
B. Respondent shall comply with the undertakings enumerated in Section III, above.
C. IT IS FURTHER ORDERED that Respondent shall, within ten days of the entry of this Order, pay disgorgement of $589,000 plus prejudgment interest of $28,703.57, for a total amount of $617,703.57 to the United States Treasury. Such payment shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop 0-3, VA 22312; and (D) submitted under cover letter that identifies InVision as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Helane L. Morrison, District Administrator, San Francisco District Office, Securities and Exchange Commission, 44 Montgomery Street, Suite 2600, San Francisco, California 94104.
By the Commission.
Jonathan G. Katz