Another bribery investigation has erupted in the US – this time engulfing contracts involving state-owned entities Hindustan Aeronautics Ltd and South Central Railways.

The US Securities and Exchange Commission — the market regulator in the US – started its investigation into the affairs of Moog Motion Controls Pvt Ltd (MMCLP) after being alerted that the Indian subsidiary of New York-based Moog Inc had paid out bribes to officials in India to win contracts.

Moog Inc is a worldwide designer and manufacturer of motion controls systems for a broad range of applications in aerospace, defence, industrial and medical markets. The company has four operating segments: military aircraft, commercial aircraft, space and defense and industrial.

Between 2020 and 2022, MMCPL had used a variety of schemes to funnel “improper payments” that were recorded as “legitimate business expenses in Moog’s books and records,” the SEC investigation revealed. The payments were made through third party agents and distributors to win tenders floated by HAL and South Central Railways.

The SEC investigation was triggered by the provisions of the Foreign Corrupt Practices Act (FCPA) of 1977 that empowers the US regulator to probe and penalise entities that have links with companies based in the US or have raised money through securities offered to investors in that country.

The SEC found evidence that employees of Moog Inc’s Indian subsidiary had bribed Indian officials “in an attempt to cause public tenders in India to favor Moog’s products and exclude competitors.”

In early 2020, MMCPL had to cross a major hurdle in order to become eligible to bid for a South Central Railway (SCR) contract.

It first needed to be approved by Research Design and Standards Organisation (RDSO) – SCR’s railway advisor – and get on to the approved supplier list.

In order to do so, an unnamed “third party” introduced MMCPL officials to Agent A, who agreed to assist them in obtaining business “in exchange for 10 per cent of any contract value.”

By August 2020, the Moog brand was added as an “acceptable brand in an upcoming SCR contract”. The very next month, it won the SCR contract valued at $34,323 against which “commission charges” were paid in April 2022.

The improper payment was made to “eliminate competition and win contract awards,” says the SEC order which was issued on October 11 this year.

These payments were masked as “legitimate contractor services”.

The HAL contract for aerospace actuators was valued at over $1.3 million and came up for bidding in April 2021.

In November 2021, HAL awarded MMCPL a contract valued at $1,399,328 for parts and services related to the April 2021 contract tender.

The bribe payment for this contract was fixed at ₹10 lakh. But an elaborate artifice was devised to make the payment which was routed through Distributor B who prepared a “fabricated invoice” billed to MMCPL for the sum of ₹15,40,000. “The sham transaction was used to generate sufficient cash to pay the promised bribe to the HAL government official,” the SEC order says.

In March 2022, MMCPL paid Distributor B approximately $18,614 which was used to make the “promised improper payment to the HAL official”, the order said.

The SEC said that besides the SCR and HAL contracts, MMCPL employees had used the services of Agent A and Distributor B to “rig the tender bidding process for government contracts” by persuading Indian officials to exclude competitors, the SEC says.

Moog opted to pay penalties under an Offer of Settlement “without admitting or denying the findings” of the SEC.As a result, Moog was ordered to pay a disgorgement of $504,926, prejudgment interest of $78,889, and a civil monetary penalty of $1,100,000 for a total payment of $1,683,815 to the SEC.