The Securities and Exchange Commission settled two big bribery cases with U.S. multinationals today, calling one case the “largest combined settlement ever paid by U.S. companies” since the passage of the Federal Corrupt Practices Act (FCPA).
The record-breaking settlement involved KBR Inc. and Halliburton Co., which settled bribery charges related to Nigerian construction contracts that have been under investigation for a decade. The second case, involving ITT Corporation and its Chinese subsidiary Nanjing Goulds Pumps Ltd, was also settled today. However, in contrast to the Halliburton situation, ITT self-reported the incident to the SEC.
In the Halliburton case, the two companies agreed to pay the government nearly $580 million to settle civil and criminal charges. The allegations stem from bribes paid to Nigerian government officials over a 10-year period by KBR subsidiary Kellogg Brown & Root LLC. The SEC also charged that the alleged bribery led KBR and its former parent Halliburton to violate securities laws — specifically record-keeping and internal control rules.
Without admitting or denying the SEC charges, KBR and Halliburton agreed to disgorge $177 million of “ill-gotten profits” generated by the scheme. The companies also agreed to a permanent ban from violating anti-bribery and record-keeping provisions of securities law. In addition, for the next three years, KBR will be under the watchful eye of an independent monitor that will review the company’s FCPA compliance program. Halliburton’s FCPA compliance policies and procedures also will be reviewed by an independent consultant, but just once.
Meanwhile, Kellogg Brown & Root pled guilty and agreed to pay $402 million in fines to settle parallel criminal charges brought today by the U.S. Department of Justice. “The SEC will not tolerate violations of the FCPA, regardless of the lengths to which public companies will go to structure their corrupt transaction to avoid detection,” added Antonia Chion, associate director of the SEC’s Division of Enforcement.
The guilty plea ended the Justice Department’s investigation into the award of $6 billion worth of construction contracts to build liquefied natural gas facilities at Bonny Island, Nigeria. According to acting assistant attorney general Rita Glavin, the bribery scheme involved both senior foreign government officials and KBR corporate executives “who took actions to insulate themselves from the reach of U.S. law enforcement.”
KBR and its processor companies — Kellogg, Brown & Root and The M.W. Kellogg Company — were members of a four-company joint venture that won the contracts. In September 1988, Halliburton acquired Dresser Industries, the parent of The M.W. Kellogg Company.
To hide the illegal payments, the joint venture set up sham contracts with two agents, one located in the U.K. and the other in Japan, “to funnel money to Nigerian officials,” the SEC reported.
Further, the SEC alleged that after the Dresser acquisition, Halliburton’s internal controls failed to detect or prevent the bribery at its subsidiary companies, and that as a result, Halliburton’s records were falsified. In fact, the SEC charged that Halliburton’s probe of the U.K. agent failed uncover the bribery scheme, and the company never conducted an investigation of the Japanese agent. Total payments to the agents topped $180 million.
In September 2008, Albert “Jack” Stanley, the former CEO of the KBR processor companies, pled guilty to bribery and related charges. Without admitting or denying the charges, he agreed to be permanently banned from violating the anti-bribery, record-keeping, and internal control provisions of the U.S. securities law, and agreed to cooperate with the SEC’s ongoing investigation.
However, in a related criminal case, Stanley pleaded guilty to one count of conspiring to violate the FCPA, and one count of conspiring to commit mail and wire fraud. He faces seven years in prison and a restitution payment of $10.8 million.
The SEC also settled bribery charges against ITT and its Chinese subsidiary. In its complaint, the SEC claimed that the bribes were made by executives of Nanjing Goulds Pump to Chinese government officials from 2001 through 2005, and totaled about $200,000 in illicit payments. The alleged bribes were used prod clients to buy more than $4 million worth of industrial water pumps, and the SEC contends that ITT collected more than $1 million in illegal profits from the sales.
The payments made by Nanjing were “disguised as increased commissions” on the subsidiary’s financial statements, and then the bogus entries were consolidated and rolled up into ITT’s financial statements, according to the SEC complaint. The commission also claimed that ITT did not keep detailed records of the payments or maintain sufficient internal controls over preparation of financial statements.
Without admitting or denying the SEC charges, ITT agreed to disgorge $1.4 million and pay a $250,000 civil penalties. The settlement reflected the fact that ITT self-reported the problem, cooperated with the investigation, and instituted subsequent remedial measures, said the SEC.