Baker Hughes Greased Palms in Oil Deal

Record criminal penalties are levied on company for handing out bribes in Kazakhstan oil deal.

Baker Hughes Inc. has agreed to pay a total of $44 million to settle criminal and civil charges that it violated the Foreign Corrupt Practices Act (FCPA). The charges and fines were levied on both the parent company and a subsidiary.

Baker Hughes Services International (BHSI), a wholly owned subsidiary of Baker Hughes, pleaded guilty to criminal charges that it violated the FCPA and agreed to pay a $11 million fine, according to Assistant Attorney General Alice S. Fisher of the Criminal Division. Meanwhile, Baker Hughes Inc. agreed to pay $33 million to settle civil charges brought by the Securities and Exchange Commission that it violated the FCPA.

The $44 million in combined fines and penalties is the largest monetary sanction ever imposed in an FCPA case, according to the Department of Justice. BHSI pleaded guilty to violations of the antibribery provisions of the FCPA, conspiracy to violate the FCPA, and aiding and abetting the falsification of the books and records of its parent company Baker Hughes, noted DoJ documents.

Baker Hughes also simultaneously entered into a deferred prosecution agreement with the DoJ regarding the same underlying conduct, and accepted responsibility for the conduct of its employees. In addition to the fine, BHSI agreed to serve a three-year term of organizational probation and adopt a comprehensive antibribery compliance program.

The DoJ said that BHSI admitted that it violated the FCPA when company officials paid approximately $4.1 million in bribes during a two-year period to an intermediary whom the company understood and believed would transfer all or part of the payments to an official of Kazakhoil, the state-owned oil company of Kazakhstan. These payments were made through a consulting firm retained as an agent for Baker Hughes in connection with a major oil field services contract.

In addition, the SEC says that Baker Hughes paid about $5.2 million to two agents while knowing that some or all of the money was intended to bribe officials of state-owned companies.

“Today’s announcement demonstrates that the Department of Justice will continue to hold U.S. companies and their subsidiaries accountable for foreign bribery,” said Fisher in a statement. “The record penalties leveled in this case leave no doubt that foreign bribery is bad for business.”

The resolution of the criminal investigation reflects, in large part, actions taken by Baker Hughes officials to voluntarily disclose the matter to the Justice Department; the extensive and thorough internal investigation of company practices in Kazakhstan, as well as in other high-risk global operations; and the remedial steps and controls enhancements the company has implemented, explained the DoJ announcement. Under terms of the deferred prosecution agreement, Baker Hughes will hire an independent monitor for three years to oversee the creation and maintenance of a robust compliance program and to make a series of reports to the company and the Justice Department.

The company also agreed to continue to cooperate with the DoJ in ongoing investigations into corrupt payments by company employees and managers. If the company fully complies with all the terms and conditions of the deferred prosecution agreement for two years, the government has agreed not to bring any further criminal charges based on the underlying conduct and other conduct uncovered in the course of the investigations.

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