Friday, March 06, 2009

The looong arm of the law comes up shooort against large government contractors

Solicitor held on US charge of involvement in Nigeria bribery
A British solicitor was arrested yesterday over allegations that he broke US anti-corruption laws by channelling millions of pounds in bribes to Nigerian officials to win construction contracts.

[He was arrested in near London.] The US has issued a second warrant for the arrest of another Briton in England.

They are alleged to have helped steer bribe money from former Halliburton subsidiary Kellogg, Brown & Root (KBR) to officials of the Nigerian government to win contracts valued at more than $6bn.

KBR pleads guilty in Nigerian bribery case
Appearing in U.S. District Court in Houston, KBR General Counsel Andrew Farley admitted that the company paid bribes to high-ranking Nigerian officials between 1994 and 2004 to secure four contracts for a KBR joint venture to build and expand Nigeria's Bonny Island liquefied natural gas terminal.

Under a deal reached with the U.S. Justice Department, Houston-based KBR and Halliburton will pay a $402 million fine, of which Halliburton has agreed to pay $382 million.

In a separate settlement with the U.S. Securities and Exchange Commission, Halliburton will disgorge $177 million in profits to settle parallel criminal charges that its former subsidiary violated the Foreign Corrupt Practices Act (FCPA).

Together, the $579 million in sanctions is the highest combined settlement ever paid by U.S. companies under the act, the SEC said.

SEC Charges KBR and Halliburton for FCPA Violations
"FCPA violations have been and will continue to be dealt with severely by the SEC and other law enforcement agencies," said SEC Chairman Mary L. Schapiro. "Any company that seeks to put greed ahead of the law by making illegal payments to win business should beware that we are working vigorously across borders to detect and punish such illicit conduct."

Antonia Chion, Associate Director of the SEC's Division of Enforcement, added, "The SEC will not tolerate violations of the FCPA, regardless of the lengths to which public companies will go to structure their corrupt transactions to avoid detection. Multi-national companies should take heed that attempting to conceal bribes by funneling them through intermediaries or offshore entities will not be successful."

The SEC alleges that beginning as early as 1994, members of the joint venture determined that it was necessary to pay bribes to officials within the Nigerian government in order to obtain the construction contracts. The former CEO of the predecessor entities, Albert "Jack" Stanley, and others involved in the joint venture met with high-ranking Nigerian government officials and their representatives on at least four occasions to arrange the bribe payments. To conceal the illicit payments, the joint venture entered into sham contracts with two agents, one based in the United Kingdom and one based in Japan, to funnel money to Nigerian officials.

The SEC alleges that officials of the joint venture formed a "cultural committee" to decide how to carry out the bribery scheme. The committee decided to use the United Kingdom agent to make payments to high-ranking Nigerian officials and to use the Japanese agent to make payments to lower-ranking Nigerian officials. As the joint venture was paid for work on the construction project, the joint venture in turn made payments to the Japanese agent and to the Swiss and Monaco bank accounts of the United Kingdom agent. The total payments to the two agents exceeded $180 million. After receiving the money, the United Kingdom agent made substantial payments to accounts controlled by Nigerian government officials, and beginning in 2002 paid $5 million in cash to a Nigerian political party.

Most of the information in the prior story comes from the SEC complaint and this press release by the Department of Justice, which added,
Under the terms of the plea agreement, KBR agreed to retain an independent compliance monitor for a three-year period to review the design and implementation of KBR’s compliance program and to make reports to KBR and the Department of Justice.

When suspending contractors, size — not action — matters
When a deadly salmonella outbreak was tied to unsanitary conditions at Peanut Corp. of America, the Agriculture Department took strong action. It declared the company as lacking in “business integrity and business honesty” and cut off further business with the government.

Government’s reaction to KBR’s misdeeds was quite different.

The company last month admitted bribing Nigerian officials to obtain contracts, a violation of the Foreign Corrupt Practices Act, and is under investigation for negligent homicide in the deaths of at least two of 24 soldiers, Marines and civilians electrocuted in KBR-maintained facilities as a result of shoddy electrical work.

Bribery and poor performance are grounds for banning a company from federal business, but that did not happen to KBR.

Last year alone, KBR did $5 billion in government business. The Peanut Corp. of America did $5 million in the past nine years.

In deciding whether to suspend or debar a company, officials look at the risk that a contractor will continue to be irresponsible in the future and the extent to which a company’s problem is the fault of an individual, as opposed to the company’s culture or prevailing practice.

For a large contractor, it is easier to fire a bad apple and take remedial actions to correct problems, such as rolling out new, corporate-wide ethics training and internal compliance programs, said Craig King, an attorney with Arent Fox and the co-chair of the American Bar Association’s committee on debarment and suspension.

When companies take these steps, agencies usually stop short of suspending them, according to the Government Accountability Office.

In the case of KBR’s electrical work contracts, the company may not be responsible because the action was performed by individuals. In the KBR bribery case, former CEO Albert “Jack” Stanley, who pleaded guilty to bribery charges last year, was fired.

When the owner or other top executive of a small company does wrong, “it is much more difficult to conceive of those individuals as separate from the culture and business honesty of the company,” King said.

In the case of the Peanut Corp. of America, there is evidence the company’s owner and president, Stewart Parnell, personally ordered positive salmonella tests to be ignored.
KBR CFO: US Defense Dept Won't Suspend Co Over Bribe Case CNNMoney.com - ‎Feb 25, 2009‎
NEW YORK -(Dow Jones)- KBR Inc. (KBR) won't be prevented from pursuing new US Defense Department contracts or have existing work suspended over the ...
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Staring down criticism, KBR posts profit increase
[KBR Chief Executive William] Utt said the firm’s backlog of work remains strong and the Pentagon has given no indication that KBR will be suspended from future contracting.

When asked about “all the noise” from Washington lawmakers about KBR contracts, Utt said, “Congress is not our customer on the LOGCAP activity. Our customer is the Army under the Pentagon.”

The Army appears to be happy with KBR’s work, Utt said. The Army Corps of Engineers recently gave two more contracts to KBR for work including electrical service, water purification and wastewater collection.

Income for KBR’s government and infrastructure unit, which includes work in Iraq, was $85 million for the fourth quarter — a 60 percent increase over the $53 million profit recorded for that unit in the same period of 2007.

KBR’s fourth-quarter profit climbed 24 percent to $88 million, or 54 cents per share, up from $71 million, or 42 cents per share.

Results included a charge of 12 cents per share related to the Nigerian bribery investigation. KBR’s fourth-quarter revenue was $3.4 billion, up from $2.4 billion in 2007.

Baker Botts, Paul Hastings on Record $579 Million KBR-Halliburton FCPA Settlement
Sorting out which company did what isn't easy--not surprising given that the case involves briefcases stuffed with $1 million in cash, sham companies in Portugal, and agents in the U.K. and Japan who received about $180 million from KBR and funneled the money to Nigerian officials doling out oil contracts.

The scheme actually started at KBR in the mid-1990s, before Halliburton acquired that company in 1998.

As for Halliburton, the SEC and DOJ both charged the company with conducting lazy due diligence when it took over KBR in 1998. The company, for instance, found out that KBR was paying huge sums to an agent in the U.K. but didn't bother to find out what that person was doing with the money or even to check the individual's references--some which turned out to be bogus, court records show. As a result, Halliburton's internal records are littered with lies and misstatements, the DOJ and SEC say.

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