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FCPA Blog Daily News

« A Reader Writes About Compliance | Main | Oscar Wyatt, Founder Of Coastal Corporation, Pleads Guilty To Iraq Bribes »
Monday
Oct012007

York International Pays $22 Million To Resolve Global Corruption Case

Internal Investigation into Oil-For-Food Abuses Uncovered Widespread Bribery

York International Corporation has reached a settlement with U.S. prosecutors of numerous violations of the U.S. Foreign Corrupt Practices Act -- relating to bribes paid under the United Nations oil-for-food program and kickbacks for other government contract work in Bahrain, Egypt, India, Turkey, the United Arab Emirates and China. York -- a subsidiary of Johnson Controls, Inc. since 2005 -- provides heating, ventilation, air conditioning, and refrigeration products and services worldwide.

Under York's three-year deferred prosecution agreement with the U.S. Department of Justice, it will pay a $10 million criminal penalty, cooperate with the DOJ’s related investigations and appoint an independent compliance monitor. York also consented to the Securities and Exchange Commission’s filing of a complaint for FCPA violations and agreed to disgorge about $10 million and pay $2 million in civil penalties.

From 2001 through 2006, York paid over $7.5 million in bribes through subsidiaries and agents to obtain work on commercial and government projects throughout the world. York referred to the payments internally as "consultancy payments" but no bona fide services were involved. It made 854 improper consultancy payments on more than 770 contracts -- 302 projects involved government end-users, such as government-owned companies, public hospitals, or schools.

The payments violated the anti-bribery provisions of the FCPA, and York failed to devise and maintain an effective system of internal controls to prevent or detect the bribes. It also failed to accurately record in its books and records the kickbacks to Iraq, bribes in the UAE, and the bogus consultancy payments made in various countries. York consented to the entry of a final judgment with the SEC permanently enjoining it from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. The DOJ’s three-count criminal Information charged York with conspiracy to commit wire fraud and to falsify books and records in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a).

York self-reported the violations and worked with the DOJ and the SEC to investigate the illegal conduct. The criminal Information also mentions "Employee A" and “Employee B,” citizens of the United Kingdom and Syria respectively, who were involved in the bribery, as well as "Company X," a consulting company based in Jordan that acted as a sales agent for York in the Middle East. They have not yet been charged with FCPA violations.

Among the details mentioned by prosecutors, York’s Danish subsidiary, which sells refrigeration equipment to ship builders and ship yards owned by the Chinese government, made illegal payments from 2004 through 2006 to agents and to Chinese officials connected with the shipyards. “Hundreds of thousands of dollars for nebulous and undocumented services” were processed through York’s Danish subsidiary, which also provided Chinese ship yard employees with lap top computers and other electronics.

York's parent company, Johnson Controls, Inc. (NYSE: JCI) will not be prosecuted on the facts admitted by York.

View the DOJ’s October 1, 2007 News Release Here.

View the October 1, 2007 Deferred Prosecution Agreement and Criminal Information Here.

View the SEC’s Litigation Release No. 20319 / October 1, 2007 Here.

View the SEC’s Complaint Here.

Reader Comments (1)

Dear Sirs,

This is more of a general comment . . . .

I would (also) like to add my appreciation to the individuals behind this useful and interesting site. It is a great resource for further experience and knowledge in an area where the expertise is limited.

Through the company I work for, I have been directly involved with several findings of illegal payments and FCPA violations, including the start of a Swiss company's operation under questionable procedures in Nigeria and Angola. And, as part of these years of Compliance and FCPA experience in the oil & gas business (specifically directed to oil & gas), it has become clear that the legal community does neither have the operational skills or experience and knowledge to fully support, implement and follow through on a process as required by the DoJ. To cover the interpretation and advice, yes, but to fully support in implementing a successful program which proactively address and prevents future compliance incidents the operational understanding is lacking.

From experience the legal community does not have the required understanding within logistics, suppliers, cultural differences, internal employees etc.

The industry must understand that compliance (FCPA/integrity/ethics) is not a project which may be outsourced for a short period of time. One reason being the 3rd party legal advisors do not have the necessary knowledge of how to successfully implement such a comprehensive culture change in an industry as oil & gas. But mainly because the internal resources must be educated, starting with the top management clearly address the seriousness of the issue.

We have pursued different alternatives in my company, but none has been more successful when using the internal knowledge and operational experience, along with the advise from legal resources.

My proposal to the acknowledged Compliance / FCPA law firms, would be to include individuals with experience within the oil & gas industry to fully support in educating and cleaning up the industry.

Merely a suggestion based on experience under the watch of the DoJ.

October 2, 2007 | Unregistered CommenterAnonymous

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