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« China Deals Trigger Investigation | Main | I'd Want My Conscience »
Wednesday
Feb112009

KBR and Halliburton Resolve Charges

Houston-based global engineering firm Kellogg Brown & Root LLC (KBR) pleaded guilty on Wednesday to a five-count criminal information, with one conspiracy count and four substantive counts of violating the Foreign Corrupt Practices Act. KBR agreed to pay a $402 million fine, the second largest criminal fine for an FCPA violation, following Siemens' $450 million penalty in December 2008.

KBR admitted paying Nigerian officials at least $182 million in bribes for engineering, procurement and construction contracts awarded between 1995 and 2004 to build liquefied natural gas facilities on Bonny Island, Nigeria. The contracts to an international joint venture led by KBR were worth more than $6 billion. KBR's former CEO, Albert "Jack" Stanley, pleaded guilty in September 2008 to conspiring to violate the FCPA. His sentencing is scheduled for May 6th.

Also on Wednesday, KBR’s parent company, KBR Inc., and its former parent company, Halliburton Company, settled civil FCPA charges with the Securities and Exchange Commission, agreeing to be jointly liable to pay $177 million in disgorgement. The SEC's complaint alleges that Halliburton's internal controls failed to detect or prevent the bribery, and that its records were falsified to cover up the illegal payments.

The SEC's final order (i) permanently enjoins KBR from violating the anti-bribery and records falsification provisions in Sections 30A, 13(b)(5) and Rule 13b2-1 of the Securities Exchange Act of 1934, and from aiding and abetting violations of the record-keeping and internal control provisions in Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act; (ii) permanently enjoins Halliburton from violating the record-keeping and internal control provisions of the Exchange Act; (iii) orders the companies to disgorge $177 million in profits derived from their FCPA violations; (iv) imposes an independent monitor for KBR for three years to review its FCPA compliance program, and (v) imposes an independent consultant to review Halliburton's FCPA-related policies and procedures.

The DOJ said it had help in its investigations from authorities in France, Italy, Switzerland and the United Kingdom.

Jack Stanley was a senior vice president of Dresser Industries, Inc. when it merged into Halliburton in September 1998. Dresser's wholly-owned construction subsidiary, Kellogg, was combined with Halliburton's construction subsidiary, Brown & Root, Inc., to form KBR. In November 2006, Halliburton spun KBR off and it became a separate publicly-traded company. Under their agreement for KBR's spin off, Halliburton is obligated to pay most of KBR's fines and other penalties for the FCPA violations.

The SEC's complaint alleges that after the Dresser acquisition, Halliburton's due diligence didn't detect any bribe payments and failed "to devise and maintain adequate internal controls to govern the use of foreign sales agents and failed to maintain and enforce the internal controls it had." Former Vice President Dick Cheney was Halliburton's chief executive from 1995 to 2000. He has denied any wrongdoing.

Download the DOJ's February 11, 2009 release here.

Download KBR's February 11, 2009 criminal plea agreement with the DOJ here.

View the SEC's Litigation Release No. 20897 (February 11, 2009) and Accounting and Auditing Enforcement Release No. 2935 (February 11, 2009) in Securities and Exchange Commission v. Halliburton Company, 4:09-CV-399, S.D. Tex. (Houston) here.

Download the SEC's February 11, 2009 civil complaint against KBR and Halliburton here.

View prior posts about Halliburton, KBR and Jack Stanley here.

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