Exec Claims GE Fired Him For Reporting FCPA Concerns

A former country manager in Iraq for a GE subsidiary claims he was fired for telling supervisors and an ombudsman about potential FCPA problems.

Khaled Asadi, a dual citizen of the United States and Iraq, was based in Amman, Jordan.

He served as country executive in Iraq for G.E. Energy (USA) LLC from 2006 until June 2011. He claims he was fired after raising FCPA compliance concerns when GE was pursuing a seven-year $250 million contract with Iraq's Ministry of Electricity.

G.E. Energy, a Texas company, is a subsidiary of the General Electric Company. The Anti-Whistleblower Retaliation provisions of the Securities Exchange Act protect employees of public companies who were fired or discriminated against for reporting illegal behavior by the company. Asadi brought his suit in federal court in Houston. He's asking for reinstatement, two times his back pay, and litigation costs and attorney fees.

General Electric Company settled an FCPA enforcement action with the SEC in July 2010. It paid $23.4 million in disgorgement, interest, and a civil penalty for violations of the FCPA's books and records and internal controls provisions. From 2000 to 2003, the SEC said, four GE subsidiaries paid $3.6 million in kickbacks to the prior Iraqi regime for medical supply and water purification contracts. The kickbacks violated the United Nation's oil-for-food program and weren't properly accounted for.

The GE subsidiaries named by the SEC were Marquette-Hellige and OEC-Medical Systems (Europa) AG, Ionics Italba S.r.L. (a then-subsidiary of Ionics), and Nycomed Imaging AS (a then-subsidiary of Amersham). Those subsidiaries are now known as GE Healthcare Ltd. and GE Ionics Inc. and aren't mentioned in the new civil suit.

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Asadi's allegations in his complaint are:

In June 2010, he was alerted by a source in the Iraqi government that G.E. had hired a woman closely associated with the Senior Deputy Minister of Electricity (Iraq) to curry favor with the Ministry while in negotiation for a Sole Source Joint Venture Contract with the Ministry of Electricity.

Concerned that the hiring of this ‘female associate’ could be damaging to GE’s reputation and potentially violate the Foreign Corrupt Practice Act, Asadi immediately objected to the hiring and raised this issue with his supervisor.

He, along with a colleague from GE’s oil and gas division, took the concern a step further by raising the issue with the Ombudsperson for G.E.

In direct response to his actions, Asadi’s immediate supervisor began pressuring him to step down from his position with G.E. He was offered several alternatives including the possibility of a new assignment within the region.

Shortly after his discussion with the Ombudsperson, Asadi received an extremely negative and troubling performance review. While no significant employment issues were identified in the review, the company began aggressive negotiations for Asadi's departure.

The negotiations continued until GE abruptly ended discussions and terminated Asadi's employment on June 24, 2011.

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Asadi said the seven-year, $250 million contract between GE and the Ministry of Electricity was signed in Baghdad in December 2010.

SEC Posts Cases Eligible For Whistleblower Rewards

The SEC's Office of the Whistleblower (yes, it's real) published its first list of enforcement actions that might be eligible for whistleblower rewards. It includes FCPA-related cases.

On the November 1 list -- under the heading of 'Claim an Award' -- are completed enforcement actions against companies and people that resulted in judgments or orders issued after July 21, 2010 with sanctions of more than $1 million.

FCPA-related enforcement actions on the list include ABB, Alcatel-Lucent, S.A., Alliance One, Comverse Technology, GE, Diageo plc, GlobalSantaFe, Johnson & Johnson, Maxwell Technologies, Noble Corp, Panalpina, Pride Inc, RAE Systems, Rockwell Automation, Royal Dutch Shell plc, Tidewater, Transocean, Tyson Foods, and Universal Corporation. (Our posts about all of them can be found by following the tags below.)

'Subject to the Final Rules,' the Office of the Whistleblower said, 'individuals who voluntarily provided the Commission with original information after July 21, 2010 that led to successful enforcement of a covered action listed below are eligible to apply for a whistleblower award.'

The SEC said that 'once a Notice of Covered Action is posted, individuals have 90 calendar days to apply for an award by submitting a completed Form WB-APP to the Office of the Whistleblower by midnight on the claim due date listed for that action.'

Appearing on the list doesn't mean a whistleblower has or will be rewarded for information, only that it might happen.

As the SEC said in an 'Important Note:'

The inclusion of a Notice below means only that an order was entered with monetary sanctions exceeding $1 million. By posting a Notice for a particular case, we are not making any determinations either that (i) a whistleblower tip, complaint or referral led to the Commission opening an investigation or filing an action with respect to the case or (ii) an award to a whistleblower will be paid in connection with the case.

View the Office of the Whistleblower's 'Claim an Award' site here.

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Special thanks to a good friend for providing the link to the SEC's November 1 list.

Top Ten Disgorgements

There's been a lot of talk lately about the DOJ's "expansive enforcement practices" and practically none about the SEC's. So let's get started by taking a look at a remedy the SEC now uses in most FCPA cases: disgorgement.

As one commentator said a couple of years ago, disgorgement was never mentioned when the FCPA was first debated and adopted in 1977, nor when Congress amended the law in 1988 or 1998. In fact, as of 1977, the SEC had barely used disgorgement in any type of securities enforcement actions, and 27 years passed before disgorgement popped up in an FCPA case.

That was in 2004 when ABB Ltd disgorged $5.9 million to settle civil antibribery, books-and-records, and internal-controls offenses. Since then the SEC has used disgorgement in about three-quarters of its FCPA-related enforcement actions.

Here are the SEC's top ten FCPA-related disgorgements (including prejudgment interest):

1. Siemens $350 million in 2008.

2. KBR $177 million in 2009.

3. Snamprogetti $125 million in 2010.

4. Technip $98 million in 2010.

5. Daimler $91.4 million in 2010.

6. Alcatel-Lucent $45 million in 2010.

7. Chevron $25 million in 2007.

8. Pride $23.5 million in 2010.

9. GE $22.5 million in 2010.

10. Baker Hughes $23 million in 2007.

If we've missed any cases that should appear in this initial list, please let us know.

For comparison, take a look at our current list of the top ten FCPA enforcement actions of all time.

The cheesiest disgorgement of all time? SEC v. Tyco Int’l. Ltd., a 2006 case. For numerous charges including fraud by inflating its operating income by $567 million, and antibribery violations under the FCPA for payments to government officials in Brazil, the company paid a $50 million penalty and a $1 million disgorgement.

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Our thanks to a reader in D.C. who helped research this post.

GE In $23 Million SEC Settlement

General Electric Company, whose compliance program is among the most respected and admired in the world, has settled civil violations of the Foreign Corrupt Practices Act with the Securities and Exchange Commission.

The company today agreed to pay $23.4 million to resolve claims that arose from a $3.6 million kickback scheme by four GE subsidiaries -- two of which were acquired after the offenses occurred. The kickbacks were paid under the United Nation's oil-for-food program. The GE subsidiaries were selling medical and water purification equipment to the Iraqi government.

The SEC charged GE and two subsidiaries -- Ionics Inc. and Amersham plc -- with civil violations of the books and records and internal controls provisions of the FCPA.

The kickbacks were paid from 2000 to 2003 and were not properly accounted for. They consisted of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Oil Ministry. GE acquired two of the subsidiaries in 2004 and 2005 and became liable for their securities law violations, including FCPA offenses.

Cheryl J. Scarboro, the head of the SEC's FCPA unit, said: "GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win oil for food contracts, and it failed to properly record the true nature of the payments in its accounting records. Furthermore, corporate acquisitions do not provide GE immunity from FCPA enforcement of the other two subsidiaries involved."

In the SEC settlement, GE was ordered to disgorge $18,397,949 of profits and pay $4,080,665 in prejudgment interest and a penalty of $1 million. GE and subsidiaries Ionics Inc. and Amersham plc agreed not to violate Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934.

The SEC said it has taken 15 FCPA enforcement actions against companies involved in the now discredited U.N. oil for food program and has recovered more than $204 million. The program was intended to provide humanitarian relief for the Iraqi population, which faced hardship under international trade sanctions. It allowed the Iraqi government to purchase humanitarian goods through a U.N. escrow account. The Iraqi government instructed vendors to use middlemen and to inflate prices to fund the kickbacks.

In addition to GE, other companies charged under the oil-for-food program include Chevron, Total SA, AB Volvo, Innospec, Ingersoll-Rand, Akzo-Nobel, and Fiat.

The DOJ did not join the enforcement action against GE or the subsidiaries. It usually prosecutes criminal antibribery offenses under the FCPA, which require payments to foreign officials. In GE's case, the kickbacks apparently went directly to Iraqi ministries and not to government officials.

The SEC said that in settling the case, it "considered remedial acts promptly undertaken by GE and the cooperation the company afforded the Commission staff in its investigation."

View the SEC's July 27, 2010 press release here.

View the SEC's Litigation Release No. 21602 and Accounting and Auditing Enforcement Release No. 3159 (both dated July 27, 2010) in Securities and Exchange Commission v. General Electric Company; Ionics, Inc.; and Amersham plc, Civil Action No. 1:10-CV-01258 (D.D.C.)(RWR) here.

View the SEC civil complaint against GE, Ionics, and Amersham here.

A Whistleblower Blow-Up

Last month we reported a settlement in a suit by General Electric's former in-house counsel, Adriana Koeck. She claimed she was fired in retaliation for whistleblower activity protected by Section 806 of the Sarbanes-Oxley Act (18 U.S.C. § 1514A) and state law after she warned her superiors about possible FCPA violations in Brazil. She leaked information to the press about GE's alleged conduct, and GE sued her for breaching her duty of confidentiality. The terms of the settlement that ended all of the litigation weren't disclosed.

We don't have any views about the merits of the case. But we have concerns about what it might mean for company lawyers and compliance.

When lawyers allege they were fired for raising compliance concerns, they typically disclose privileged information to support their claims. They're in a tough spot -- they can only prove they were fired for retaliation by revealing the company's underlying behavior that they complained about. But by disclosing it, they'll probably breach their professional obligations of confidentiality.

All company lawyers are privy to the inner workings of their organization. They hear the secret musings about how to sell the company's goods and services. But laymen aren't always expected to know all the implications of what they're talking about; that's why the lawyers are there -- to help everyone stay on the right side of the law. So when those secret deliberations become fodder for a lawsuit, someone's expectation of privacy is violated.

In all companies, lots of different ideas are thrown onto the whiteboard to be vetted and debated, criticized and critiqued. Only a few ever make it into the field. That's how consensus-building works. But if early-stage ideas might be disclosed by the lawyers and cause trouble later on, there'll be less debate of the kind the attorney-client privilege is intended to promote. Companies paying attention to the retaliation suits might change the way they treat their lawyers and compliance professionals -- leaving them out of discussions, or worse, not hiring them to start with.

To be clear, lawyers are entitled to protection against retaliation for blowing the whistle. In fact, lawyers are especially vulnerable. They know the company's secrets and they have a duty to prevent illegal conduct from happening. But whenever lawyers, for whatever reason, go public with protected information, the profession is tarnished and the cause of compliance is hurt.

What's the fix? How about plugging the gap in SOX to make sure whistleblower protections cover lawyers (and all employees) who work at subsidiaries of listed parents? The limited coverage now is forcing claimants into federal court who might not want to be there. Beyond that, perhaps a special tribunal -- under the auspices of the Labor Department and the courts (too bad we don't have a national integrated bar group) -- with an equal measure of protection for company lawyers and for their employers' privileged information.