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FCPA Blog Daily News

Entries in Iraq (97)

Tuesday
Dec232008

Fiat Pays $17.8 Million For FCPA Violations

Italian vehicle- and equipment-maker Fiat S.p.A. has resolved Foreign Corrupt Practices Act violations arising out of the U.N. oil for food program. It agreed with the Justice Department to pay a $7 million penalty for illegal kickbacks to officials of the former Iraqi government by three of its subsidiaries. Fiat also reached a settlement with the Securities and Exchange Commission for which it will pay $3.6 million in civil penalties and $7.2 million in disgorgement and interest.

The DOJ filed criminal informations against three Fiat subsidiaries in U.S. District Court for the District of Columbia. Iveco S.p.A. and CNH Italia S.p.A. were each charged with one count of conspiracy to commit wire fraud and violate the books and records provisions of the Foreign Corrupt Practices Act. 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a). CNH France S.A. was charged with conspiracy to commit wire fraud.

While Fiat itself wasn't charged by the DOJ, the Turin-based company and its three subsidiaries were given a three-year deferred-prosecution agreement. In addition to paying the $7 million penalty under the deferred-prosecution agreement, Fiat acknowledged responsibility for its subsidiaries' violations, agreed to cooperate with U.S. and foreign investigations, and undertook to implement a compliance and ethics program. The DOJ, however, didn't require Fiat's appointment of a compliance monitor.

Both the DOJ and SEC recognized Fiat's remedial acts. The DOJ said,

In recognition of Fiat’s thorough review of the illicit payments and its implementation of enhanced compliance policies and procedures, the Department has agreed to defer prosecution of criminal charges against Fiat and its three subsidiaries for a period of three years. If Fiat abides by the terms of the agreement, at the end of the three-year period the Department will dismiss the criminal informations against the subsidiaries.
The SEC said,
The Commission considered remedial acts promptly undertaken by Fiat and CNH Global and the cooperation the companies afforded the Commission staff in its investigation. (emphasis added)
The SEC's civil complaint charged Fiat and CNH Global (a majority-owned subsidiary headquartered in Amsterdam) with failing to maintain adequate systems of internal controls to detect and prevent the corrupt payments and failing to properly record them. Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B)]. In addition to the civil penalty of $3,600,000 under the SEC settlement and disgorgement of $5,309,632 in profits and $1,899,510 in pre-judgment interest, the companies were permanently enjoined from future violations of the internal controls and books and records provisions.

Between 2000 and 2002, Iveco, CNH Italia and CNH France paid a total of about $4.4 million to the Iraqi government in order to obtain contracts to provide industrial pumps, gears, heavy vehicles and other equipment. The companies inflated the price of contracts by 10 percent before submitting them to the United Nations for approval, and concealed that the price contained a kickback. Iveco and CNH Italia also inaccurately recorded the kickback payments as “commissions” and “service fees” for its agents in its books and records.

The DOJ said that during the time in question and until August 23, 2007, Fiat had American Depositary Receipts publicly traded on the New York Stock Exchange. It was therefore an "issuer" within the meaning of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1(a), and required to keep books, records, and accounts that, in reasonable detail, accurately and fairly reflected the transactions and disposition of its own assets and those of its subsidiaries that were incorporated into its books. The SEC's civil complaint said about jurisdiction that "Fiat and CNH Global, directly or indirectly, made use of the means or instrumentalities of interstate commerce, of the mails, or of the facilities of a national securities exchange in connection with the transactions, acts, practices, and courses of business alleged in this Complaint."
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Download the DOJ's Dec. 22, 2008 release here.

Download the Fiat deferred prosecution agreement here.

Download the Iveco criminal information here.

Download the CNH France criminal information here.

Download the CNH Italia criminal information here.

View the SEC's Litigation Release No. 20835 (December 22, 2008) in Securities and Exchange Commission v. Fiat S.p.A. and CNH Global N.V., Civil Action No. 08 CV 0221 (D.D.C.) (CKK) here.

Download the SEC's civil complaint against Fiat and CNH Global here.
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Sunday
Dec142008

Siemens: Systematic Global Corruption

[Updated and Corrected] It was a corporation that tolerated fraud, deceit and concealment. There were slush funds used to bribe public officials. There were phony contracts and fake invoices to cover up the corruption, and there was a boardroom that knew for years what was happening but feigned ignorance. And yet it was one of the world's most important companies, a global powerhouse in electronics and electrical engineering, with nearly 400,000 employees and yearly revenues above $100 billion.

As reported Friday, Siemens AG will plead guilty as early as Dec. 15th to Justice Department charges of violating the Foreign Corrupt Practices Act, likely resulting in fines of $450 million. And once an expected agreement with the Securities and Exchange Commission is signed, the company will also be required to disgorge at least $350 million of its tainted profits.

The Justice Department's Information charging Siemens in the biggest FCPA enforcement action ever tells of more than 4,000 payments worth at least $1.4 billion to foreign officials to obtain or retain business -- and systematic and intentional violations of the internal controls and books and records provisions that might have prevented or detected the payments (15 U.S.C. §§ : 78m(b)(2), 78(b)(5) and 78ff(a)).

How could it have happened? Because of the corporate structure Siemens created and the culture it nourished. Where operating groups and foreign subsidiaries were accountable for their bottom line but little else. Where ethics training didn't happen. Where compliance personnel and inside auditors were choked off from resources and hobbled by internal restrictions and a confused mission. Where reliable reports to headquarters of large-scale corruption weren't investigated. Where senior employees known to have paid bribes and cooked the books were never disciplined -- but instead were allowed to retire with benefits, bonuses and severance packages.

And then there's the story in the Sentencing Memorandum of Siemens' eventual road to redemption. Because of the scope of its bribery, the company faced fines under the Federal Sentencing Guidelines of up to $2.7 billion. But the DOJ's prosecutors are asking for a penalty reduced to $450 million. And they haven't charged Siemens under the FCPA's antibribery provisions, so it probably won't be barred from U.S. government contracts. Why? The Justice Department said it views as exceptional Siemens’ wide-ranging cooperation efforts throughout this investigation, which included a sweeping internal investigation, the creation of innovative and effective amnesty and leniency programs, and exemplary efforts with respect to preservation, collection, testing, and analysis of evidence. ... More on that in later posts.

For today, here are some key allegations from the 36-page Information:

  • In April 2006, in response to a special audit request by the board of directors, Siemens’ outside auditors reported at least 250 suspicious payments made through the parent to companies in foreign jurisdictions. The audit report was provided to the board of directors, members of management and the Corporate Compliance Office. But no one made any attempt to investigate these facts, or explore whether they were related to other similar instances of wrongdoing.
  • From 2004 to 2006, in addition to learning of corruption issues involving Siemens in Nigeria, Italy, Greece, Liechtenstein, and elsewhere, the company's senior management learned of government investigations into corruption by Siemens in Israel, Hungary, Azerbaijan, Taiwan, and China. Nevertheless, executives and senior management failed to adequately investigate or follow up on any of these issues.
  • Siemens also failed to take effective disciplinary measures with respect to any of the employees implicated in the various investigations. For example, the three managers implicated in the Italian cases each received a severance package standard for early retirees, despite the fact that certain Siemens board members knew that at least two of the managers had already admitted to paying bribes at the time of their retirement.
  • From 2004 to 2006, the Corporate Compliance Office continued to lack resources, and there was an inherent conflict in its mandate, which included both defending the company against prosecutorial investigations and preventing and punishing compliance breaches. In addition, there were extremely limited internal audit resources to support compliance efforts. All of these factors undermined the improved policies because violations were difficult to detect and remedy, and resources were insufficient to train business people in anti-corruption compliance.
  • There was a consistent failure on the part of certain members of management to alert the Audit Committee to the significance of the compliance failures discovered within Siemens. Reports to the Audit Committee by the Chief Compliance Officer were principally status reports on prosecutorial investigations and often conveyed incomplete information. In some instances, management provided inaccurate information in response to Audit Committee inquiries. At no time did management convey to the Audit Committee a sense of alarm or growing crisis.
And here, from the final paragraph of the Information, are the DOJ's books-and-records charges against the company:

From at least March 2001 to November 2006, Siemens knowingly falsified and caused to be falsified books, records, and accounts required to, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the company. In doing so, Siemens:

(a) used off-books accounts as a way to conceal corrupt payments;

(b) entered into purported business consulting agreements with no basis, sometimes after Siemens had won the relevant project;

(c) justified payments to purported business consultants based on false invoices;

(d) mischaracterized bribes in the corporate books and records as consulting fees and other seemingly legitimate expenses;

(e) accumulated profit reserves as liabilities in internal balance sheet accounts and then used them to make corrupt payments through business consultants as needed;

(f) used removable Post-It notes to affix signatures to approval forms authorizing payments to conceal the identity of the signors and obscure the audit trail; and

(g) drafted and backdated sham business consulting agreements to justify third party payments; and

(h) falsely described kickbacks paid to the Iraqi government in connection with the Oil for Food Program in its corporate books and records as commission payments to agents when Siemens and Siemens France, Siemens Turkey and others were aware that a substantial portion of these payments was being passed on to the Iraqi government in exchange for being awarded contracts with the Iraqi government.
_________

Download a copy of the DOJ's Information charging Siemens AG here.

Download the DOJ's Sentencing Memorandum here.

Download here the charges related to Argentina, Bangladesh and Venezuela.

Download the Joint Statement here.

* * *
Our special thanks to readers who assisted in compiling the documents filed by the DOJ in U.S. District Court in Washington, D.C. Friday. Those linked above are at the heart of this extraordinary FCPA enforcement action.

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Thursday
Jul102008

Heading For The Hammock

It's the weekend again. Good thing. We need (and deserve) some rest. What serious mind, after all, wouldn't be exhausted pondering how Tampa Bay can be one and a half games clear of the Red Sox? Strangely, our spouse seems to hold no opinion on the subject. So in our household the burden of the American League East falls entirely on our shoulders.

Still, we managed to cover some new ground this week. Iraq's civil suit against those implicated in the oil-for-food scandal caught our eye. And we noted the appeal to the House of Lords by Britain's Serious Fraud Office. We're not sure if the bigger scandal there involves BAE and Prince Bandar or the SFO itself.

What else? Oh yes -- we were wowed by the D&O Diary's trend-spotting. Looks like FCPA-inspired civil litigation is the next big hazard in the lives of our already-pummeled corporate leaders.

Meanwhile, we're waiting for the DOJ to deal with Panalpina. The global logistics firm may have stretched "facilitating payments" well beyond the current legal definition -- and in the process caused compliance headaches for practically everyone in the oil-and-gas services sector.

Siemens' hopes for a quick resolution in the U.S. of its massive corruption problems have now evaporated. Our first post about that company was back in September 2007, an eon ago in the life of a blog.

Speaking of eons . . .

Aon Corporation -- the giant insurance broker -- disclosed back in November 2007 an internal investigation into possible violations of the FCPA. When it self-reported to the DOJ it also agreed to toll the statute of limitations. So we guess no one's in a big hurry to wrap up that one.

The orthopedic device makers are waiting to learn their fate with the FCPA. We first wrote about the investigation by the DOJ and SEC into the group's overseas sales practices in October 2007. That post was also our first mention of John Ashcroft's appointment as a compliance monitor in a domestic bribery case for Zimmer Holdings.

The revelation that Mr. Ashcroft might take home $52 million from the appointment prompted our favorite blog editor emeritus, Prof Peter Henning, to note in his '07 Thanksgiving Day message: That's not a bad payday, and Zimmer -- like every other company that enters into a deferred or non-prosecution agreement -- can hardly object to the fees lest it look uncooperative and bring down the wrath of the U.S. Attorney's Office. So much to give thanks for this Thanksgiving.

Well, with the FCPA backlog still growing, we could keep at this for a long time. But our thoughts must now return to more weighty matters. That's right -- the mystery of the American League East.

Enjoy the weekend.

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Tuesday
Jul082008

FCPA-Inspired Civil Suits Take Center Stage

The always-helpful D & O Diary has a great post about FCPA-related civil litigation here. The topic is big news these days, with interest spurred by front-page suits brought by alleged victims of overseas public corruption -- most lately the government of Iraq, Bahrain's Alba and Denver oilman Jack Grynberg.

In the post and in a memo linked to it here, the D&O Diary moves the discussion further downstream -- to shareholder derivative suits based on FCPA-related conduct or allegations. And the subject isn't merely academic.

There's Willbros' $10.5 million settlement of a class action suit after the company restated results and upped its reserve to cover potential FCPA-related penalties; Immuncor's $2.5 million settlement of a suit claiming the company and some of its leaders misled investors about business practices and internal controls; and an ongoing securities lawsuit in which the plaintiffs claim that Nature's Sunshine Products, Inc. lacked internal controls and didn't properly account for foreign transactions.

Shareholder derivative suits based on allegations of overseas public bribery have also been filed against BAE Systems and Alcoa (see Alba above). Those cases, the memo says, illustrate how leading plaintiffs' securities lawyers are leaping in, signaling that more such suits are on the way.

For directors and officers, the potential coverage gaps in liability insurance are eye-opening. For example, D&O policies sometimes contain a so-called "commissions exclusion." It precludes coverage for losses from claims related to payments to or for an agent or employee of any foreign government. If that sounds like a prohibited payment under the FCPA, it's because the exclusion, as the memo notes, was created right after the FCPA's enactment. Then there's excluded coverage for FCPA-related fines and penalties, defense expenses for enforcement actions and . . . . well, lots more.

A special thanks to Kevin LaCroix and his D&O Diary for the reliable and otherwise hard-to-find information

View our prior posts on the private right of action for FCPA-related conduct here.
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Sunday
Jul062008

Shock And Awe In U.S. Federal Court

The government of Iraq filed a civil suit in late June in federal district court in New York City against two individuals and about 50 companies and some of their related firms for bribery that allegedly occurred under the United Nations oil-for-food program. Referring to the U.N. program as "the largest financial fraud in human history," the 47-page complaint seeks more than $10 billion in damages.

Many of the defendants named in the complaint -- which relies heavily on the U.N.'s October 2005 internal report by former Federal Reserve Chairman Paul Volcker -- have already faced enforcement action for violating U.N. regulations or U.S. law, including the Foreign Corrupt Practices Act. Among those discussed in our prior posts are ABB, AB Volvo, Flowserve, Akzo Nobel, Chevron, Siemens, Ingersoll-Rand, York International, Oscar Wyatt, El Paso (successor to Coastal Corp.) and Textron. Others named in the complaint include Air Liquide, Atlas Copco, Boston Scientific, BNP Paribas, Buhler, Daewoo, Daimler-Chrysler, Dow, Eastman, Glaxo, Dresser, Kia Motors, Novo Nordisk and Vitol.

The complaint describes how kickbacks paid to representatives of Saddam Hussein were funded through illegal and undisclosed transportation and port fees, bogus after-sales service fees and overpricing of goods and services.

Although there is no private right of action under the Foreign Corrupt Practices Act, this is the third civil suit filed this year in U.S. federal court by alleged victims of overseas public corruption. In March, Bahrain-owned Alba sued Alcoa and its agent in Pittsburgh for allegedly inflating prices and using the money to bribe Bahraini officials. Then in April, Denver-based oilman Jack Grynberg and his company brought a suit in the District Of Columbia against their former consortium partners BP and Statoil, and their top executives, for allegedly using some of Grynberg's money to bribe government officials in Kazakhstan.

Similar to the Alba and Grynberg complaints, the Iraqi government's claims are based on the Racketeer Influenced and Corrupt Organizations Act (RICO), common-law fraud and breach of fiduciary duty. Iraq also alleges illegal price discrimination under the Robinson Patman Act ("It shall be unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section.").

The complaint says the federal court in New York should hear the case because the oil-for-food program was administered at the United Nations' headquarters there, all funds related to the program "were supposed to pass through an escrow account in New York," and all oil-for-food contracts were "approved in New York."

View Iraq's complaint here (courtesy of The AmLaw Daily).

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Thursday
Mar202008

AB Volvo Settles FCPA Charges For $19.6 Million

AB Volvo today entered into a consent agreement with the U.S. Securities and Exchange Commission and a deferred prosecution agreement with the Department of Justice to resolve Foreign Corrupt Practices Act violations in Iraq caused by two subsidiaries under the U.N. Oil for Food Program. The settlements include financial penalties, disgorgement and interest of about $19.6 million.

AB Volvo was charged with violating the FCPA's books and records and internal controls provisions. Two of its subsidiaries, Renault Trucks SAS and Volvo Construction Equipment AB, were also charged with engaging in separate conspiracies to commit wire fraud and to violate the books and records provisions of the FCPA. AB Volvo's settlement with the SEC includes an agreement permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $7,299,208 in profits plus $1,303,441 in pre-judgment interest, and to pay a civil penalty of $4,000,000.

The Swedish truck and equipment maker will also pay a $7,000,000 penalty pursuant to a deferred prosecution agreement with the DOJ. The agreements with the DOJ and SEC also provide for improved internal compliance programs at AB Volvo and its subsidiaries. If the two subsidiaries abide by the terms of the deferred prosecution agreement for three years, the DOJ will dismiss the criminal charges against them.

Between November 2000 and July 2001, AB Volvo's subsidiary, Renault Trucks SAS, entered into at least 18 contracts under the Oil for Food Program to supply trucks to the Iraqi government. Renault Trucks then subcontracted with truck bodybuilders to tailor the trucks to the Iraqi ministries' specifications. In order to mask its bribe payments, Renault Trucks devised a scheme in which the bodybuilders added the cost of so-called after-sales service fees into their bodybuilding costs and submitted the total cost to Renault Trucks for payment. In reality, no bona fide after-sales services were provided. The bodybuilders then passed the payments to Iraq. According to the SEC, AB Volvo's internal documents discuss the fact that had Renault Trucks made the payments in its own name, "we would have been caught red-handed." Illegal payments of $5,103,941 were made and another $1,255,922 was authorized but not paid.

From October 1999 to July 2000, another subsidiary, Volvo Construction Equipment International ("VCEI"), entered into four contracts under the Oil for Food Program in which more than $103,000 in kickbacks were paid to Iraqi ministries. On two contracts, illegal payments between 5% and 11.27% of the contract value were paid. An internal VCEI document discussed the extra trips VCEI staff had to make to Iraq in order to make the payments, and the possibility of having to give more payments. On one contract, VCEI's internal documents indicate that it gave its Jordanian agent a total of $15,950 as "the commitment to the third party whom support us and VOLVO to gain orders in the said ministry." In addition, VCEI's internal documents show that $19,000 was given to the Jordanian agent to purchase a car for the Ministry of Interior. VCEI did not disclose the payments or the car to the U.N.

According to a U.N. report of an interview of the Jordanian agent, he admitted that he personally paid kickbacks on behalf of VCEI. That company also used a Tunisian distributor to facilitate additional sales of its products to Iraq, and reduced its prices to enable the distributor to make the illegal payments based on bogus after-sales service fees. In total, VCEI or its distributors authorized more than $2.2 million in illegal payments.

The Oil for Food Program was intended to provide humanitarian relief for the Iraqi population, which faced hardship under international trade sanctions. The Program allowed the Iraqi government to purchase humanitarian goods through a U.N. escrow account. There were numerous abuses. Including AB Volvo's $7 million criminal penalty, the DOJ has now collected more than $24 million in penalties in cases involving suppliers of humanitarian goods under the Oil for Food Program.

The SEC said AB Volvo either knew or was reckless in not knowing that illicit payments were either offered or paid in connection with these transactions. "The company failed to maintain an adequate system of internal controls to detect and prevent the payments and its accounting for these transactions failed properly to record the nature of the payments," the SEC said. AB Volvo has already taken remedial acts and it cooperated with the SEC, DOJ and other authorities. “The incident is, of course, regrettable, but we do note with some satisfaction that the authorities spoke favorably of the cooperation by Volvo as well as Volvo’s own investigation and measures”, said AB Volvo CEO Leif Johansson. “It is important that we all now learn from what occurred,” he said in a company press release.

The DOJ explained its jurisdiction in the case this way: VCEI was a wholly-owned subsidiary of Aktiebolaget Volvo ("AB Volvo"), a company that had American Depositary Receipts ("ADRs") publicly traded on the National Association of Securities Dealers Automated Quotations ("NASDAQ"). AB Volvo issued and maintained a class of publicly-traded securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. § 781), and was required to file periodic reports with the United States Securities and Exchange Commission under Section 13 of the Securities Exchange Act (15 u.s.c. § 78m). Accordingly, AB Volvo was an "issuer" within the meaning of the FCPA, 15 u.s.c. § 78dd-1(a). By virtue of its status as an issuer within the meaning of the FCPA, AB Volvo was required to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the transactions and disposition of assets of AB Volvo and its subsidiaries, including those of VCEI which were incorporated into the books of AB Volvo.

View SEC Litigation Release No. 20504 / March 20, 2008 here.

View the SEC's Complaint in Securities & Exchange Commission v. AB Volvo, Civil Action No. 08 CV 00473 (D.D.C.) (JB) Here.

View the DOJ's March 20, 2008 News Release Here.

View the DOJ's Crininal Informations Against AB Volvo's Subsidiaries Here and Here.

View AB Volvo's News Release Here.

Thursday
Feb212008

Flowserve Resolves Oil For Food Bribery Charges

French and Dutch Subsidiaries Paid Kickbacks and Caused FCPA Books and Records Violations

Texas-based Flowserve Corporation will pay about $10.5 million to resolve criminal and civil charges brought by the United States for illegal payments to Iraq under the U.N. Oil for Food Program. The Securities and Exchange Commission's final judgment requires Flowserve to disgorge $2,720,861, in profits, plus $853,364 in pre-judgment interest, and pay a civil penalty of $3,000,000. In a criminal action brought by the Department of Justice, the company will pay a $4,000,000 fine and enter into a three-year deferred prosecution agreement. In Holland, Flowserve's Dutch subsidiary will also pay a fine of an undisclosed amount to settle related criminal charges.

Flowserve -- which has more than 14,000 employees in 56 countries -- supplies pumps, valves and seals mainly to the power, oil and gas and chemical industries. The SEC said that during 2001 to 2003, Flowserve's French and Dutch subsidiaries entered into twenty sales contracts with Iraqi government entities through the U.N. Oil for Food Program. Under those contracts, $646,488 in kickbacks were paid and another $173,758 were authorized. Flowserve's subsidiaries funded the bribes by including in the contracts a bogus 10% after-sales service fee to a Jordanian agent. In reality, the agent provided no after-sales services but instead used the money to deposit cash into an Iraqi-controlled account at a Jordanian bank.

Flowserve's internal accounting records falsely reflected that its French and Dutch subsidiaries paid the after-sales service fee to the agent on each contract. The financial results of the subsidiaries were included in the consolidated financial statements that Flowserve filed with the SEC. As a result, the SEC charged that Flowserve "either knew or was reckless in not knowing that illicit payments were either offered or paid in connection with these transactions. . . . The company's books falsely characterized the [after-sales service fee] payments either as payments for services actually performed or as agent commissions."

The SEC said Flowserve violated Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78m(b)(2)(A) and 78m(b)(2)(B)] by failing to keep accurate books and records and by failing to devise and maintain a system of internal accounting controls sufficient to detect and prevent the illicit payments. The DOJ charged Flowserve's French subsidiary with conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act.

Flowserve accepted responsibility for the acts of its French and Dutch subsidiaries and agreed to cooperate with the DOJ's ongoing Oil for Food investigations. U.S. prosecutors acknowledged Flowserve’s "thorough review of the improper payments and the company’s implementation of enhanced compliance policies and procedures. . . ." On that basis, the DOJ said it agreed to defer prosecution of Flowserve's French subsidiary for three years. "If Flowserve and [its French subsidiary] abide by the terms of the agreement, the Department will dismiss the Criminal Information." The SEC also said it "considered remedial acts promptly undertaken by Flowserve and the cooperation the company afforded the Commission staff in its investigation."

Flowserve Corporation trades on the New York Stock Exchange under the symbol FLS.

View the Department of Justice's February 21, 2008 Release here.

Veiw the SEC's Litigation Release No. 20461 / February 21, 2008 here.

View the Complaint in Securities and Exchange Commission v. Flowserve Corporation, Civil Action No. 08 CV 00294 (D.D.C.) (EGS) here.

Wednesday
Nov142007

Chevron Pays $30 Million To Settle Oil For Food Violations

Chevron Corporation resolved violations under the U.N. Oil-For-Food Program by entering into a non-prosecution agreement with the U.S. Department of Justice and separate agreements with the Office of Foreign Assets Control of the U.S. Department of the Treasury ("OFAC") and the Securities and Exchange Commission. The SEC's charges against Chevron included violations of the U.S. Foreign Corrupt Practices Act under the books and records and internal controls provisions (Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934). Chevron will pay a civil penalty of $3,000,000, disgorge $25 million, and pay OFAC a penalty of $2,000,000 for violating the sanctions against the former government of Iraq.

The case revealed an enormous breakdown of Chevron's compliance program. According to the SEC's complaint, despite a January 2001 company-wide policy prohibiting the payment of surcharges in connection with the purchase of Iraqi oil, Chevron's traders included $20 million in illegal surcharges to Iraq for the purchase of 78 million barrels of crude oil under 36 contracts.

"Among other things," the SEC said, "the policy required traders to obtain prior written approval for all proposed Iraqi oil purchases, and charged management with reviewing each proposed Iraqi oil deal. Chevron's traders did not follow the company-wide policy and Chevron's management was unsuccessful in ensuring its compliance. Despite being required to consider the identity, experience and reputation of a third party seller prior to approving a proposed Iraqi oil purchase, Chevron's management relied on its trader's representations. . . . At least one trader responsible for a large portion of Chevron's purchases from Iraq factored the cost of the surcharge payments into price negotiations with third parties. One third party seller, whose company on occasion sold oil to Chevron, stated that the trader he dealt with at Chevron and the trader's bosses always knew about the illegal surcharge demands by Iraq. . . . Chevron failed to devise and maintain a system of internal accounting controls to detect and prevent such illicit payments. Chevron's accounting for its Oil for Food transactions failed properly to record the true nature of the company's payments to third parties."

Other Oil-For-Food prosecutions have been resolved against El Paso Corporation and Oscar Wyatt, Jr., Textron, York International and Ingersoll-Rand Co., Ltd.

Chevron Corporation trades on the New York Stock Exchange under the symbol CVX.

View the SEC's Litigation Release No. 20363 / November 14, 2007 Here.

View the SEC's Complaint Here.

View the DOJ's November 8, 2007 Non-Prosecution Agreement Here.

Thursday
Nov082007

Siemens Discloses More Details About Corruption Investigations

€1.3 Billion In Questionable Payments Have Been Found; Investigations Involve Multiple Divisions and Countries; Oil-For-Food Program Is Also Involved

Siemens AG's November 8, 2007 earnings release for Fiscal Year 2007 and a separate document called "Legal Proceedings" disclosed the most comprehensive information yet about corruption prosecutions and ongoing investigations involving the German industrial conglomerate. Among the items disclosed are these:

Global Corruption Investigation. Questionable payments of €449 million had been identified previously. Further investigation has revealed an additional €857 million in questionable payments -- relating to various countries and business units under review.

Germany. The Munich district court in October 2007 fined Siemens €201 million, ending the investigation by the Munich Office of Public Prosecution. The court found that a former manager bribed officials in Russia, Nigeria and Libya in 77 cases from 2001 to 2004 for the purpose of obtaining contracts on behalf of Siemens.

-- The Munich public prosecutor is still investigating certain current and former employees on suspicion of embezzlement, bribery and tax evasion. The prosecutor has searched Siemens' premises and employees' private homes. Arrest warrants have been issued for several current and former employees, including former members of senior management.

-- Prosecutors in Darmstadt charged two other former employees. In May 2007, the Regional Court of Darmstadt sentenced one of them to two years in prison (suspended on probation) for commercial bribery and embezzlement. Another former employee was sentenced to nine months in prison (also suspended on probation) for aiding and abetting commercial bribery. Siemens AG was ordered to disgorge €38 million of profits.

-- In 2004, the public prosecutor in Wuppertal began investigating certain Siemens employees who allegedly participated in bribery related to the award of an EU contract for refurbishment of a power plant in Serbia in 2002. In August 2007, the public prosecutor searched the premises of Siemens' Power Generation Group in Erlangen, Offenbach and Karlsruhe (all in Germany).

Italy. The public prosecutor in Milan is investigating allegations that two employees of Siemens S.p.A. made illegal payments to employees of the state-owned gas and power group ENI. Also in Italy, legal proceedings involving corruption charges against two other former employees ended when they plea bargained in November 2006.

China, Hungary, Indonesia and Norway. Other pending investigations into allegations of public corruption involving Siemens, certain current and former employees, or projects in which Siemens is involved, include the following examples:

-- There are numerous public corruption-related investigations in China relating to several divisions of Siemens Ltd. China, primarily Medical Solutions (Med), Automation and Drives and Siemens IT Solutions and Services. The investigations were begun by prosecutors in Guangdong, Jilin, Xi´an, Wuxi, Shanghai, Ting Hu, Shandong, Hunan, and Guiyang, among others.

-- Siemens Zrt. Hungary and certain employees are being investigated by Hungarian authorities for suspicious payments under consulting agreements with shell corporations, and for alleged bribery related to the award of a contract for delivery of communications equipment to the Hungarian Armed Forces.

-- The public prosecutor in Kalimantan, Indonesia, has charged the head of the Med division of Siemens PT Indonesia with participating in bribery, fraud, and overcharging related to an award of a contract for delivery of medical equipment to a hospital in 2003.

-- The Norwegian government is investigating possible bribery and overcharging of the Norwegian Department of Defense under a contract for the delivery of communications equipment in 2001.

The United States. The U.S. Department of Justice is investigating possible criminal violations by Siemens of the U.S. Foreign Corrupt Practices Act and other laws. During the second quarter of FY 2007, the U.S. Securities and Exchange Commission upgraded its informal inquiry of Siemens into a formal investigation. The SEC and the DOJ are also investigating possible violations of U.S. law by Siemens in connection with the Oil-for-Food Program. Siemens is cooperating with the U.S. investigations.

Other Oil-For-Food Investigations. A French magistrate commenced a preliminary investigation of local companies, including Siemens France S.A.S., in the Oil-for-Food Program. German prosecutors began a related investigation and searched Siemens' premises and employees' private homes in Erlangen and Berlin in August 2007. Siemens is cooperating with the authorities in France and Germany.

Siemens AG's ADRs trade on the New York Stock Exchange under the symbol SI.

View Siemens' November 8, 2007 Earnings Release Here.

View Siemens' November 8, 2007 Document "Legal Proceedings" Here.

Thursday
Nov012007

Ingersoll-Rand Pays $6.7 Million To Settle Oil For Food Violations

Charges Involve Fraud, FCPA Books and Records Violations and Improper Promotional Expenses

Bermuda-based heavy equipment maker Ingersoll-Rand Company Limited said on October 31, 2007 that it resolved fraud and U.S. Foreign Corrupt Practices Act violations in connection with illegal payments by subsidiaries to Iraqi officials under the U.N. Oil For Food Program. Ingersoll-Rand will pay a total of $6.7 million in penalties, interest and disgorgements. It consented to entry of a civil injunction with the Securities and Exchange Commission and a three-year deferred prosecution agreement with the Department of Justice.

The DOJ filed separate criminal informations against Ingersoll-Rand's subsidiary Thermo King Ireland Limited for conspiracy to commit wire fraud and against Ingersoll-Rand Italiana SpA for conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act. After discovering and investigating the illegal payments, Ingersoll-Rand fired a number of employees. It conducted what the DOJ called a "thorough review of the improper payments" and self-reported the results to the government. If Ingersoll-Rand meets the terms of the three-year deferred prosecution agreement -- no further violations, enhanced compliance efforts, use of a "compliance consultant" -- the DOJ will dismiss the criminal charges against the subsidiaries.

The subsidiaries and their agents arranged and paid kickbacks to the Iraqi government in order to obtain contracts with ministries to provide road construction equipment, air compressors and parts, and refrigerated trucks. Between October 2000 and August 2003, employees of the subsidiaries paid about $600,000, and offered to pay an additional $250,000 in kickbacks by inflating the price of contracts by about 10 percent before submitting them to the United Nations for approval. Commissions were prohibited by U.N. sanctions in place against Iraq.

The SEC complaint charged Ingersoll-Rand with failing to maintain an adequate system of internal controls to detect and prevent the illegal payments and failing to record the true nature of the payments by calling them "sales deductions" or "other commissions." Ingersoll-Rand consented to the entry of a final judgment with the SEC permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78m(b)(2)(A) and (B)].

The SEC's complaint describes, among other things, how Ingersoll-Rand's Italian affiliate improperly used the FCPA's affirmative defense for promotional expenses. In February 2002, I-R Italiana sponsored eight officials from the Iraqi Oil Ministry to spend two days touring a manufacturing facility in Italy. But the Iraqi officials spent two additional days "on holiday" touring Florence at the company's expense, and were also given $8,000 in "pocket money." I-R Italiana's payment of holiday travel expenses and "pocket money" violated Ingersoll-Rand's internal policies regarding payments to foreign government officials. The company's 2002 FCPA Manual permitted payments directly related to product demonstrations or actual contracts but expressly prohibited any payment for vacations. The company's Travel Guidelines expressly barred any cash payment of "pocket money" or "walking around money." Ingersoll-Rand also failed to account properly for its pocket money payments in its accounting books and records, recording the payments under a general ledger account for "cost of sales deferred."

Ingersoll-Rand trades on the New York Stock Exchange under the symbol IR. It says it "has been continuously listed on the NYSE since 1906 and is among the top 10 continuously listed companies on the NYSE."

View Ingersoll-Rand's October 31, 2007 News Release Here.

View the DOJ's October 31, 2007 News Release Here.

View Ingersoll-Rand's Deferred Prosecution Agreement Here.

View the SEC's Litigation Release No. 20353 / October 31, 2007 Here.

View the SEC's Complaint Here.

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.

Monday
Oct012007

Oscar Wyatt, Founder Of Coastal Corporation, Pleads Guilty To Iraq Bribes

Guilty Plea Follows El Paso's Settlement of FCPA Violations Earlier This Year

Oscar Wyatt Jr., 83, pleaded guilty on October 1, 2007 to one count of conspiracy to commit wire fraud in connection with the U.N. oil-for-food program. The U.S. Government accused him of paying millions in illegal surcharges directly to Iraqi officials in return for oil allocations from 2000 to 2002. He faces 18 to 24 months in prison under a plea agreement and will forfeit $11 million. He founded and ran Coastal Corporation, which he sold to El Paso Corporation in 2001.

In February this year, El Paso settled violations of the U.S. Foreign Corrupt Practices Act related to illegal surcharges it paid to Iraqi officials under the oil-for-food program. It disgorged $5,482,363 in profits and paid a civil penalty of $2,250,000. It also entered into a non-prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York and cooperated in providing evidence relating to Wyatt's role. Violations under the anti-bribery provisions of the FCPA carry potential prison sentences of 5 years, while under the oil-for-food program, which ran from 1996 to 2003, Wyatt could have faced 20 years for his role.

The Securities and Exchange Commission's February 7, 2007 litigation release said, “El Paso failed to maintain an adequate system of internal controls to detect and prevent the illegal payments. Although El Paso inserted a provision in some contracts requiring the third party to represent that it had not paid surcharges, El Paso failed to conduct due diligence to ensure that surcharges were not paid. Recorded conversations reveal El Paso’s knowledge that the provision was entirely ineffective. In one conversation, a third party that indicated he was willing to pay illegal surcharges to Iraq indicated that he would be equally willing to sign a false certification denying the payment. El Paso’s accounting for its Oil for Food transactions failed properly to record the nature of the company’s payments. In at least fifteen transactions, a portion of the company’s price for oil constituted kickbacks to Iraq. The company failed to so designate those payments, characterizing them instead simply as part of the cost of goods sold.”

During Wyatt's trial, which ended mid-way with his guilty plea, prosecutors played tapes for the jury of conversations between him and Saddam Hussein.

El Paso Corporation trades on the New York Stock Exchange under the symbol EP.

View the SEC's Litigation Release No. 19991 / February 7, 2007 Here.

View the SEC's Complaint Against El Paso Corporation Here.

View the DOJ's 2005 Press Release About Wyatt's Indictment Here.