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Entries in KBR (130)

Wednesday
Feb182009

Waters So Deep

There are things we know we don't know, said the former boss at the Pentagon. But then again, he added, there are things we don't know we don't know. That distinction came to mind as we read the latest email from a correspondent who always holds us to a high standard. He said this:

"I, and other readers of the blog, could benefit from a discussion of what distinguishes a criminal violation of the FCPA's antibribery provisions brought by the DOJ from a civil violation of the antibribery provisions brought by the SEC. Of course, prosecutorial discretion is relevant, but I do not see in the statute any distinction between the two (i.e. no additional elements necessary for a criminal charge vs. a civil charge). Compare this to the books and records and internal control provisions which state at 15 USC 78m(b)(4) that 'no criminal liability shall be imposed' for violation of the books and records and internal control provisions except for 'knowing circumvention' or 'knowingly failing' to implement a system of internal controls or 'knowing falsification' of books and records."

Our correspondent said he'd been thinking about this since the SEC charged Halliburton Company and KBR Inc. with civil antibribery violations, while the DOJ charged only Kellogg Brown and Root LLC with criminal violations, even though the SEC's complaint sets forth all the "criminal" elements of an antibribery violation.

So what's the story?

Well, we're stumped. As we told our correspondent, we've read the U.S. Attorney’s Manual 9-28.000 / Principles of Federal Prosecution of Business Organizations (here). But we still don't know how decisions get made by the folks at the DOJ and SEC about who to charge with criminal or civil antibribery offenses. To which our correspondent replied, "From a policy standpoint, you hate to think that whether behavior x is charged civilly or criminally depends on the whim of a prosecutor and not proving additional elements needed to charge a crime."

So here's an invitation to all readers. Tell us, if you know, how decisions are made to charge companies or individuals under the Foreign Corrupt Practices Act with violations of the antibribery provisions either criminally or civilly. Is everything left to prosecutorial discretion? Are there published guidelines? How about unpublished guidelines? Secret handshakes?

To promote this discussion, we've adopted our own Stimulus Plan. The best response -- make that the best several responses -- will earn a copy of Bribery Abroad.

Download the DOJ's criminal information against Kellogg Brown and Root LLC here.

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

Listen to the podcast here.
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Monday
Feb092009

KBR's Twisted Web

We've been looking over the criminal information charging Kellogg, Brown & Root LLC with violating the Foreign Corrupt Practices Act. There's one conspiracy and four substantive counts. There's also a related document called the Joint Motion to Waive Presentence Investigation. That's where the Justice Department talks about the potential criminal fine range and agrees with KBR on a final penalty (subject to court approval) of $402 million.

(Halliburton, KBR's former parent, said two weeks ago that the Securities and Exchange Commission has also agreed, contingent on the DOJ's settlement, to a separate disgorgement payment to the SEC of $177 million.)

The criminal information describes KBR's attempts to shield from the FCPA its corrupt payments to Nigerian officials. Its TSKJ joint venture, equally owned with Technip, SA of France, Snamprogetti Netherlands B.V., a subsidiary of Saipem SpA of Italy, and JGC of Japan, "operated through three Portuguese special purpose corporations based in Madeira, Portugal." Madeira Company 3, as the information calls it, was used to enter into so-called consulting agreements with agents, who in turn passed bribes to Nigerian officials.

KBR and its top brass tried to hide behind Madeira Company 3. Ownership was held indirectly through M.W. Kellogg Ltd., a U.K. company. The criminal information says the ownership structure was "part of KBR's intentional efforts to insulate itself from FCPA liability for bribery of Nigerian government officials through the Joint Venture's agents." And the information continues:

The boards of managers of Madeira Company 1 and Madeira Company 2 included U.S. citizens . . . but KBR avoided placing U.S. citizens on the board of managers of Madeira Company 3 as a further part of KBR's intentional effort to insulate itself from FCPA liability.
The Foreign Corrupt Practices Act prohibits both direct and indirect corrupt payments to foreign officials. Indirect payments typically pass through the hands of an overseas partner or agent, then end up with the foreign official for an unlawful purpose. That's how most violations happen. And yet, executives keep trying to outsmart the FCPA. They create convoluted ownership structures and payment patterns that they think will somehow insulate them and their company from FCPA liability. The results, as the KBR case shows, are usually disastrous.

The FCPA is smart. It looks not at how payments to foreign officials are made, but why. It looks, in other words, at the intent. If a payment was meant to corruptly obtain and retain business, then the payment violates the FCPA, no matter how many Madeira-like companies it passed through, and no matter how many agents or other middlemen were involved.

The DOJ's plain-English explanation of the FCPA's anti-bribery provisions talks about warning signs, called "red flags." They should tip off anyone about impending compliance dangers. Red flags include unusual payment patterns or other strange arrangements, and a lack of transparency. Red flags would include all of the devices KBR employed. So the lesson? Whenever company structures, payment arrangements, and management compositions have no obvious operational or economic justification, there must be something wrong. That's when everyone involved should be asking hard questions, such as whether the real intent is to do legitimate business or to violate the FCPA and other laws.

Download a copy of KBR's criminal information here.

Download a copy of the DOJ / KBR Joint Motion to Waive Presentence Investigation here.

Listen to the podcast here.
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Friday
Feb062009

KBR Nears Final Plea Deal

A criminal information filed in federal court in Houston on Friday shows that Kellogg, Brown & Root LLC, the Houston-based global engineering and construction firm that was once part of Halliburton, will plead guilty to violating the Foreign Corrupt Practices Act. KBR may appear in court next week. The information refers to a plea agreement that has not yet been released by the Justice Department. The Houston Chronicle and the AP have reports.

The criminal information, according to the reports, indicates that the government has agreed to a $402 million fine, payable in installments, beginning with a $52 million payment five days after sentencing, and seven $50 million installments, each due on the first day of each quarter beginning April 1. Under federal sentencing guidelines, the fine range was between $376.8 million and $753.6 million.

Two weeks ago, KBR's former parent, Halliburton, said a settlement of Foreign Corrupt Practices Act enforcement actions with the Justice Department and the Securities and Exchange Commission was waiting for the DOJ's final approval. It said it had reserved $559 million for the proposed settlements. Halliburton is obligated under indemnity agreements to pay fines and penalties on behalf of KBR. It said in the release that it would "pay $382 million [to the DOJ] on behalf of KBR in eight installments over the next two years. Pursuant to the terms of the prospective settlement with the SEC, Halliburton would agree to be jointly and severally liable with KBR for and, as a result of the indemnity, to pay to the SEC $177 million in disgorgement."

In September 2008, Albert “Jack” Stanley, 65, a former chairman and CEO of KBR, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. His final sentencing is set for May this year. Under his plea agreement, he faces up to seven years in prison and a restitution payment of $10.8 million.

From 1995 to 2004, Stanley helped a joint venture that included KBR and its predecessors funnel $182 million in bribes to government officials in Nigeria. The bribes were paid in exchange for contracts worth $6 billion to build liquefied natural gas facilities there. KBR's 2007 Annual Report (its most recent) described a joint venture called TSKJ "formed to design and construct large-scale projects in Nigeria. TSKJ's members are Technip, SA of France, Snamprogetti Netherlands B.V., which is a subsidiary of Saipem SpA of Italy, JGC [of Japan] and us, each of which has a 25% interest. TSKJ has completed five LNG production facilities on Bonny Island, Nigeria . . . ."

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. Former Vice President Dick Cheney was Halliburton's chief executive from 1995 to 2000.

Why did Halliburton, and not KBR, first announce the proposed settlements with the DOJ and SEC two weeks ago? Under the indemnity in their agreement for KBR's spin off, known as the master separation agreement, Halliburton calls the shots on most FCPA-related matters. Here's what KBR said about that in the 2007 Annual Report:

As part of the master separation agreement, Halliburton has agreed to indemnify us for certain FCPA Matters, but we had to agree that Halliburton will, in its sole discretion, have and maintain control over the investigation, defense and / or settlement of FCPA Matters until such time, if any, that we exercise our right to assume control of the investigation, defense and /or settlement of FCPA Matters. We have also agreed, at Halliburton’s expense, to assist with Halliburton’s full cooperation with any governmental authority in Halliburton’s investigation of FCPA Matters and its investigation, defense and/or settlement of any claim made by a governmental authority or court relating to FCPA Matters, in each case even if we assume control of FCPA Matters.
Halliburton said in its release two weeks ago that it gave KBR the indemnity "[t]o enhance KBR's financial stability and solvency, making possible the separation of KBR . . . ."

KBR, Inc. trades on the NYSE under the symbol KBR.

Halliburton Company trades on the NYSE under the symbol HAL.

Listen to the podcast here.
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Sunday
Jan252009

Halliburton Announces Pending Settlement

Halliburton said today its settlement of Foreign Corrupt Practices Act enforcement actions with the Justice Department and Securities and Exchange Commission is waiting for the DOJ's final approval. It said it has reserved $559 million for the proposed settlements that include payments on behalf of its former subsidiary KBR.

In September last year, Albert “Jack” Stanley, 65, a former chairman and CEO of KBR, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. He admitted that from 1995 to 2004, he helped a joint venture that included KBR and its predecessors funnel $182 million in bribes to government officials in Nigeria. The bribes were paid in exchange for contracts worth $6 billion to build liquefied natural gas facilities there. Stanley was sentenced to seven years in prison and a restitution payment of $10.8 million. The sentence is subject to review based on his cooperation.

Here's the full text of Halliburton's announcement:
___________

2009 Press Releases
FOR IMMEDIATE RELEASE: January 26, 2009

HALLIBURTON ANNOUNCES FOURTH QUARTER CHARGE RELATED TO PROSPECTIVE SETTLEMENT OF FOREIGN CORRUPT PRACTICES ACT (FCPA) INVESTIGATIONS

$0.34 fourth quarter 2008 earnings per diluted share impact from $303 million charge to discontinued operations

HOUSTON, Texas - As previously disclosed in its public filings, Halliburton (NYSE:HAL) has engaged in settlement discussions with the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) with regard to the ongoing FCPA investigations involving Halliburton and KBR, Inc. (KBR). These discussions have resulted in prospective settlements with both agencies. The settlement with the DOJ has been fully negotiated and Halliburton has been advised that it is being reviewed for final approval. The settlement with the SEC has been approved contingent upon the completion of the settlement with the DOJ. There can be no assurance, however, that the settlement with the DOJ will be approved or that, consequently, the condition to the settlement with the SEC will be satisfied.

To enhance KBR's financial stability and solvency, making possible the separation of KBR, Halliburton indemnified KBR from fines or other monetary penalties or direct monetary damages, including disgorgement, as a result of a claim made or assessed by a governmental authority in the United States and certain other countries related to alleged or actual violations occurring prior to November 20, 2006 of the FCPA or particular, analogous applicable foreign statutes, laws, rules, and regulations in connection with investigations pending as of that date.

As a result of the indemnity and the terms of the prospective settlement with the DOJ, Halliburton would agree to pay $382 million on behalf of KBR in eight installments over the next two years. Pursuant to the terms of the prospective settlement with the SEC, Halliburton would agree to be jointly and severally liable with KBR for and, as a result of the indemnity, to pay to the SEC $177 million in disgorgement. KBR would separately agree that Halliburton's indemnification obligations with respect to the DOJ and SEC investigations would be fully satisfied.

The prospective settlement with the DOJ would not require Halliburton to engage a monitor. The prospective settlement with the SEC would require Halliburton to retain an independent consultant to perform a 60-day initial and, approximately one year later, a 30-day follow-up review and evaluation of Halliburton's anti-bribery and foreign agent internal controls and record-keeping policies and to adopt any necessary improvements.

During the second quarter of 2007, in connection with the separation of KBR from Halliburton, Halliburton recorded a gain on the disposition of KBR of approximately $933 million, net of tax and the estimated fair value of the FCPA and other indemnities and guarantees provided to KBR, which was included in "Income (loss) from discontinued operations, net of income tax" on the consolidated statement of operations. During the second quarter of 2008, Halliburton recorded additional adjustments to the estimated liability for the indemnities and guarantees provided to KBR. These indemnities and guarantees are primarily included in "Other liabilities" on the consolidated balance sheets and totaled $342 million at September 30, 2008.

As a result of these prospective settlements, Halliburton recorded in the fourth quarter of 2008 an additional charge to discontinued operations of $303 million or $0.34 per diluted share.

Commenting on these matters, a Company spokesperson stated, "The Company will not further comment or take questions regarding the prospective settlements, given that there can be no assurance that they will become effective in accordance with their respective terms."
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Wednesday
Nov262008

Family, Food, Football . . . And FCPA

Our post yesterday referred to the long-pending Foreign Corrupt Practices Act investigations at Halliburton and DaimlerChrysler (now Daimler AG). For readers wanting to know what the two companies are now saying about their FCPA issues, we've rounded up their latest disclosures. Daimler's is extracted from its Annual Report for December 31, 2007 (here), and Halliburton's is from its Quarterly Report for September 30, 2008 (here).

Daimler's disclosure is brief. It says the DOJ and SEC are investigating possible violations of the Foreign Corrupt Practices Act, and that the company has already determined through its own investigation that it made improper payments in Africa, Asia and Eastern Europe. The internal investigation detected tax liabilities resulting from "misclassifications of, or the failure to record, commissions and other payments and expenses," which have been self-reported to authorities in several jurisdictions. Daimler says it has also taken other corrective action and is working to complete the internal investigation.

(In August 2007, Daimler sold 80.1 percent of Chrysler to private-equity firm Cerberus Capital Management LP and retained the remaining 19.9 percent. Cerberus is now accusing Daimler of "intentionally and materially" misleading it in connection with the sale. FCPA issues have not been mentioned publicly. An AP report about the dispute features our favorite legal pundit, Professor Peter Henning.)

At around 2,500 words, Halliburton's most recent FCPA disclosure is one of the longest on record. It describes two decades of potential compliance problems related to the giant Bonny Island Project and others in Nigeria. The SEC, it says, has subpoenaed information about "current and former agents used in connection with multiple projects, including current and prior projects, over the past 20 years located both in and outside of Nigeria" involving Halliburton's energy services business and its former affiliate KBR. Halliburton says it has agreed with the DOJ and SEC to toll the statute of limitations.

Albert "Jack" Stanely, a past chairman and CEO of KBR, features in the disclosure. He pleaded guilty in September to helping funnel $182 million in bribes to government officials in Nigeria. He was sentenced to a maximum of 84 months in prison (subject to a reduction for future cooperation) and ordered to make restitution of about $11 million.

Research for this post was provided courtesy of Securities Mosaic.

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Sunday
Sep072008

More Individuals Indicted For FCPA Violations

The Justice Department said it arrested four people last week on charges that they and their company bribed Vietnamese officials in exchange for contracts to supply equipment and technology to government agencies in Vietnam.

The DOJ said U.S. citizens Nam Nguyen, 52, of Houston; Joseph Lukas, 59, of Smithville, N.J.; Kim Nguyen, 39, of Philadelphia; and An Nguyen, 32, of Philadelphia were arrested after they, along with Nexus Technologies Inc., were indicted on Sept. 4, 2008, by a federal grand jury in Philadelphia on one count of conspiracy to violate the Foreign Corrupt Practices Act and four substantive counts of violating the FCPA.

The arrests are more evidence of the government's stepped-up enforcement of the FCPA and its apparent strategy to target individuals.

In April 2008, Washington Post business columnist Steven Pearlstein said the DOJ used to have the equivalent of two people assigned to FCPA cases but "now has as many as 12 prosecutors, assisted by a new team of FBI agents dedicated to these cases." And ProPublica's story about Jack Stanley's guilty plea said, "The active involvement of the FBI is particularly worrisome to [people who violate the FCPA]. In contrast to white-collar investigations handled by the Justice Department and the Securities and Exchange Commission, the FBI is believed to be prepared to use techniques more familiar to investigations of organized crime, including wiretapping and undercover agents."

According to the indictment, Nexus Technologies Inc., a privately-held Delaware company with offices in Philadelphia, New Jersey and Vietnam, sold third-party underwater mapping and bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems to the government of Vietnam. The indictment alleges that from about 1999 through 2008, the defendants paid at least $150,000 to officials at Vietnam’s Ministries of Transport, Industry and Public Safety to secure supply contracts. The indictment says Nam Nguyen negotiated contracts and bribes with Vietnamese government officials while Lukas negotiated with vendors in the United States. Kim and An Nguyen allegedly arranged for the transfer of funds at Nam Nguyen’s direction.

The conspiracy count carries a maximum penalty of five years in prison, a fine of the greater of $250,000 or twice the gain; and a three year term of supervised release. The FCPA counts each carry a maximum penalty of five years in prison, a fine of the greater of $100,000 or twice the gain; and a three year term of supervised release. Nexus Technologies Inc., faces a maximum $2 million fine per count, if convicted.

The DOJ's announcement said the case was investigated by the FBI and the U.S. Department of Commerce, Office of Export Enforcement. The government hasn't said whether the four individuals or their company may have violated U.S. export rules.

As the Justice Department says, an indictment is merely an accusation and the defendant is presumed innocent until and unless proven guilty at trial beyond a reasonable doubt.

View the DOJ's Sept. 5, 2008 release here.

View a copy of the indictment here.

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Saturday
Sep062008

Jack Stanley's Guilty Plea, Up Close

ProPublica is a privately-funded, non-profit, independent newsroom located in Manhattan. It's led by Paul Steiger, the former managing editor of The Wall Street Journal, and its staff includes some of the best editors and reporters in the business. Its mission is to save investigative journalism, which is going the way of the dodo in commercial newrooms across America.

One story ProPublica is now chasing is the guilty plea a few days ago by Albert "Jack" Stanley, the former chairman and CEO of KBR. He admitted violating the Foreign Corrupt Practices Act by helping arrange and hide more than $182 million in illegal payments to Nigerian government officials. When news about the plea broke, we knew right away the story would be too big for blogs or even most traditional news organizations. The scale of the bribery is enormous, the companies involved are powerhouses, and the cast of characters is daunting. But it's the most important FCPA story around, and maybe the most important one ever. So it needs some special handling.

Enter ProPublica. Its first look at the Stanley plea appeared yesterday, in an article written by T. Christian Miller. He and four others reported the story, including the legendary Lowell Bergman, who's no stranger to the FCPA. This story appeared first in MSN Money, and then on ProPublica's site under what's called a Creative Commons Attribution- Noncommercial- No Derivative Works 3.0 United States License. That means we can republish it with attribution to ProPublica and without any changes.

While this post exceeds our typical word count, we doubt any readers will object.

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Bribery scandal rocks Big Oil

A former Halliburton exec has pleaded guilty to being in cahoots with crooked foreign officials. He's now helping US investigators, and a much wider crackdown is expected to unfold.

By ProPublica and PBS' "Frontline"

In the world of Big Oil, Albert "Jack" Stanley was legendary for winning billion-dollar contracts in Third World countries as the Halliburton executive who knew all the secrets of deals in places like Malaysia, Egypt and Yemen.

In the wake of his admission in a guilty plea last week that he had resorted to bribes, kickbacks and high-level corruption to secure deals in Nigeria, however, Stanley now lies at the center of a widening scandal in the oil industry that has implications for corporations and governments across the globe.

Stanley's case is the first in what federal officials believe will be a string of indictments in coming months against U.S. corporate executives who have participated in bribing foreign officials in recent years.

By agreeing to cooperate with prosecutors, Stanley, who ran KBR when it was a subsidiary to Halliburton, promises to become a hammer for federal investigators seeking to crack open additional cases under a 30-year-old statute designed to halt overseas corporate corruption. About 80 cases involving major corporations accused of overseas bribery were under investigation as of last year, a high-level Justice Department official said.

In addition, Stanley's cooperation may provide a new tool for encouraging industrial countries in Europe and Asia to get more serious about enforcing anti-bribery laws against corporations based there. The $182 million in bribes were allegedly paid not just by Halliburton but by its partners, an international consortium of engineering companies from France, Italy and Japan. The United Kingdom has jurisdiction, too, because much of the bribery scheme was, according to court documents, hatched in London, where Stanley maintained a sumptuous home.

"We are very pleased to see that there has been an uptick in enforcement not only in the U.S. but in other countries as well,'' said Patrick McCormick, a spokesman for Transparency International-USA, an anti-corruption group funded by donations from government development agencies and private businesses and foundations. "We are hoping that (this case) is a sign of things to come."

A nightmare unfolding

The intensifying level of this government effort, pushed by a Republican administration normally friendly to business, cuts two ways for American business executives.

For those who may have been involved in bribery to secure construction contracts or equipment sales in developing countries around the world, it represents a nightmare.

The active involvement of the FBI is particularly worrisome to such people. In contrast to white-collar investigations handled by the Justice Department and the Securities and Exchange Commission, the FBI is believed to be prepared to use techniques more familiar to investigations of organized crime, including wiretapping and undercover agents.

Stanley's high profile and punishment -- he faces a potential seven-year sentence, the longest in the history of the federal statute outlawing the bribing of foreign officials -- also signal the federal government's willingness to seek long prison terms rather than fines and court injunctions.

For those who fret that they have been losing out to foreign competitors in jurisdictions less likely to prosecute bribery, it offers hope that the playing field will soon be leveled.

Stanley has already acknowledged paying bribes to unnamed senior Nigerian officials, although reports have identified the primary recipient as Nigeria’s late president, Sani Abacha. Stanley also has admitted receiving kickbacks of $10.8 million from contracts that Halliburton and predecessor companies signed with governments in Nigeria, Malaysia, Egypt and Yemen. Government officials in those countries, with the exception of Abacha, have not yet been implicated, according to a person familiar with the investigation.

Stanley's testimony may also pose concerns for Vice President Dick Cheney, who ran Halliburton between 1995 and 2000, when Stanley was appointed as KBR's chief executive officer. Cheney has consistently denied wrongdoing.

Law enforcement officials familiar with the investigation said that in previous interviews, Stanley repeatedly said that then-CEO Cheney had no knowledge of the bribes. At the time, however, Stanley was not a cooperating witness, a stance that changed in June when he was confronted with evidence of his involvement in the bribery scheme.

The vice president's office declined to comment, citing the continuing litigation.

Larry Veselka, Stanley's lawyer, said his client will cooperate fully in any investigation. A judge will determine Stanley's final sentence depending on his compliance with the plea agreement.

"He's going to cooperate with wherever they want to go and whatever they want him to do,'' Veselka said Thursday.

When oil mixes with greed

Stanley's rise and fall, detailed in U.S. and leaked French court documents, show what can happen when corporate greed mixes with the autocratic governments that control valuable natural resources such as oil and copper in lawless corners of the globe.

Now 65, Stanley spent nearly his entire career in the oil business, a globe-trotting high-level roustabout who made a specialty of dealing with governments in resource-rich, accountability-poor countries. He owned a million-dollar home in Texas and a residence in one of London's swankest neighborhoods -- a property that he will now have to sell under his plea agreement.

A fearsome competitor, Stanley had a reputation as a hard drinker. At his hearing in Texas, Stanley held himself up by gripping the podium, and he looked frail. He appeared to wince at references to alcoholism as a mitigating factor for his actions and to statements by the government prosecutor William Stuckwisch, who characterized Stanley's behavior as "egregious."

"Jack was . . . extremely capable, smart and totally dedicated to the company,'' said one former colleague, who did not want to be identified because of the continuing investigation. "I was shocked like everyone else when we heard about the bribes."

Others expressed less surprise that Halliburton was involved. Walter Carrington was the U.S. ambassador to Nigeria in 1994, when Stanley acknowledged making the first bribe payments to the Nigerian government.

"I used to brag that because of our Foreign Corrupt Practices Act, Americans weren't involved as other countries were. American businessmen would complain that it wasn't fair -- (that) other countries really ought to be doing more to keep people from doing this. It was a competitive disadvantage,'' said Carrington, who did not recall meeting Stanley. "Halliburton was a different kettle of fish. There were always stories going on about the way in which their people operated."

Stanley began his rise up the corporate ladder with M.W. Kellogg, an oil infrastructure company then owned by Dresser Industries. Dresser would later merge with Halliburton, and Kellogg would become KBR.

Stanley was working as a senior executive at Kellogg in the 1990s when the company formed a joint venture called TSKJ to pursue contracts to construct a liquefied-natural-gas plant on Bonny Island off Nigeria's oil-rich coast. Besides Kellogg, the TSKJ companies were France's Technip; Snamprogetti Netherlands, an affiliate of Italy's Eni.

As Nigerian officials weighed the consortium's bid against a competing group led by San Francisco-based Bechtel Engineering, Stanley decided to improve the chances of winning by offering bribes, according to court documents filed by the Justice Department and the SEC.

He hatched a plan to hire consultants who could direct the money to Nigerian officials, the court documents said. A consultant from the United Kingdom would pay off higher-level Nigerian officials, while a second, from Japan, would be responsible for bribing lower-ranking officials. In November 1994, the U.K. consultant, who was not identified, allegedly told an associate that it would take $60 million to secure the contract, the court documents said. Of that money, $40 million to $45 million would go to the "first top-level executive branch" of Nigerian officials, while an additional $15 million to $20 million would go to other Nigerian officials.

Later that month, Stanley traveled to the Nigerian capital to meet with senior officials and confirm that the U.K. consultant would serve as a go-between, according to court documents and officials familiar with the investigation.

Over the next year, TSKJ, operating through subsidiary companies in Madeira, Portugal, in the Portuguese offshore tax haven of Madeira Island, signed agreements to transfer millions of dollars to the U.K. consultant, according to court documents and people familiar with the investigation.

In December 1995, the Nigerian government awarded the first of the gas plant contracts to TSKJ. Over the next decade, the government awarded TSKJ four contracts worth a total of $6 billion to build and expand the plant.

Throughout that time, Stanley continued traveling to Nigeria to meet with senior officials and continued arranging payments through the U.K. and Japanese consultant firms, according to the court documents.

Abacha died suddenly in 1998. According to Nigerian press accounts, his death was either the result of a marathon Viagra-fueled orgy with four prostitutes or a conspiracy among his closest confidantes to poison him. No autopsy was ever performed. In the decade since Abacha's death, Switzerland alone has returned at least $500 million in his bank accounts to the government of Nigeria.

All told, Stanley traveled to Nigeria to meet with top officials on four occasions between 1994 and 2001 as part of the bribery scheme. TSKJ paid out $130 million in bribes through the U.K. consultant and $50 million through the Japanese firm, according to the court documents.

French and Nigerian investigators have identified the primary consultant to the consortium as Jeffrey Tesler, a London attorney who worked with Nigerian immigrants, according a transcript of testimony from the French case.

Tesler was not identified in U.S. court documents. He has been investigated by British and French authorities but has never been charged with wrongdoing. Last year, British authorities conducted a search of his London office at the urging of U.S. officials. A woman who answered the phone at Tesler's law office Thursday said the attorney could not be reached and would have no comment.

The Cheney connection

In the middle of the bribery and plant construction, Kellogg changed hands. In 1998, Kellogg's parent company, Dresser Industries, merged with Halliburton.

Cheney, then CEO of Halliburton, arranged the merger during a quail-hunting trip. Afterward, Cheney appointed Stanley to head KBR, a newly formed construction and logistics subsidiary that grew out of the merger.

In a 1999 article in Middle East Economic Digest, Cheney praised Stanley: "We took Jack Stanley (and a colleague) . . . to head up the organization, and that has helped tremendously."

As allegations of corruption mounted, however, Halliburton conducted an internal investigation into the charges. In June 2004, the oil services company publicly fired Stanley, who was working as a consultant, for improper personal enrichment. The company also severed all relations with Tesler's firm, Tri-Star Investments.

The bribery scandal is one of many involving Halliburton's KBR subsidiary in the past several years. KBR has repeatedly been criticized for overbilling the U.S. government for providing food, fuel and other services to U.S. soldiers in Iraq. Last year, Halliburton spun off KBR into a separate corporation. KBR spokeswoman Heather Browne said the company has not yet reviewed the plea agreement. "KBR does not in any way condone or tolerate illegal or unethical behavior. The company stands firm in its unwavering commitment to conduct business with the utmost integrity,'' Browne said in a prepared statement.

Halliburton spokeswoman Cathy Mann declined to comment, saying the company had not yet reviewed the plea agreement. Earlier this year, Halliburton reported that the SEC was dramatically widening the scope of the investigation to cover projects built during the past 20 years in multiple countries.

Those investigations may focus on Stanley's activities in other countries. Court documents show that Stanley worked with another consultant, identified as a dual-national Lebanese and American citizen, in an elaborate kickback scheme.

Under the scheme, Stanley hired the consultant to help Halliburton and its predecessor firms arrange deals to build liquefied-natural-gas projects not only in Nigeria but also in Egypt, Yemen and Malaysia. From 1991 to 2004, the consultant directed $10.8 million of the proceeds back to Stanley through a Swiss bank account. These deals involved Stanley's original employer, M.W. Kellogg, as well as KBR.

This story is part of a joint reporting project by PBS's Frontline and ProPublica on international bribery, the subject of an upcoming documentary. Marlena Telvick and Oriana Zill de Granados reported from Houston. Additional reporting was contributed by Lowell Bergman, Jake Bernstein and T. Christian Miller. The story was written by Miller.

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Thursday
Sep042008

Why Comply?

The potential consequences of a Foreign Corrupt Practices Act violation for an individual are easy to explain and understand. Personal tragedies result from the losses of freedom, jobs and reputations, and there's often financial ruin and damage to families. But the possible consequences to a corporation -- and indirectly to its employees, shareholders, creditors, customers, suppliers and other stakeholders -- are more complex. A good explanation, however, comes from KBR in its 2007 annual report. The disclosure is comprehensive and clear, and downright spooky.

As discussed in our prior post, KBR's former chairman and CEO, Jack Stanley, just pleaded guilty to violating the FCPA. He helped arrange (and conceal) at least $182 million in illegal payments to Nigerian government officials. The continuing investigation by U.S. authorities is the focus of KBR's FCPA disclosure. Although the scale of the potential violations behind the disclosure is unusual, most of the possible consequences that KBR describes could apply to most public companies with FCPA concerns.

We've deleted a few KBR-specific references and broken the disclosure into smaller chunks for readability. Otherwise, it's straight from the annual report.

Here it is:

A person or entity found in violation of the FCPA could be subject to fines, civil penalties of up to $500,000 per violation, equitable remedies, including disgorgement (if applicable) generally of profits, including prejudgment interest on such profits, causally connected to the violation, and injunctive relief. Criminal penalties could range up to the greater of $2 million per violation or twice the gross pecuniary gain or loss from the violation, which could be substantially greater than $2 million per violation.

It is possible that both the SEC and the DOJ could assert that there have been multiple violations, which could lead to multiple fines. The amount of any fines or monetary penalties which could be assessed would depend on, among other factors, the findings regarding the amount, timing, nature and scope of any improper payments, whether any such payments were authorized by or made with knowledge of us or our affiliates, the amount of gross pecuniary gain or loss involved, and the level of cooperation provided the government authorities during the investigations.

Agreed dispositions of these types of violations also frequently result in an acknowledgement of wrongdoing by the entity and the appointment of a monitor on terms negotiated with the SEC and the DOJ to review and monitor current and future business practices, including the retention of agents, with the goal of assuring compliance with the FCPA.

Other potential consequences could be significant and include suspension or debarment of our ability to contract with governmental agencies of the United States and of foreign countries. . . . Suspension or debarment from the government contracts business would have a material adverse effect on our business, results of operations, and cash flow.

These investigations could also result in (1) third-party claims against us, which may include claims for special, indirect, derivative or consequential damages, (2) damage to our business or reputation, (3) loss of, or adverse effect on, cash flow, assets, goodwill, results of operations, business, prospects, profits or business value, (4) adverse consequences on our ability to obtain or continue financing for current or future projects and / or (5) claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders or other interest holders or constituents of us or our subsidiaries. . . .

In addition, our compliance procedures or having a monitor required or agreed to be appointed at our cost as part of the disposition of the investigation have resulted in a more limited use of agents on large-scale international projects than in the past and put us at a competitive disadvantage in pursuing such projects.

Continuing negative publicity arising out of these investigations could also result in our inability to bid successfully for governmental contracts and adversely affect our prospects in the commercial marketplace. In addition, we could incur costs and expenses for any monitor required by or agreed to with a governmental authority to review our continued compliance with FCPA law.

The investigations by the SEC and DOJ and foreign governmental authorities are continuing. We do not expect these investigations to be concluded in the immediate future. The various governmental authorities could conclude that violations of the FCPA or applicable analogous foreign laws have occurred . . . In such circumstances, the resolution or disposition of these matters . . . could have a material adverse effect on our business, prospects, results or operations, financial condition and cash flow.

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Wednesday
Sep032008

Ex-KBR Boss Pleads Guilty

The Justice Department said today that Albert “Jack” Stanley, 65, a former chairman and CEO of KBR, the global engineering and construction firm based in Houston, pleaded guilty to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and conspiracy to commit mail and wire fraud. He appeared in U.S. District Court in his hometown of Houston before U.S. District Judge Keith P. Ellison.

From 1995 to 2004, Stanley helped a joint venture that included KBR and its predecessors funnel $182 million in bribes to government officials in Nigeria. The bribes were paid in exchange for contracts worth $6 billion to build liquefied natural gas facilities there. Stanley and others met with high-ranking Nigerian government officials and their representatives at least four times to arrange the bribe payments. He also received $10.8 million in kickbacks from a consultant hired in connection with LNG projects around the world.

Under the plea deal accepted by the court, Stanley faces seven years in prison and a restitution payment of $10.8 million. A sentencing date hasn't been set. Criminal violations of the FCPA's anti-bribery provisions are punishable by five years in prison, and criminal violations of the accounting provisions by 20 years in jail. As part of his plea agreement, Stanley agreed to cooperate with law enforcement authorities in the ongoing investigations. The DOJ said it gathered evidence abroad and was helped by authorities in France, Italy, Switzerland and the United Kingdom.

In a related civil enforcement proceeding, the Securities and Exchange Commission said Stanley has consented to a final judgment permanently enjoining him from violating the anti-bribery, record-keeping and internal control provisions of Securities Exchange Act of 1934 (Sections 30A and 13(b)(5) and Rule 13b2-1).

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. Stanley became CEO of KBR and was named chairman in 2001. He was fired in June 2004. In November 2006, Halliburton spun KBR off and it became a separate publicly-traded company. Vice President Dick Cheney was Halliburton's chief executive from 1995 to 2000.

KBR's 2007 annual report describes a joint venture called TSKJ "formed to design and construct large-scale projects in Nigeria. TSKJ's members are Technip, SA of France, Snamprogetti Netherlands B.V., which is a subsidiary of Saipem SpA of Italy, JGC [of Japan] and us, each of which has a 25% interest. TSKJ has completed five LNG production facilities on Bonny Island, Nigeria and is nearing completion on a sixth such facility."

As KBR's senior representative in TSKJ, Stanley authorized the hiring of an agent in the U.K. and another in Japan to pay bribes to various Nigerian government officials, and concealed the payments. The SEC's complaint said,

In numerous Dresser, Halliburton and KBR company records, Stanley and others falsely characterized the payments to the UK Agent and the Japanese Agent as legitimate “consulting” or “services” fees when, in fact, Stanley knew they were bribes. For example, Stanley authorized entering into contracts with the UK Agent and the Japanese Agent that he knew falsely described the purpose of the contracts in order to make it appear that the agents would perform legitimate services. Stanley and others also prepared for approval internal company bid documents for the LNG Trains that mischaracterized the bribe payments as legitimate expenses. In addition, certain records falsified by Stanley were used in the companies’ due diligence process for approving use of the UK Agent.
KBR's 2007 annual report added these details:
In connection with the Bonny Island project, TSKJ entered into a series of agency agreements, including with Tri-Star Investments, of which Jeffrey Tesler is a principal, commencing in 1995 and a series of subcontracts with a Japanese trading company commencing in 1996. We understand that a French magistrate has officially placed Mr. Tesler under investigation for corruption of a foreign public official. . . .

Our representatives have met with the French magistrate and Nigerian officials. In October 2004, representatives of TSKJ voluntarily testified before the Nigerian legislative committee. Halliburton notified the other owners of TSKJ of information provided by the investigations and asked each of them to conduct their own investigation. . . .

In June 2004, all relationships with Mr. Stanley and another consultant and former employee of M.W. Kellogg Limited were terminated. The terminations occurred because of violations of Halliburton's Code of Business Conduct that allegedly involved the receipt of improper personal benefits from Mr. Tesler in connection with TSKJ's construction of the Bonny Island project.

Jeffrey Tesler, the Tri-Star Investments principal referred to in the annual report (called "the UK Agent" by the SEC), is a 60-year old lawyer in a small North London law firm called Kaye Tesler & Co.

KBR employs 52,000 people worldwide. Revenue last year was about $8.7 billion. According to its website, "not only is KBR the largest contractor for the United States Army and a top-ten contractor for the U.S. Department of Defense, it is currently the world’s largest defense services provider. "

KBR, Inc. trades on the NYSE under the symbol KBR.

Halliburton Company trades on the NYSE under the symbol HAL.

View the plea agreement here.

View the DOJ's Sept. 3, 3008 release here.

View SEC Litigation Release No. 20700 and Accounting and Auditing Enforcement Release No. 2871 (Sept. 3, 2008) here.

View the SEC's Civil Complaint Securities and Exchange Commission v. Albert Jackson Stanley, 08-CV-02680, S.D. Tex. (Houston) here.

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