IHS Global Insight Perspective | |
Significance | Under the provisions of the U.S. Foreign Corrupt Practices Act, the U.S. Department of Justice and the U.S. Securities and Exchange Commission brought charges against the Houston-based KBR for bribing Nigerian government officials to obtain contracts and against Halliburton and KBR jointly for internal controls violations dating as far back as 1994. |
Implications | The charges have resulted from a decade-long investigation when KBR, along with other agents, formed a joint venture that paid out bribes to public officials to obtain lucrative contracts to build LNG facilities. |
Outlook | The US$579-million fine, which the companies have agreed to pay, is the largest-ever combined settlement to be paid by U.S. companies for flouting the FCPA. Now that the corporate executives have been charged and fined, the focus will undoubtedly shift to the Nigerian authorities to pursue an investigation against the public officials who were embroiled in the affair and bring them to account. |
Under the provisions of the U.S. Foreign Corrupt Practices Act (FCPA), the U.S. Department of Justice and the U.S. Securities and Exchange Commission (SEC) brought charges against the Houston-based Kellogg, Brown, and Root (KBR) for bribing Nigerian government officials to obtain contracts and against Halliburton and KBR jointly for internal controls violations, dating as far back as 1994. KBR, an engineering, construction, and services company, was formerly owned entirely by Halliburton, the oilfield services company. In 2007 it became a separate entity. The charges relate to a time when Halliburton—run by former U.S. vice-president Dick Cheney—was the parent company of KBR.
The Charges
The charges resulted from a decade-long investigation beginning in 1994 when KBR, along with other agents, including Technip of France, Snamprogetti of the Netherlands—affiliated to Italian oil company ENI—and JGC Corporation of Japan, formed a joint venture that paid bribes to public officials to obtain lucrative contracts to build liquefied natural gas (LNG) facilities on Nigeria's Bonny Island, in Rivers State. The details of the identities of those public officials have not been made clear, but the SEC alleged that Albert Stanley, the former chief of KBR, met with Nigerian officials on at least four occasions to organise bribery payments in return for construction contracts. To do this, KBR and the agents created what the SEC has called "sham contracts" to enable money to be funnelled to the unnamed public officials. Stanley pleaded guilty to the charges in September 2008 and is awaiting sentencing in May, which could result in a prison term.
The Fines
The two companies have now been fined a combined amount of US$579 million. Of this amount, US$402 million relates to the charge brought by the Department of Justice against KBR only for bribery in obtaining contracts worth US$6 billion. For this charge, KBR has admitted culpability. The remaining US$177 million, to be paid in forfeited profits, was brought by the SEC against both Halliburton and KBR. It specifically alleged that the companies violated the FCPA's anti-bribery stipulations and accused the two companies of contravening internal controls, books, and records provisions (see box below). The companies have not admitted any wrongdoing relating to these charges.
Foreign Corrupt Practices Act 1977 |
The FCPA prohibits U.S. individuals and certain issuers of securities from engaging in corrupt payments to foreign public officials with the intention of obtaining or retaining business. Since 1998, the provisions also apply to foreign companies and individuals who may engage in criminal misconduct through corrupt payments while operating in the United States. Under TITLE 15. COMMERCE AND TRADE, CHAPTER 2B—SECURITIES EXCHANGES, every U.S. person engaging in business activity abroad is obliged to:
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Outlook and Implications
The US$579-million fine, which the companies have agreed to pay, is the largest-ever combined settlement to be paid by U.S. companies for flouting the FCPA. The SEC's associate director of enforcement, Antonia Chion, warned: "Multinational companies should take heed that attempting to conceal bribes by funnelling them through intermediaries or offshore entities will not be successful." The guilty plea by KBR and the agreed settlement by both companies bring an end to the protracted case and are a vindication for cross-border anti-corruption drives. Now that the corporate executives of the companies have been charged and fined, the focus will undoubtedly shift to the Nigerian authorities to pursue an investigation against the public officials who were embroiled in the affair and bring them to account. The case will also act as a deterrent to U.S. multi-nationals from knowingly engaging in criminal misconduct with public officials abroad, and it will likely encourage U.S. companies to carry out extensive due diligence checks on foreign companies and individuals with which they seek to do business offshore.