Aggregate financial penalties totaling $579 million paid to settle DOJ and SEC charges in connection with bribes paid to Nigerian government officials, setting the record for criminal fines and disgorgement for U.S. companies related to FCPA violations
On February 11, 2009, KBR Inc., its subsidiary, Kellogg Brown & Root LLC (“KBR”), and their former parent, Halliburton Company (“Halliburton”), one of the world’s leading providers of products and services to the energy industry, resolved their longstanding corruption investigations by the Department of Justice (the “Department”) and the Securities and Exchange Commission (the “SEC”) related to the award of over $6 billion in construction contracts in Nigeria. In connection with the settlement, KBR pleaded guilty to one count of conspiracy to violate, and four counts of violating the Foreign Corrupt Practices Act (“FCPA”) by authorizing, promising, and making over $180 million in illegal payments to Nigerian government officials to obtain lucrative contracts for the construction and development of a major liquefied natural gas (“LNG”) project on Bonny Island, Nigeria.1 Consistent with the terms of the plea agreement with the Department, KBR was fined $402 million, placed on three years organizational probation, and required to retain an independent monitor for the same time period to review and evaluate its compliance policies and procedures related to the FCPA and other relevant anti-corruption laws. To settle the SEC Complaint, which charged KBR Inc. with violating the anti-bribery provisions, and both KBR Inc. and Halliburton with breaching the books and records and internal controls provisions of the FCPA, KBR Inc. and Halliburton, without admitting or denying the Complaint’s allegations, agreed to: (1) disgorge an additional $177 million; (2) a permanent injunction against future violations of the books and records and internal controls provisions of the FCPA, and, in the case of KBR Inc., also against violations of the anti-bribery provisions; and (3) for KBR Inc. to retain an independent monitor for a period of three years, and, for Halliburton, to retain an independent consultant to review its FCPA policies and procedures.2
Pursuant to the terms of an indemnification agreement with KBR Inc., Halliburton is responsible for the disgorgement of profits, for which it is jointly and severally liable, and all but $20 million of the criminal penalty imposed on the KBR entities.3
According to the court documents filed by the Department, KBR, a Delaware company headquartered in Houston, Texas,4 was engaged in the business of providing engineering, procurement, and construction (“EPC”) services around the world, including designing and building LNG production plants. In 1991, its predecessor entity formed a joint venture with three other multinational engineering and construction companies (the “Joint Venture” or “TSKJ Consortium”), to bid on EPC contracts to design and build LNG production facilities on Bonny Island, Nigeria (the “Bonny Island Project”). Ultimately, contracts collectively valued at $6 billion were awarded to the Joint Venture.
On September 3, 2008, Albert “Jack” Stanley, the former Chairman of KBR, pleaded guilty to conspiring to violate the FCPA by orchestrating more than $180 million in bribes to senior Nigerian government officials in order to secure contracts related to the Bonny Island Project.5 Stanley acknowledged that, beginning in 2004, he and others at the Joint Venture conducted “cultural meetings” to discuss the use of agents to bribe Nigerian government officials to provide support for the Joint Venture to win contracts related to the Bonny Island Project. To that end, Stanley and others caused the Joint Venture to execute sham consulting agreements with companies in Japan and Gibraltar as a way of funneling money to officials in Nigeria. Stanley further admitted that, as part of the scheme, he and others at the Joint Venture met with high- ranking Nigerian government officials and their representatives on numerous occasions to negotiate the amount of the bribe payments required to secure the LNG projects. Following such meetings, sham consultancy agreements were executed and funds were wired to the agents to facilitate the bribe payments. 6
According to the criminal Information filed against KBR, which incorporates the above allegations involving Stanley, the Joint Venture operated through three Portuguese special purpose corporations, one of which, “Madeira Company 3” (“Madeira 3”), was used to enter into the sham consultancy agreements orchestrated by Stanley and others at KBR and the Joint Venture.7 KBR and others allegedly caused corrupt payments pursuant to these agreements to be wired from Madeira 3’s bank account in the Netherlands to the agents in Gibraltar and Japan, in some instances through correspondent bank accounts in New York. The Information further charged that, unlike the other two special purpose corporations, KBR’s interest in Madeira 3 was owned indirectly through another related subsidiary, “as part of KBR’s intentional effort to insulate itself from FCPA liability.” 8 KBR also allegedly tried to shield itself by avoiding placing U.S. citizens, including Stanley, on the board of managers of Madeira 3.
The Plea Agreement, between the Department, KBR and KBR, Inc., incorporates many of the obligations and requirements seen in recent plea agreements involving FCPA cases, such as continued cooperation and the need to bind future purchasers or successors in interest to the obligations of the Agreement. Interestingly, in exchange for fulfilling these and other requirements, the Department has agreed not to file additional criminal charges against KBR or KBR Inc. with regard to corrupt payments that were disclosed to the Department beyond those set out in the Statement of Facts, or “KBR’s alleged coordination of bids on foreign liquefied natural gas plant engineering and construction projects” provided such conduct was also disclosed to or known by the Department as of the date of the agreement. The Department’s agreement with regard to the bidrigging investigation is also binding on its Antitrust Division. The Agreement further provides that the fine amount shall be paid in installments, beginning with a $52 million payment within five days after sentencing, and seven $50 million installments, each due on the first day of each quarter beginning April 1, 2009.
Although KBR is required to appoint an independent monitor pursuant to the Agreement with the Department and the settlement with the SEC, Halliburton’s settlement with the SEC does not require the engagement of a monitor. However, the terms of its settlement with the SEC do require Halliburton to retain an independent consultant to perform both a 60-day initial review of Halliburton’s anti-bribery and foreign agent internal controls and recordkeeping policies, and approximately one year later, a 30-day follow-up review and evaluation.9 As part of these reviews, Halliburton is required to adopt any improvements that are identified.
Although the government’s pleadings do not publicly identify the other companies in the TSKJ Consortium, these companies have been publicly identified as Technip S.A. a publicly traded French company, Snamprogetti Netherlands B.V., a subsidiary of Eni SpA, an Italian public company, and JGC Corporation, a Japanese public company.10 On January 27, 2009, Technip, whose American Depositary Receipts (“ADRs”) are traded on the U.S. overthe- counter market, and Eni, whose ADRs are currently traded on the New York Stock Exchange, announced that they are continuing to cooperate with French and U.S. authorities in connection with the investigations of the Joint Venture’s activities in Nigeria.11