On July 27, 2017, the U.S. Securities and Exchange Commission charged Halliburton Company with violating the books and records, as well as the internal controls, provisions of the Foreign Corrupt Practices Act (“FCPA”). The Commission alleged that, in order to obtain contracts in Angola resulting in profits of $14 million, Halliburton inappropriately directed subcontracts to a local Angolan company with ties to an official with the state-owned oil company.
Simply stated, the FCPA, enacted in 1977, prohibits American companies and its representatives from bribing foreign officials. Criminal violations of this law are prosecuted by the U.S. Department of Justice. Violations of the FCPA also carry with them potential civil penalties that are investigated and prosecuted by the Securities and Exchange Commission. 15 U.S.C. § 78m sets forth the “books and records” and “internal controls” provisions of the FCPA. When a company makes inappropriate payments to foreign officials, the books and records of that company do not accurately reflect the financial status of the company and the transactions in which it engaged. Hence, civil liability attaches. Furthermore, companies issuing securities in the United States are required to enact internal controls to ensure compliance with legal mandates. Inappropriate payments and/or bribes reflect a failure to implement effective internal controls.
In this case, the SEC alleges that Halliburton’s Vice President, Jeannot Lorenz, spearheaded efforts to direct projects to a local business with connections to an official at Sonangol, Angola’s state-owned oil company. Instead of determining services that Halliburton needed to outsource and put those projects out for bid to local Angolan-owned businesses, Lorenz was alleged to have worked backwards. Lorenz first identified the companies to be hired and backed into the tasks that were required. No competitive bidding process was implemented. In all, Halliburton is alleged to have directed $13 million worth of work to a business connected to an Angolan official. In return, Halliburton profited by $14 million from the contracts it received.
Without admitting or denying the allegations levied by the Commission, Halliburton has agreed to pay $14 million in disgorgement, $1.2 million in prejudgment interest, and $14 million in civil monetary penalties. In addition, Lorenz has agreed to pay $75,000 in penalties for causing the company’s violations and circumventing the company’s internal controls.
Violations of the FCPA have both civil and criminal ramifications. When working abroad, companies must be ever vigilant of payments to local officials and/or individuals or entities related to them. Transparency International, a global coalition against corruption, publishes an annual Corruption Perceptions Index of 176 countries. Out of 176 countries, Angola was perceived last year to be more corrupt than 163 other countries. Companies must be on high alert when working in companies perceived to be corrupt. The government has Internet access just like everyone else and can easily target investigations in these locales. Even if criminal charges are not pursued, civil allegations have teeth and can harm a company nearly as much as a criminal prosecution.
As part of Halliburton’s settlement, the company must retain an independent compliance consultant for a period of 18 months to review and evaluate its anti-corruption policies and procedures.