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KBR and Halliburton Resolve FCPA Investigation

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KBR and Halliburton Resolve FCPA Investigation February 2009 / Special Alert A legal update from Dechert’s White Collar and Securities Litigation Group KBR and Halliburton Resolve FCPA Investigation The Department of Justice (DOJ) and the and agreed not to violate the FCPA in the Securities and Exchange Commission (SEC) future. The KBR/Halliburton settlement comes announced on February 11 a resolution of their on the heels of the record Siemens settlement, long-standing, joint investigation of Halliburton also for FCPA violations, which involved an Company (Halliburton) and its former subsidi- $800 million payment to the SEC and DOJ, and ary, Kellogg Brown & Root LLC (KBR), for an additional $800 million payment to German violations of the Foreign Corrupt Practices Act authorities. (FCPA). The government’s criminal case charged KBR only. Specifically, the government filed a criminal information against KBR Background charging multiple violations of the anti-bribery provision of the FCPA.1 The SEC, on the other According to the settlement documents, the hand, took action against both Halliburton and KBR guilty plea and the KBR and Halliburton KBR. The SEC alleged that KBR violated the civil settlements are a result of a joint DOJ-SEC anti-bribery and books and records provisions investigation into a decade-long, global con- of the FCPA, but that Halliburton violated only spiracy to bribe Nigerian government officials. the books and records provision.2 The purpose of this conspiracy was to obtain lucrative engineering, procurement and To settle these charges, KBR paid a criminal construction (“EPC”) contracts, valued at more fine of $402 million, and KBR and Halliburton than $6 billion, to build liquefied natural gas jointly disgorged $177 million to the SEC, facilities on Bonny Island in Nigeria. KBR, a submitted to ongoing government intervention,3 subsidiary of Halliburton from 1998 to 2007, was a member of a four-party joint venture that 1 The FCPA anti-bribery provision makes it a crime was awarded four EPC contracts to build these to “corruptly” offer any kind of payment to a facilities between 1995 and 2004. The other foreign official “in order to assist . in obtaining members of the joint venture included a French or retaining business.” See 15 U.S.C. § 78dd-2. company, an Italian company and Japanese company.4 2 The FCPA contains a “books and records” provision that requires a company to keep books, records, and accounts in reasonable detail to In order to win these contracts and otherwise reflect accurately and fairly transactions and obtain business in Nigeria, the joint venture dispositions of assets, and to devise and imple- ment an adequate system of internal accounting on Halliburton who will review Halliburton’s controls. See 15 U.S.C. § 78m(b)(2); 15 U.S.C. § FCPA-related policies and procedures. 78m(b)(5). 4 3 The other members of the joint venture were Both companies consented to an order that Technip, SA of France, Snamprogetti Nether- imposes an independent monitor on KBR for lands B.V., a subsidiary of Saipem SpA of Italy, three years to review its FCPA compliance pro- and JGC of Japan. gram, and imposes an independent consultant d d employed two consulting companies, one based in the and kept American citizens off the company’s U.K. and one based in Japan. According to the papers Board of Directors in the hopes that this would filed by the DOJ, these consulting companies were hired shield KBR from the FCPA liability. Instead, the for the express purpose of bribing both high-ranking and DOJ believed this structure showed an “inten- tional effort to insulate [KBR] from FCPA liabil- low-level Nigerian government officials. To this end, the ity.”5 Thus, the very steps KBR took to protect it- members of the joint venture funneled over $180 million self from liability helped the DOJ establish sci- to the two consulting companies for bribes. enter. The DOJ also asserted that this conspiracy had support Parent Companies Will Be Held Liable For Fail- at high levels of KBR. Albert Jackson Stanley (Stanley) ing To Impose Adequate Internal Controls at the served as KBR’s President from 1995 to 1997, its Chief Subsidiary Level: The government forced Halli- Executive Officer from 1997 to March 2001, and the burton to accept liability for the actions of a sub- Chairman from April 2001 to June 2004. According to sidiary it no longer owned. In 2007, Halliburton the government, Stanley held meetings to discuss spun KBR off as its own company. However, this action failed to shield Halliburton from liability. bribing Nigerian officials, authorized the hiring of the The SEC Complaint alleged that during the period consulting companies used to make the bribes, and of Halliburton’s ownership of KBR, Halliburton’s personally met with high-level Nigerian government internal controls failed to detect, deter or prevent officials to discuss bribes. Stanley pled guilty to a two- bribery conducted by KBR (which occurred be- count criminal information charging him with conspiracy tween 1994 and 2004). The government’s action to violate the anti-bribery provision of the FCPA and underscores the need for companies whose busi- conspiracy to commit wire and mail fraud. According to ness makes them susceptible to potential FCPA his plea agreement, Stanley not only arranged for KBR liability to implement a comprehensive anti- to participate in bribery, but personally received kick- corruption program to avoid potential liability. backs from the consultants he hired to funnel the illicit payments to government officials. He was sentenced to Law Enforcement Cooperation: Finally, it is worth noting that U.S. law enforcement authorities gave 7 years in prison and ordered to make restitution of “special thanks” for the “significant assistance” of approximately $11 million. This is the most severe several other jurisdictions (France, Italy, Switzer- sentence ever levied against an individual for FCPA land, and the U.K.) in this investigation. In its violations. press release, the SEC also credited the help of authorities in Asia, Africa, Europe and the Ameri- cas. Although it is not clear what kind of assis- Observations tance was rendered by these other jurisdictions, this type of cooperation was a major part of the The Halliburton case is important for a number of Siemens case, and seems to be becoming more commonplace. In the future, we can expect to see reasons: corruption investigations carried out by investi- gating authorities in multiple countries. Rising Fines: Prior to the Siemens case, the largest combined SEC/DOJ fine for an FCPA viola- tion was $44 million, paid by Baker Hughes in 2007. The Siemens, and now the Halliburton, set- tlements dwarf the amounts of earlier settle- This update was authored by David M. Howard ments. These cases serve notice that where a (+1 215 994 2218; [email protected]) corporation has reaped huge profits from corrupt and Michael J. Newman (+1 215 994 2231; behavior (the KBR joint venture was awarded con- [email protected]). tracts worth about $6 billion), the government is willing to impose huge financial penalties to serve as a deterrent. 5 The FCPA outlaws both direct and indirect payments to foreign officials. See 15 U.S.C. 78dd-2(a)(3). Thus, even Equating Complexity With Guilt: According to the though the bribes were funneled to the Nigerian officials government, KBR and the other members of the through a subsidiary, a foreign corporate entity and a con- joint venture set up a Portuguese special purpose sultant, KBR (an American company) could not insulate corporation, Madeira Company 3, to funnel itself from liability because it was clear that its own em- money to the consulting companies it used to ployees were involved in the scheme. broker bribes. KBR indirectly controlled its inter- est in Madeira Company 3 through a subsidiary February 2009 / Special Alert 2 d Practice group contacts If you have questions regarding the information in this legal update, please contact the authors, one of the attorneys listed, or the Dechert attorney with whom you regularly work. Visit us at www.dechert.com/securities. Catherine Botticelli David S. Hoffner Thomas H. Lee II Washington New York Philadelphia +1 202 261 3368 +1 212 649 8781 +1 215 994 2994 [email protected] [email protected] [email protected] Stephen D. Brown David M. Howard Andrew J. Levander Philadelphia Philadelphia New York +1 215 994 2240 +1 215 994 2218 +1 212 698 3683 [email protected] [email protected] [email protected] Robert A. Cohen Paul Huey-Burns Kathleen Massey New York Washington New York +1 212 698 3501 +1 202 261 3433 +1 212 698 3686 [email protected] [email protected] [email protected] William K. Dodds Nicolle L. Jacoby Edward A. McDonald New York New York New York +1 212 698 3557 +1 212 698 3820 +1 212 698 3672 [email protected] [email protected] [email protected] Michael S. Doluisio Robert J. Jossen Gary J. Mennitt Philadelphia New York New York +1 215 994 2325 +1 212 698 3639 +1 212 698 3831 [email protected] [email protected] [email protected] Joseph F. Donley Michael L. Kichline Kevin J. O'Brien New York Philadelphia New York +1 212 649 8724 +1 215 994 2439 +1 212 698 3697 [email protected] [email protected] [email protected] Steven B. Feirson David A. Kotler Charles I. Poret Philadelphia Princeton New York +1 215 994 2489 +1 609 955 3226 +1 212 698 3532 [email protected] [email protected] [email protected] Michael J.
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