On February 11, 2009, the SEC announced settlements with KBR, Inc., and Halliburton Company to resolve SEC charges that KBR subsidiary Kellogg Brown & Root LLC bribed Nigerian government officials over a 10-year period, in violation of the FCPA, in order to obtain construction contracts. The SEC also charged that KBR and Halliburton engaged in books and records violations and internal controls violations related to the bribery.¹

The SEC had alleged that beginning as early as 1994, members of the joint venture determined that it was necessary to pay bribes to officials within the Nigerian government in order to obtain the construction contracts. The former CEO of the predecessor entities, Albert “Jack” Stanley, and others involved in the joint venture met with high-ranking Nigerian government officials and their representatives on at least four occasions to arrange the bribe payments. To conceal the illicit payments, the joint venture entered into sham contracts with two agents, one based in the United Kingdom (U.K.) and one based in Japan, to funnel money to Nigerian officials.

The SEC complaint describes a “cultural committee” to decide how to carry out the bribery scheme. The committee decided to use the U.K. agent to make payments to high- ranking Nigerian officials and to use the Japanese agent to make payments to lower-ranking Nigerian officials. The joint venture took payments on a construction project, and in turn made payments to the Japanese agent and to the Swiss and Monaco bank accounts of the U.K. agent. The total payments to the two agents exceeded $180 million. After receiving the money, the U.K. agent made substantial payments to accounts controlled by Nigerian government officials and, beginning in 2002, paid $5 million in cash to a Nigerian political party.

The SEC’s complaint also alleged that the internal controls of Halliburton, the parent company of the KBR predecessor entities from 1998 to 2006, failed to detect or prevent the bribery, and that Halliburton records were falsified as a result of the bribery scheme. In September 2008, Stanley pleaded guilty to bribery and related charges and entered into a settlement with the SEC. 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.

Without admitting or denying the SEC’s allegations, KBR and Halliburton consented to be permanently enjoined from violating the antibribery, records, and internal control provisions in SEC laws. The SEC also imposed an independent consultant for Halliburton to review its policies and procedures as they relate to compliance with the FCPA.

As a result of the indemnity and the KBR subsidiary’s criminal plea, Halliburton has agreed to pay $559 million (including $177 million in disgorgement) of $579 million in criminal fines payable by KBR, with KBR consenting to pay the remaining $20 million.

Questions

1. The mission of a global group called Transparency International is to stop corruption and promote transparency, accountability, and integrity at all levels and across all sectors of society. The organization’s “Core Values” are transparency, accountability, integrity, solidarity, courage, justice, and democracy. Each year, the organization evaluates business corruption in each country and produces a Corruptions Perception Index (CPI). The 2012 CPI ranks Nigeria 139 of 174 nations. Exhibit 1 provides a complete set of rankings.

Writing for Transparency International, Chinyere Nwafor states that “One of the reasons why there are so many foreign bribery cases going on related to Nigeria is basically that corruption in Nigeria is deeply entrenched in almost every area of the public sector.”² In Nigeria, facilitating payments called “dash” are a way of life and necessity to get things done.

Given the apparent corrupt culture in Nigeria, why shouldn’t U.S. businesses just consider payoffs to Nigerian officials as a cost of doing business in that country and not a payment in violation of the FCPA?

2. Comment on the following statement from a values perspective: “Ethics must be global, not local.”

3. Use ethical reasoning to respond to the following statement by a U.S. executive:

Bribery is bad for business. Bribery is inefficient; it’s wasteful. It often doesn’t accomplish what its original purpose was. You may be competing with another company that may ultimately out-bribe you. And then at the end of the day, of course, there is a huge risk that the bribery is uncovered, that you are the subject of a protracted investigation. And the costs can be quite, quite high at the end of the day.

¹Securities and Exchange Commission, Accounting and Auditing Enforcement Release No. 2935A, February 11, 2009, SEC v. Halliburton Company and KBR, Inc., www.sec.gov/litigation/litreleases/2009/lr20897a.htm.

²Chinyere Nwafor, "Bribery in Nigeria tackled globally, but not at home," September 10, 2012, http://blog.transparency.org/2012/09/10/bribery-in-nigeria-tackled-globally-but-not-at-home/.

³Transparency International, Corruptions Perception Index 2012, Available at www.cpi.transparency.org/cpi2012/results/.

Answer rating: 100% (QA)

Solution of a... View the full answer