Charges Involve Fraud, FCPA Books and Records Violations and Improper Promotional Expenses
Bermuda-based heavy equipment maker Ingersoll-Rand Company Limited said on October 31, 2007 that it resolved fraud and U.S. Foreign Corrupt Practices Act violations in connection with illegal payments by subsidiaries to Iraqi officials under the U.N. Oil For Food Program. Ingersoll-Rand will pay a total of $6.7 million in penalties, interest and disgorgements. It consented to entry of a civil injunction with the Securities and Exchange Commission and a three-year deferred prosecution agreement with the Department of Justice.
The DOJ filed separate criminal informations against Ingersoll-Rand’s subsidiary Thermo King Ireland Limited for conspiracy to commit wire fraud and against Ingersoll-Rand Italiana SpA for conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act. After discovering and investigating the illegal payments, Ingersoll-Rand fired a number of employees. It conducted what the DOJ called a “thorough review of the improper payments” and self-reported the results to the government. If Ingersoll-Rand meets the terms of the three-year deferred prosecution agreement — no further violations, enhanced compliance efforts, use of a “compliance consultant” — the DOJ will dismiss the criminal charges against the subsidiaries.
The subsidiaries and their agents arranged and paid kickbacks to the Iraqi government in order to obtain contracts with ministries to provide road construction equipment, air compressors and parts, and refrigerated trucks. Between October 2000 and August 2003, employees of the subsidiaries paid about $600,000, and offered to pay an additional $250,000 in kickbacks by inflating the price of contracts by about 10 percent before submitting them to the United Nations for approval. Commissions were prohibited by U.N. sanctions in place against Iraq.
The SEC complaint charged Ingersoll-Rand with failing to maintain an adequate system of internal controls to detect and prevent the illegal payments and failing to record the true nature of the payments by calling them “sales deductions” or “other commissions.” Ingersoll-Rand consented to the entry of a final judgment with the SEC permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78m(b)(2)(A) and (B)].
The SEC’s complaint describes, among other things, how Ingersoll-Rand’s Italian affiliate improperly used the FCPA’s affirmative defense for promotional expenses. In February 2002, I-R Italiana sponsored eight officials from the Iraqi Oil Ministry to spend two days touring a manufacturing facility in Italy. But the Iraqi officials spent two additional days “on holiday” touring Florence at the company’s expense, and were also given $8,000 in “pocket money.” I-R Italiana’s payment of holiday travel expenses and “pocket money” violated Ingersoll-Rand’s internal policies regarding payments to foreign government officials. The company’s 2002 FCPA Manual permitted payments directly related to product demonstrations or actual contracts but expressly prohibited any payment for vacations. The company’s Travel Guidelines expressly barred any cash payment of “pocket money” or “walking around money.” Ingersoll-Rand also failed to account properly for its pocket money payments in its accounting books and records, recording the payments under a general ledger account for “cost of sales deferred.”
Ingersoll-Rand trades on the New York Stock Exchange under the symbol IR. It says it “has been continuously listed on the NYSE since 1906 and is among the top 10 continuously listed companies on the NYSE.”
View Ingersoll-Rand’s October 31, 2007 News Release Here.
View the DOJ’s October 31, 2007 News Release Here.
View Ingersoll-Rand’s Deferred Prosecution Agreement Here.
View the SEC’s Litigation Release No. 20353 / October 31, 2007 Here.
View the SEC’s Complaint Here.
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