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Harry Cassin
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AB Volvo Settles FCPA Charges For $19.6 Million

AB Volvo today entered into a consent agreement with the U.S. Securities and Exchange Commission and a deferred prosecution agreement with the Department of Justice to resolve Foreign Corrupt Practices Act violations in Iraq caused by two subsidiaries under the U.N. Oil for Food Program. The settlements include financial penalties, disgorgement and interest of about $19.6 million.

AB Volvo was charged with violating the FCPA’s books and records and internal controls provisions. Two of its subsidiaries, Renault Trucks SAS and Volvo Construction Equipment AB, were also charged with engaging in separate conspiracies to commit wire fraud and to violate the books and records provisions of the FCPA. AB Volvo’s settlement with the SEC includes an agreement permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $7,299,208 in profits plus $1,303,441 in pre-judgment interest, and to pay a civil penalty of $4,000,000.

The Swedish truck and equipment maker will also pay a $7,000,000 penalty pursuant to a deferred prosecution agreement with the DOJ. The agreements with the DOJ and SEC also provide for improved internal compliance programs at AB Volvo and its subsidiaries. If the two subsidiaries abide by the terms of the deferred prosecution agreement for three years, the DOJ will dismiss the criminal charges against them.

Between November 2000 and July 2001, AB Volvo’s subsidiary, Renault Trucks SAS, entered into at least 18 contracts under the Oil for Food Program to supply trucks to the Iraqi government. Renault Trucks then subcontracted with truck bodybuilders to tailor the trucks to the Iraqi ministries’ specifications. In order to mask its bribe payments, Renault Trucks devised a scheme in which the bodybuilders added the cost of so-called after-sales service fees into their bodybuilding costs and submitted the total cost to Renault Trucks for payment. In reality, no bona fide after-sales services were provided. The bodybuilders then passed the payments to Iraq. According to the SEC, AB Volvo’s internal documents discuss the fact that had Renault Trucks made the payments in its own name, “we would have been caught red-handed.” Illegal payments of $5,103,941 were made and another $1,255,922 was authorized but not paid.

From October 1999 to July 2000, another subsidiary, Volvo Construction Equipment International (“VCEI”), entered into four contracts under the Oil for Food Program in which more than $103,000 in kickbacks were paid to Iraqi ministries. On two contracts, illegal payments between 5% and 11.27% of the contract value were paid. An internal VCEI document discussed the extra trips VCEI staff had to make to Iraq in order to make the payments, and the possibility of having to give more payments. On one contract, VCEI’s internal documents indicate that it gave its Jordanian agent a total of $15,950 as “the commitment to the third party whom support us and VOLVO to gain orders in the said ministry.” In addition, VCEI’s internal documents show that $19,000 was given to the Jordanian agent to purchase a car for the Ministry of Interior. VCEI did not disclose the payments or the car to the U.N.

According to a U.N. report of an interview of the Jordanian agent, he admitted that he personally paid kickbacks on behalf of VCEI. That company also used a Tunisian distributor to facilitate additional sales of its products to Iraq, and reduced its prices to enable the distributor to make the illegal payments based on bogus after-sales service fees. In total, VCEI or its distributors authorized more than $2.2 million in illegal payments.

The Oil for Food Program was intended to provide humanitarian relief for the Iraqi population, which faced hardship under international trade sanctions. The Program allowed the Iraqi government to purchase humanitarian goods through a U.N. escrow account. There were numerous abuses. Including AB Volvo’s $7 million criminal penalty, the DOJ has now collected more than $24 million in penalties in cases involving suppliers of humanitarian goods under the Oil for Food Program.

The SEC said AB Volvo either knew or was reckless in not knowing that illicit payments were either offered or paid in connection with these transactions. “The company failed to maintain an adequate system of internal controls to detect and prevent the payments and its accounting for these transactions failed properly to record the nature of the payments,” the SEC said. AB Volvo has already taken remedial acts and it cooperated with the SEC, DOJ and other authorities. “The incident is, of course, regrettable, but we do note with some satisfaction that the authorities spoke favorably of the cooperation by Volvo as well as Volvo’s own investigation and measures”, said AB Volvo CEO Leif Johansson. “It is important that we all now learn from what occurred,” he said in a company press release.

The DOJ explained its jurisdiction in the case this way: VCEI was a wholly-owned subsidiary of Aktiebolaget Volvo (“AB Volvo”), a company that had American Depositary Receipts (“ADRs”) publicly traded on the National Association of Securities Dealers Automated Quotations (“NASDAQ”). AB Volvo issued and maintained a class of publicly-traded securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 (15 U.S.C. § 781), and was required to file periodic reports with the United States Securities and Exchange Commission under Section 13 of the Securities Exchange Act (15 u.s.c. § 78m). Accordingly, AB Volvo was an “issuer” within the meaning of the FCPA, 15 u.s.c. § 78dd-1(a). By virtue of its status as an issuer within the meaning of the FCPA, AB Volvo was required to make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the transactions and disposition of assets of AB Volvo and its subsidiaries, including those of VCEI which were incorporated into the books of AB Volvo.

View SEC Litigation Release No. 20504 / March 20, 2008 here.

View the SEC’s Complaint in Securities & Exchange Commission v. AB Volvo, Civil Action No. 08 CV 00473 (D.D.C.) (JB) Here.

View the DOJ’s March 20, 2008 News Release Here.

View the DOJ’s Crininal Informations Against AB Volvo’s Subsidiaries Here and Here.

View AB Volvo’s News Release Here.

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