We’ve been looking over the criminal information charging Kellogg, Brown & Root LLC with violating the Foreign Corrupt Practices Act. There’s one conspiracy and four substantive counts. There’s also a related document called the Joint Motion to Waive Presentence Investigation. That’s where the Justice Department talks about the potential criminal fine range and agrees with KBR on a final penalty (subject to court approval) of $402 million.
(Halliburton, KBR’s former parent, said two weeks ago that the Securities and Exchange Commission has also agreed, contingent on the DOJ’s settlement, to a separate disgorgement payment to the SEC of $177 million.)
The criminal information describes KBR’s attempts to shield from the FCPA its corrupt payments to Nigerian officials. Its TSKJ joint venture, equally owned with Technip, SA of France, Snamprogetti Netherlands B.V., a subsidiary of Saipem SpA of Italy, and JGC of Japan, “operated through three Portuguese special purpose corporations based in Madeira, Portugal.” Madeira Company 3, as the information calls it, was used to enter into so-called consulting agreements with agents, who in turn passed bribes to Nigerian officials.
KBR and its top brass tried to hide behind Madeira Company 3. Ownership was held indirectly through M.W. Kellogg Ltd., a U.K. company. The criminal information says the ownership structure was “part of KBR’s intentional efforts to insulate itself from FCPA liability for bribery of Nigerian government officials through the Joint Venture’s agents.” And the information continues:
The boards of managers of Madeira Company 1 and Madeira Company 2 included U.S. citizens . . . but KBR avoided placing U.S. citizens on the board of managers of Madeira Company 3 as a further part of KBR’s intentional effort to insulate itself from FCPA liability.
The Foreign Corrupt Practices Act prohibits both direct and indirect corrupt payments to foreign officials. Indirect payments typically pass through the hands of an overseas partner or agent, then end up with the foreign official for an unlawful purpose. That’s how most violations happen. And yet, executives keep trying to outsmart the FCPA. They create convoluted ownership structures and payment patterns that they think will somehow insulate them and their company from FCPA liability. The results, as the KBR case shows, are usually disastrous.
The FCPA is smart. It looks not at how payments to foreign officials are made, but why. It looks, in other words, at the intent. If a payment was meant to corruptly obtain and retain business, then the payment violates the FCPA, no matter how many Madeira-like companies it passed through, and no matter how many agents or other middlemen were involved.
The DOJ’s plain-English explanation of the FCPA’s anti-bribery provisions talks about warning signs, called “red flags.” They should tip off anyone about impending compliance dangers. Red flags include unusual payment patterns or other strange arrangements, and a lack of transparency. Red flags would include all of the devices KBR employed. So the lesson? Whenever company structures, payment arrangements, and management compositions have no obvious operational or economic justification, there must be something wrong. That’s when everyone involved should be asking hard questions, such as whether the real intent is to do legitimate business or to violate the FCPA and other laws.
Download a copy of KBR’s criminal information here.
Download a copy of the DOJ / KBR Joint Motion to Waive Presentence Investigation here.
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