Enforcement Action

 

Docket or Case Number:    09-cv-00399

Court:    S.D. Texas

Initiation Date:    01/09/2009  Information

Prosecuting Agency:    US Securities and Exchange Commission

Name of Prosecuting Attorneys:   

  • Mark A. Adler, SEC Headquarters
  • Antonia Chion, SEC Headquarters
  • Kara N. Brockmeyer, SEC Headquarters
  • Robert G. Wilson, SEC Headquarters
  • Stanley M. Cichinski, SEC Headquarters
  • Ansu N. Banerjee, SEC Headquarters

Assisting Agencies:    U.S. Department of Justice , Federal Bureau of Investigation , Foreign Law Enforcement Agency

Type of Action:    SEC Federal Court Proceeding

Origin of the Proceeding:    N/A

Whistleblower:    Unknown

Case Status:    Resolved


Summary

Halliburton Company ("Halliburton") was a Delaware energy services corporation headquartered in Houston, Texas and Dubai, United Arab Emirates. Its common stock was registered under Section 12(b) of the Exchange Act and traded on the New York Stock Exchange.

In September 1998, Halliburton acquired Dresser Industries, Inc. ("Dresser"), including Dresser's subsidiary, The M.W. Kellogg Company ("Kellogg"). After the acquisition, Kellogg was combined with Halliburton's subsidiary, Brown & Root, Inc., to form Kellogg, Brown & Root, Inc., which later became Kellogg Brown & Root, LLC, now a wholly-owned subsidiary of KBR, Inc. In 2007, Halliburton separated from KBR, Inc. KBR, Inc., its subsidiaries and predecessor entities, including Kellogg, are referred to collectively as "KBR."

KBR's predecessor companies were part of a four-company joint venture called TSKJ, which was comprised of Technip of France, Snamprogetti Netherlands B.V. of the Netherlands, Kellogg Brown & Root of the United States, and JGC Corporation of Japan. Between 1995 and 2004, members of the joint venture devised and implemented a scheme to bribe Nigerian government officials to obtain contracts worth over $6 billion to build liquefied natural gas (LNG) production facilities on Bonny Island in Nigeria. The joint venture partners formed a "cultural committee" comprised of senior sales executives at each company, to consider how to carry out the bribery scheme. To conceal the illicit payments, the joint venture entered into sham contracts with a shell company controlled by a U.K. solicitor (Jeffrey Tesler, who was given $132 million for the purpose of bribing high-level Nigerian officials) and a Japanese trading company (Marubeni, which was given $51 million for the purpose of bribing low-level Nigerian officials) as conduits for the bribes. Total payments to the two agents exceeded $180 million.

On February 11, 2009, without admitting or denying the SEC's allegations, Halliburton and KBR consented to the entry of a final judgment permanently enjoining them from violating the books and records and internal controls provisions of the FCPA, and permanently enjoining KBR from aiding and abetting violations of the books and records and internal control provisions of the FCPA. By the terms of the final judgment, Halliburton and KBR, Inc. are jointly and severally liable for the disgorgement of $177 million (however, pursuant to the master separation agreement between Halliburton and KBR, Halliburton agreed to indemnify KBR for certain FCPA-related matters). KBR, Inc. and Hallibruton are also required to retain an independent monitor to review their FCPA-related policies and procedures.

Halliburton also agreed to pay Nigeria $35 million to settle bribery allegations that led to charges against former Vice President Dick Cheney and other executives. Cheney was Hallibuton's CEO in the 1990's. The $35 million includes $2.5 million to pay legal fees and aid in its efforts to recover funds frozen in a Swiss bank account of a former joint-venture agent. Cheney was investigated by Nigerian Prosecution, as well as Nigeria's own anti-graft Economic and Financial Crimes Commission (EFCC) and anti-fraud police.

Country(ies) involved:    Nigeria

Sanction to Bribe Ratio:    $177,000,000 / $182,000,000 = 97.25 %

Sanction to Revenue Ratio:    $177,000,000 / $6,000,000,000 = 2.95 %

Sanction to Profit Ratio:    N/A

Number of Related Enforcement Actions (Including This Enforcement Action):    11

Country(ies) involved:    Nigeria

Total $ Bribery Payments:    $183,000,000

Total $ Revenue Generated from Bribery:    $6,000,000,000

Total $ Profit Earned or Expenses Avoided from Bribery:    N/A

Total $ Monetary Sanctions:    $1,715,938,854

Sanction to Bribe Ratio:    $1,715,938,854 / $183,000,000 = (937.67 %)

Sanction to Revenue Ratio:    $1,715,938,854 / $6,000,000,000 = (28.60 %)

Sanction to Profit Ratio:    N/A

Name:    Halliburton

Place of Incorporation:    United States

HQ Country(ies):    United States

Entity Type:    Public Company

FCPA Claims:    Books & Records, Primary, Issuer (15 U.S.C. § 78m (b)(2)(A)) ; Internal Controls, Primary, Issuer (15 U.S.C. § 78m(b)(2)(B))

Related Claims:    N/A

Statutory Basis for FCPA Jurisdiction:    Issuer


Name:    KBR, Inc.

Place of Incorporation:    United States

HQ Country(ies):    United States

Entity Type:    Public Company

FCPA Claims:    Books & Records, Aiding and Abetting (15 U.S.C. § 78m (b)(2)(A), and/or 15 U.S.C. § 78m(b)(5)) ; Internal Controls, Aiding and Abetting (15 U.S.C. § 78m (b)(2)(B), and/or 15 U.S.C. § 78m(b)(5)) ; Anti-Bribery, Primary, Issuer (15 U.S.C. § 78dd-1) ; Books & Records, Primary, Knowing Violation (15 U.S.C. § 78m (b)(5)) ; Internal Controls, Primary, Knowing Violation (15 U.S.C. § 78m(b)(5)) ; Books & Records, Primary, Falsification of accounting records (17 C.F.R. § 240.13b2–1)

Related Claims:    N/A

Statutory Basis for FCPA Jurisdiction:    Issuer (Agent) ; Person (Books & Records, Internal Controls) ; Aider & Abettor/Cause/Control Person

Period of Bribery:   1994 - 2004

Total Bribery Payments:    $182,000,000

Total Revenue Generated from Bribery:    $6,000,000,000

Total Profit Earned or Expenses Avoided from Bribery:    N/A

Country(ies) involved:    Nigeria

Officials Potentially Influenced (Name; Title; Organization): 

  • Name N/A, Officials; Nigerian National Petroleum Corporation ("NNPC")
  • Name N/A, Officials; Nigeria LNG Limited ("NLNG")

Defendant-Related Entities Involved in the Misconduct:    N/A

Third-Party Intermediary:   

  • Marubeni Corporation , Agent/Consultant/Broker
  • Tri-Star Investments Ltd. , Agent/Consultant/Broker

Type of Bribe:   Money

Cash, Wire or Check:    N/A

Purpose of Bribe:    Obtain/retain business

TRANSACTION OVERVIEW
Payments made by the Joint Venture to Tesler for engineering contracts in Nigeria

Period of Bribery:   1994 – 2004

Total Bribery Payments:    $132,000,000

Total Revenue Generated from Bribery:    N/A

Total Profit Earned or Expenses Avoided from Bribery:    N/A

Country(ies) involved:    Nigeria

Officials Potentially Influenced (Name; Title; Organization):  

  • Name N/A, Officials; Nigerian National Petroleum Corporation ("NNPC");
  • Name N/A, Officials; Nigeria LNG Limited ("NLNG");

Defendant-Related Entities Involved in the Misconduct:    N/A

Third Party Intermediary:    Tri-Star Investments Ltd. - Agent/Consultant/Broker

Type of Bribe:   Money

Cash, Wire or Check:    N/A

Purpose of Bribe:    Obtain/retain business

TRANSACTION OVERVIEW
Payments made by the Joint Venture to Marubeni for engineering contracts in Nigeria

Period of Bribery:   1994 – 2004

Total Bribery Payments:    $50,000,000

Total Revenue Generated from Bribery:    N/A

Total Profit Earned or Expenses Avoided from Bribery:    N/A

Country(ies) involved:    Nigeria

Officials Potentially Influenced (Name; Title; Organization):  

  • Name N/A, Officials; Nigerian National Petroleum Corporation ("NNPC");
  • Name N/A, Officials; Nigeria LNG Limited ("NLNG");

Defendant-Related Entities Involved in the Misconduct:    N/A

Third Party Intermediary:    Marubeni Corporation - Agent/Consultant/Broker

Type of Bribe:   Money

Cash, Wire or Check:    N/A

Purpose of Bribe:    Obtain/retain business

Misconduct by Subsidiary?  Yes


Parent(s):   Halliburton; KBR, Inc.

Subsidiary:  Kellogg Brown and Root LLC

  • Percentage of Ownership:    100.00 %
  • Direct or Indirect Ownership:    Unknown
  • Parent Had Knowledge of Sub’s Bribery?:    No
  • Subsidiary Expressly Alleged to Be Parent's Agent:    No
  • Parent Liable for Sub Misconduct?:    Yes

Subsidiary:  Kellogg Brown & Root LLC

  • Percentage of Ownership:    100.00 %
  • Direct or Indirect Ownership:    Unknown
  • Parent Had Knowledge of Sub’s Bribery?:    No
  • Subsidiary Expressly Alleged to Be Parent's Agent:    No
  • Parent Liable for Sub Misconduct?:    Yes

M&A Negotiated or Completed During Misconduct, Investigation, or Resolution?     Yes

Type of Transaction:    Acquisition


Successor(s):   Halliburton; KBR, Inc.; Kellogg Brown and Root Inc.

Predecessor:  The M.W. Kellogg Company

  • Nature of Misconduct   
    • Misconduct Occurred Solely Pre-acquisition:    No
    • Misconduct Occurred Pre- and Post-acquisition, with NO Knowledge and/or Involvement of Successor:    Yes
    • Misconduct Occurred Pre and Post-acquisition, with Knowledge and/or Involvement of Successor:    No
  • Quality of Due Diligence:   
    • Poor Due Diligence Cited:    Yes
    • Good Due Diligence Cited /(e.g. as mitigating factor/):    No
  • Voluntary Disclosure by Successor in Connection with the Transaction:    No
  • DOJ Opinion Sought in Connection with Transaction:    No
  • Successor Liable for Predecessor Misconduct? :    Yes

  

Predecessor:  Kellogg Brown and Root Inc.

  • Nature of Misconduct   
    • Misconduct Occurred Solely Pre-acquisition:    No
    • Misconduct Occurred Pre- and Post-acquisition, with NO Knowledge and/or Involvement of Successor:    Yes
    • Misconduct Occurred Pre and Post-acquisition, with Knowledge and/or Involvement of Successor:    No
  • Quality of Due Diligence:   
    • Poor Due Diligence Cited:    Yes
    • Good Due Diligence Cited /(e.g. as mitigating factor/):    No
  • Voluntary Disclosure by Successor in Connection with the Transaction:    No
  • DOJ Opinion Sought in Connection with Transaction:    No
  • Successor Liable for Predecessor Misconduct? :    No

  

Predecessor:  The M.W. Kellogg Company

  • Nature of Misconduct   
    • Misconduct Occurred Solely Pre-acquisition:    No
    • Misconduct Occurred Pre- and Post-acquisition, with NO Knowledge and/or Involvement of Successor:    Yes
    • Misconduct Occurred Pre and Post-acquisition, with Knowledge and/or Involvement of Successor:    No
  • Quality of Due Diligence:   
    • Poor Due Diligence Cited:    Yes
    • Good Due Diligence Cited /(e.g. as mitigating factor/):    No
  • Voluntary Disclosure by Successor in Connection with the Transaction:    No
  • DOJ Opinion Sought in Connection with Transaction:    No
  • Successor Liable for Predecessor Misconduct? :    Yes

  

About the Predecessor Listed

    At least one of the 'predecessors' listed above may have been involved in a corporate reorganization rather than a merger or acquisition transaction. Please review the documents for this case for more information.

Re: Halliburton

  • Inadequate internal controls or auditing
  • Inadequate safeguards concerning use of third parties
  • Inadequate due diligence in connection with M&A
Re: KBR, Inc.
  • Inadequate internal controls or auditing

Mitigating Factors Referenced by the Government (Company Defendants):

Defendant Self-Report Cooperation Voluntary Remedial Measures Misconduct Limited to Low Level Individuals Other factors
Halliburton          
KBR, Inc.          

Aggravating Factors Referenced by the Government (Company Defendants):

Defendant Insufficient Cooperation Insufficient Remedial Measures
Halliburton    
KBR, Inc.    

Total Monetary Sanctions for the Action:    $177,000,000

Case Status:    Resolved


Disposition:    Consent Agreement

Date of Disposition:    01/09/2009

Halliburton

—  Total Monetary Sanctions for Defendant:    $177,000,000

—  Compliance Obligation:    Yes

—  Reporting Obligation:    Independent monitor

—  Admission of Guilt/Acceptance of Responsibility:    No

    Note: This sanction may have been imposed jointly and severally on multiple defendants, or it may resolve claims against more than one defendant in this proceeding or related proceedings. You should review the case summaries and resolution documents for all related cases to better understand how sanctions were levied against the defendants.


Disposition:    Consent Agreement

Date of Disposition:    02/17/2009

KBR, Inc.

—  Total Monetary Sanctions for Defendant:    $177,000,000

—  Compliance Obligation:    Yes

—  Reporting Obligation:    Independent monitor

—  Admission of Guilt/Acceptance of Responsibility:    Yes

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