In August 1990, the U.N. adopted Security Council Resolution 661, which prohibited U.N. member-states from transacting business with Iraq, except for the purchase and sale of humanitarian supplies. In April 1995, the U.N. adopted Security Council Resolution 986, a limited exception to Resolution 661 which allowed Iraq to sell its oil so long as the proceeds from oil sales were used by the Iraqi government to purchase humanitarian supplies for the Iraqi people. The U.N. controlled the proceeds from all sales of Iraqi oil and approved payments to suppliers of humanitarian goods. This program became known as the Oil for Food Program. Beginning in approximately August 2000, the Iraqi government demanded that suppliers of humanitarian goods pay a kickback, usually valued at 10% of the contract price, to the Government of the Republic of Iraq in order to be awarded a contract by the government. Suppliers often caused the U.N. to unknowingly fund these improper kickbacks by including the cost of the kickbacks in the contract price.
From approximately 2001 through 2003, Flowserve Corporation's two subsidiaries, Flowserve Pompes SAS and Flowserve B.V., paid kickbacks to the Iraqi government in connection with certain U.N. Oil for Food contracts. A French Flowserve subsidiary, Flowserve Pompes, entered into fifteen contracts involving kickback payments of $604,651. Flowserve Pompes agreed to, but did not ultimately make, an additional $173,758 in improper payments under four additional contracts. Flowserve's Dutch subsidiary, Flowserve B.V., entered into one contract involving a kickback payment of $41,836. The contract was for the supply of water pump spare parts to the Iraqi government-owned South Gas Company. The kickbacks were characterized as "after-sales service fees" ("ASSFs"), but no bona fide services were performed.
On February 21, 2008, the SEC filed a complaint against Flowserve Corporation in the District of Columbia, charging the company with violating the books and records and internal controls provisions of the FCPA. At the same time, Flowserve Corporation consented to the entry of a final judgment permanently enjoining the company from future violations of the FCPA's internal controls and books and records provisions. Under the terms of the judgment, Flowserve Corporation agreed to disgorge $2,720,861 in profits, plus $853,364 in pre-judgment interest, and to pay a civil penalty of $3,000,000.
Flowserve Corporation separately entered into a deferred prosecution agreement with the DOJ and agreed to pay a $4,000,000 monetary penalty on behalf of itself and Flowserve Pompes.
Flowserve B.V., Flowserve's Dutch subsidiary, agreed to enter into a criminal disposition with the Dutch Public Prosecutor pursuant to which it will pay a fine.
