Jump to content Jump to menu
Why Register?

Shearman FCPA Website: Cases Logo Shearman & Sterling LLP FCPA.Shearman.com: The One-Stop Resource on the Foreign Corrupt Practices Act

SEC v. Flowserve Corporation

 
:
Flowserve - Flowserve Corporation
:
SEC Civil
:
February 21, 2008
:
SEC v. Flowserve Corporation
:
SEC v. Flowserve Corporation, No. 1:08-cv-00294 (D.D.C. 2008)
:
Utilities-Other/Multi
:
Iraq
:
2001; 2002; 2003
:
Iraqi government
:
In April 1995, the U.N. adopted Security Council Resolution 986 which permitted Iraq to sell its oil and to use proceeds from those sales to purchase humanitarian supplies such as food for the Iraqi people ("U.N. Oil-for-Food Program" or "OFF"). In an extensive scheme, the Iraqi government received illicit payments in the form of surcharges from oil purchasers and kickbacks, often termed "after sales service fees," from humanitarian goods suppliers. The kickback payments were masked by inflating the contract price, usually by 10% of the contract value.

Flowserve Corporation ("Flowserve") is an American corporation that was involved in OFF through two of its foreign subsidiaries: "Flowserve Pompes", which is French, and Flowserve B.V., which is Dutch. Flowserve settled this action with the SEC without admitting or denying the following facts alleged in the SEC's complaint.

Flowserve's two foreign subsidiaries entered into 20 contracts pursuant to which kickback payments to the Iraqi government were allegedly either made or authorized. In total, Flowserve's two subsidiaries allegedly authorized kickback payments of approximately $820,246 and paid approximately $646,488 through agents based in Jordan. Flowserve Pompes allegedly made payments in connection with 15 contracts totaling $604,651 and authorized an additional $173,758 in payments under four other contracts. Flowserve B.V. allegedly made payments totaling $41,836 pursuant to one contract.

The SEC alleged in its complaint that Flowserve either knew of or was reckless in not knowing of the kickback payments being made by Flowserve Pompes and Flowserve B.V., which Flowserve knew were illegal. The complaint did not specify paticular individuals who received the kickbacks.

The complaint further alleged that Flowserve violated the books and records provision of the FCPA by failing to properly account for these payments, and that Flowserve violated the internal controls provision of the FCPA by failing to implement internal controls sufficient to prevent this type of misconduct. As seen in other U.N. Oil-for-f
Food related cases, the SEC did not allege violation of FCPA bribery provisions, rather only books and records and internal controls violations.

Flowserve consented to the entry of a final judgment enjoining it from violating the books and records and internal controls provisions of the FCPA and mandating that it disgorge $2,720,861, plus $853,364 in pre-judgment interest, and pay a civil penalty of $3,000,000.
:
Books and records (Issuer), Internal controls (Issuer)
:
Civil penalty, Civil Settlement, Disgorgement, Injunction/Cease and desist, Prejudgment Interest
:
$2,720,861 in disgorgement; $853,364 in pre-judgment interest; and a civil penalty of $3,000,000.
:
6,574,225
:
0
:
Issuer
:
U.S.
:
Contract Procurement/Retention
:
Not stated.
:
Cash
:
Sales Agent/Consultant
:
820,246
:
Jordan
:
Jordan
:
No