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SEC v. Halliburton Company and KBR, Inc.

 
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Halliburton and KBR, Inc. - Halliburton Company
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SEC Civil
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February 11, 2009
:
SEC v. Halliburton Company and KBR, Inc.
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SEC v. Halliburton Company and KBR, Inc., No. 4:09-cv-00399 (S.D. Tex. 2009)
:
Halliburton is liable for $559 million of the $579 million total penalty in the SEC and DOJ proceedings because it agreed to indemnify KBR, Inc. for penalities arising from the then-pending FCPA investigation when it spun off KBR, Inc. in a 2006 IPO.
This combined penalty is the largest sanction to date imposed on a U.S. company in a FCPA enforcement action.
The Halliburton/KBR investigation originated from an overseas corruption investigation. In 2003, the French press reported that a French investigating magistrate had opened an investigation into a joint venture formed by KBR Inc.'s predecessor and several foreign companies.
The bribery scheme was already in progress when Halliburton acquired Dresser Industries, and with it the M.W. Kellogg Co., in 1998. Halliburton's pre-acquisition due diligence failed to uncover the scheme.
Jurisdiction is based in part on correspondent accounts.
Halliburton was required to retain an independent consultant within 60 days to evaluate its FCPA-related policies and procedures and adopt any recommendations.
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Energy (Non-Utility)-Oil & Gas-Exploration/Production
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Nigeria
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1995; 1996; 1997; 1998; 1999; 2000; 2001; 2002; 2003; 2004
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Nigerian government officials
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Kellogg Brown & Root LLC, then a subsidiary of Halliburton Company, now a wholly owned subsidiary of KBR, Inc., participated in a joint venture to obtain and perform contracts to build and expand the Bonny Island Project for Nigeria LNG Limited, which is owned in part by the Nigerian National Petroleum Corporation. The joint venture received four engineering, procurement, and construction contracts for the Bonny Island Project between 1995 and 2004. According to the SEC’s February 11, 2009 complaint, from at least 1995 until 2004, Kellogg Brown & Root LLC and its partners in the joint venture allegedly authorized, promised, and paid bribes to Nigerian government officials to obtain business related to the Bonny Island Project. To conceal the bribes, the joint venture allegedly entered into sham consulting or services agreements with intermediaries. One U.K. consultant allegedly received over $130 million for use in bribing Nigerian government officials. Another Japanese consultant allegedly received over $50 million for use in bribing Nigerian government officials. During this period, Halliburton allegedly maintained inadequate internal controls, which led to the company's failure to detect, deter, or prevent the payments of bribes. Specifically, the SEC alleged that the KBR and Halliburton attorneys conducting the due diligence on the U.K. consultant never learned the identity of the beneficial owners of the entities holding shares of the Gibraltar shell company to which the joint venture paid the consultant's fees; the attorneys allegedly did not seek to determine how the consultant would carry out his contractual duties; and the attorneys allegedly did not check all of his references, some of which were false. Halliburton allegedly approved the use of the consultant in spite of knowing that important information was missing from the due diligence report. Halliburton also allegedly conducted only minimal follow-up due diligence on the U.K. consultant before the joint venture entered into additional contracts despite policies requiring more in depth examination. Finally, Halliburton alleged conducted no due diligence on the Japanese consultant because KBR officials characterized the relationship between the joint venture and the Japanese consultant as a "services" contract and Halliburton allegedly had no mechanism in place to test the veracity of that characterization. Additionally, KBR's books and records allegedly contained false information, which was incorporated into Halliburton's books and records.
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Books and records (Issuer), Internal controls (Issuer)
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Civil Settlement, Compliance Monitor, Disgorgement, Injunction/Cease and desist
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By the terms of the final judgment, Halliburton and KBR, Inc. are jointly and severally liable for the disgorgement of $177 million. Halliburton is also required to retain an independent consultant within 60 days to evaluate its FCPA-related policies and procedures and adopt any recommendations. Pursuant to the master separation agreement between Halliburton and KBR, Halliburton agreed to indemnify KBR for certain FCPA-related matters, and Halliburton will pay the $177 million disgorgement.
:
177,000,000
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0
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Issuer
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U.S.
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Contract Procurement/Retention
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6,000,000,000
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Cash, Wire/check
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Sales Agent/Consultant, Subsidiary Company
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180,000,000
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Monaco, Nigeria, Switzerland, United Kingdom
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Monaco, Nigeria, Switzerland, United Kingdom, United States
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No
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France, Nigeria, Switzerland, United States