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U.S. v. Flowserve Corporation

 
:
Flowserve - Flowserve Corporation
:
DOJ Criminal
:
February 21, 2008
:
U.S. v. Flowserve Corporation
:
Although the government brought criminal charges only against Flowserve Corporation's subsidiary, Flowserve Pompes SAS, and did not allege any direct involvement or knowledge by the parent corporation, Flowserve Corporation entered into a DPA and accepted responsibility for the subsidiary's actions.
:
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 its wholly-owned foreign French subsidiary, Flowserve Pompes SAS ("Flowserve Pompes"). Flowserve Pompes entered into 19 contracts in which kickback payments to the Iraqi government were either made or offered to obtain supply contracts worth €7,435,381 (approximately $11,014,000). Flowserve Pompes offered a total of $778,409 in payments, of which approximately $604,651 was in fact paid to the Iraqi government. Flowserve Pompes failed to correctly account for these payments in its books and records.

As seen in other U.N. Oil-for-Food related prosecutions, the DOJ did not allege violation of FCPA bribery provisions against Flowserve Pompes. Rather, the criminal informaion only charges conspiracy to commit wire fraud and conspiracy to violate the FCPA's books and records provisions.

The DOJ entered a deferred-prosecution agreement with Flowserve, which acknowledged responsibility for Flowserve Pompes's actions.

Because Flowserve cooperated in the DOJ's investigation and implemented enhanced internal controls, the DOJ agreed to defer prosecution of Flowserve Pompes by three years. The DOJ has agreed to dismiss the criminal information against Flowserve Pompes if Flowserve and Flowserve Pompes abide by the terms of the deferred-prosecution agreement.

In a related SEC matter, Flowserve consented to an entry of judgment against it. The SEC complaint alleged additional facts, including the involvement of another Flowserve subsidiary, Flowserve B.V., in the OFF kickback scheme.
:
Deferred-prosecution Agreement
:
Penalty of $4,000,000 paid by parent company, Flowserve Corporation, on behalf of itself and Flowserve Pompes SAS, its wholly-owned subsidiary. Flowserve Corporation acknowledged responsibility for the actions of Flowserve Pompes SAS.
:
4,000,000
:
0
:
Issuer
:
U.S.
:
Contract Procurement/Retention
:
11,014,000
:
Cash
:
Sales Agent/Consultant, Subsidiary Company
:
778,409
:
Jordan
:
Jordan
:
No