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Issues To Consider From The Halliburton Enforcement Action

Issues

This prior post went in-depth into last week’s $29.2 million Foreign Corrupt Practices Act enforcement action against Halliburton and this post continues the analysis by highlighting additional issues to consider.

Timeline

Halliburton disclosed to the DOJ / SEC in December 2010 or perhaps early 2011. Regardless of the precise date, Halliburton’s FCPA scrutiny lasted approximately 6.5 years.

If the SEC wants the public to have confidence in its FCPA enforcement program, it must resolve instances of FCPA scrutiny much quicker. Having FCPA scrutiny linger for 6.5 years is inexcusable particularly since Halliburton, in the words of the SEC, “[cooperated] including making foreign witnesses available, compiling financial data and analysis relating to the transactions at issue, and making substantive presentations on key topics at the staff’s request.”

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Halliburton Joins FCPA Repeat Offender Club As The SEC Also Finds That A Former VP Violated The FCPA

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In 2009, Halliburton Company, KBR Inc. (a wholly-owned subsidiary of Halliburton during the relevant time period) and Kellogg, Brown & Root, LLC (a wholly-owned subsidiary of KBR) resolved parallel DOJ and SEC Foreign Corrupt Practices Act enforcement actions in connection with a bribery scheme involving a $6 billion liquefied natural gas plant on Bonny Island, Nigeria. (See here and here).

The combined $579 million settlement amount (DOJ – $402 million / SEC $177 million) remains the third largest FCPA settlement of all-time. The SEC’s resolution contained the perfunctory condition of permanently enjoining Halliburton from violating the FCPA’s books and records and internal controls provisions.

However, yesterday Halliburton joined the ever-increasing (see here and here for recent posts) FCPA repeat offender club as the SEC announced an FCPA enforcement action concerning alleged conduct in Angola. Without admitting or denying the SEC’s findings in this administrative order that it violated the FCPA’s books and records and internal controls provisions, Halliburton agreed to pay $29.2 million. In the same order, the SEC also found that Jeannot Lorenz (Halliburton’s former vice president) causing the company’s violations, circumvented internal accounting controls, and falsified books and records. Without admitting or denying the SEC’s findings, Lorenz agreed to pay a $75,000 penalty.

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OECD Report Misses The Mark

Targets3

Recently, a High-Level Advisory Group on Anti-Corruption and Integrity, “composed of independent experts from a variety of professional backgrounds in the anti-corruption field” drafted a lengthy report to the OECD to “strengthen its work on combating corruption and promoting integrity.”

In the report the Group makes 22 separate recommendations.

Problem is, the report completely misses the mark on the most obvious and effective way to reduce corruption.

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Survey Responses Indicate That The More Things Change, The More They Remain The Same

no change

The “Story of the Foreign Corrupt Practices” highlights how Congress clearly understood and appreciated the many difficult foreign business conditions facing U.S. companies.

For instance, the 1976 SEC Report on Questionable and Illegal Corporate Payments and Practices, on which Congress placed great reliance during its multi-year legislative process leading to the FCPA, documented a wide range of foreign corporate payments to a variety of recipients for a variety of reasons including payments “to persuade low-level governmental officials to perform functions or services which they are obligated to perform as part of their governmental responsibilities, but which they may refuse or delay unless compensated.”

Congress could have legislated as to the wide range of foreign corporate payments brought to its attention and certain bills introduced during the multi-year legislative process leading to the FCPA did indeed capture a wide range of payments. Yet, in passing the FCPA Congress intended to capture only a narrow range of foreign corporate payments.

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A Positive Correlation Between Bureaucracy and Corruption

Overlap

Previous posts (see here, here and here) have posed the question several times.

Why do Foreign Corrupt Practices Act violations occur?

Do companies subject to the FCPA do business in foreign markets: (i) intent on engaging in bribery as a business strategy and without a committment to FCPA compliance; or (ii) with a committment to FCPA compliance, yet subject to difficult business conditions?

To be sure, there have been some instances where bribery was used as a business strategy and approved of and condoned by high-level corporate executives.  However, the more common reason for FCPA scrutiny and enforcement is that company with a commitment to FCPA compliance is doing business in a foreign country subject to difficult business conditions.

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