Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, August 23, 2007

Textron Settles SEC Kickback Charges in UN Oil for Food Program

The SEC today filed Foreign Corrupt Practices Act books and records and internal controls charges against Textron Inc., alleging that from approximately 2001 through 2003, two of Textron's David Brown French subsidiaries authorized and made approximately $650,539 in kickback payments in connection with its sale of humanitarian goods to Iraq under the U.N. Oil for Food Program. The kickbacks were made in the form of "after-sales service fees" for which no bona fide services were actually rendered. The Program was intended to provide humanitarian relief for the Iraqi population, which faced severe hardship under international trade sanctions. Iraq was allowed to purchase humanitarian goods through a U.N. escrow account. However, according to the complaint, the kickbacks paid by Textron's subsidiaries bypassed the escrow account and were instead paid by third parties to Iraqi-controlled accounts. The contracts submitted to the U.N. did not disclose that the cost of the illicit payments were included in the inflated contract price. The Complaint also alleges that Textron's subsidiaries made illicit payments of $114,995 to secure thirty-six contracts in the United Arab Emirates, Bangladesh, Indonesia, Egypt, and India from 2001 to 2005.

Textron, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $2,284,579 in profits, plus $450,461.68 in pre-judgment interest, and to pay a civil penalty of $800,000. Textron is also ordered to comply with certain undertakings regarding its Foreign Corrupt Practices Act compliance program. Textron will also pay a $1,150,000 fine pursuant to a non-prosecution agreement with the U.S. Department of Justice, Fraud Section.

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