Friday, August 24, 2007

Textron Settles FCPA Investigation

Manufacturer Textron Inc. entered a deferred prosecution agreement with the Department of Justice and settled civil charges filed by the SEC for violations of the Foreign Corrupt Practices Act.  The company, though French subsidiaries, paid over $650,000 in bribes related to the corruption-riddled Iraqi Oil-for-Food program, and another $115,000 to obtain contracts in the in the United Arab Emirates, Bangladesh, Indonesia, Egypt, and India.  According to the SEC Litigation Release (here):

Textron subsidiaries David Brown Guinard Pumps S.A.S. and David Brown Transmissions France S.A. made $1,936,926 in profits on Oil for Food contracts that involved illicit after-sales service fees ("ASSF"). DB Guinard Pumps obtained three Oil for Food contracts that were inflated by ten percent to cover the cost of secret ASSFs that it had agreed to make in undisclosed side letters with Iraq. Management approved ASSFs of approximately $83,000 to be funneled to Iraq through a Lebanese consultant. When the goods were held up at the Iraqi border on one contract, the Lebanese consultant provided DB Guinard Pumps with bank records showing that the ASSF payment was made on the company's behalf into a Lebanese bank account in the name of an Iraqi individual for the benefit of the Iraqi ministry. DB Transmissions France obtained ten Oil for Food contracts that were also inflated by ten percent to cover the cost of secret ASSFs. DB Transmissions France's Export Sales Manager noted in an internal memorandum that DB Transmissions France wishes "to avoid any written agreement [concerning the ASSF] with client side" and "[i]f written document cannot be avoided, this must remain highly confidential." He also noted that he discussed this issue with French management and received approval from his superiors to include the amount of the ASSF in the inflated contract price submitted to the U.N. Management approved ASSF payments of approximately $567,000 to be funneled to Iraq through a Jordanian consultant.

Textron's David Brown subsidiaries entered into thirty-six contracts involving illicit payments totaling $114,995.20 in countries other than Iraq. The payments were similar to the ASSF payments made on Oil for Food contracts because no bona fide services were performed and the payments were made to secure contracts. In the United Arab Emirates, subsidiaries paid $20,429 to employees of two government-owned gas companies, GASCO and ZADCO. $16,342 was paid to two "friends" employed by a Bangladesh government-owned fertilizer company. In Indonesia, a company representative was paid $149,000 of a $321,171 contract (more than half the contract value) to perform after-sales services. Of the $149,000 paid to the representative, $10,000 went to a procurement official of a government-owned company, Pertamina, to sponsor a golf tournament with very little documentation to show what the representative actually did with the remainder. Finally, $13,354 was paid to a government customer in Egypt, and $51,870 was paid to a non-government customer in India to secure business.

According to the Department of Justice press release (here), the government agreed to a deferred prosecution agreement rather than requiring a guilty plea "in recognition of Textron’s early discovery and reporting of the improper payments; Textron’s’ thorough review of those payments as well as its discovery and review of improper payments made in other countries, including India, Egypt, and the United Arab Emirates; and the company’s implementation of enhanced compliance policies and procedures." (ph)

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Civil Enforcement, FCPA, Settlement | Permalink

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