Energy Services Company Settles FCPA Case
Halliburton Company ("Halliburton"), an energy product and services company, agreed to pay financial penalties to settle an SEC case alleging violations of the Foreign Corrupt Practices Act ("FCPA").
According to the SEC cease-and-desist order, former Halliburton Vice President Jeannot Lorenz, who was in charge of local content efforts in Angola beginning in 2008, unilaterally directed over $13 million of business to a local company with personal ties to a high-level official at Sonangol, Angola's state oil company. The services provided by this local company to Halliburton appeared to lack any significant business purpose. In directing the funds, Lorenz allegedly bypassed Halliburton's internal procurement procedures that required proper assessment of third-party services. In addition, Mr. Lorenz allegedly avoided Halliburton's competitive bidding procedures, the justification of single-source contracts, and committee approval of transactions in high-corruption risk countries. Lorenz also allegedly falsified Halliburton's books and records with inaccurate descriptions of the services provided. Halliburton paid $3.7 million to the local Angolan company and subsequently was awarded seven profitable sub-contracts by Sonangol.
Halliburton agreed to pay $29.2 million – including $14 million in disgorgement, $1.2 million in interest and a $14 million penalty – and to retain an independent compliance monitor for 18 months in order to settle allegations by the SEC that Halliburton violated the books and records and internal accounting controls provisions of the FCPA. Former Halliburton Vice President Lorenz was ordered to pay a civil penalty of $75,000 for his role in the matter.
A parallel investigation by the DOJ was closed without action.
Commentary
The Halliburton settlement illustrates how the need to comply with local content rules can seriously backfire if regulators perceive that compliance was used as a way to curry favor with a foreign government or state-owned entity and not for a valid business reason. Even in the absence of an explicit quid-pro-quo payment, taking shortcuts, bypassing accounting controls and mischaracterizing financial transactions can lead to FCPA books and records violations, substantial fines and a monitorship. Also, expect to see additional instances going forward of executives being held personally liable for such violations, in continued efforts by the Securities and Exchange Commission and the Department of Justice to focus punishments on individuals rather than companies and shareholders.