Archive for the ‘Baker Hughes’ Category

Meaningless Settlement Language?

Wednesday, November 16th, 2011

Previous posts (here and here) have discussed scrutiny of SEC resolution procedures in the SEC v. Citigroup case.  Although not an FCPA enforcement action, the SEC policies (such as settlement via neither admit nor deny language) being questioned by Judge Jed Rakoff (S.D.N.Y.) are the same in SEC FCPA enforcement actions.  Thus, Judge Rakoff’s questions are relevant to SEC FCPA enforcement.

A typical SEC FCPA enforcement action involves a permanent injunction prohibiting future FCPA violations – see here for the recent Comverse SEC FCPA enforcement action containing such language.  In this prior post regarding Diebold’s FCPA disclosure, I noted that Diebhold was already subject to an injunction prohibiting future FCPA violations (as a result of a non-FCPA FCPA enforcement action) and  I asked whether Diebold was in jeopardy of violating that injunction. 

If Diebold does indeed become a repeat offender, it will have company.  For instance, in 2004 ABB Ltd. resolved an FCPA enforcement action (see here) and “consented to the entry of a final judgment enjoining it from future FCPA violations.”  In 2010, ABB Ltd. again agreed to resolve an FCPA enforcement action – see here for the prior post.  So much for that permanent injunction thing.   Likewise, in 2001 Baker Hughes resolved an FCPA enforcement action (see here) and was ordered to cease and desist from any future FCPA violations.   In 2007, Baker Hughes again agreed to resolve an FCPA enforcement action – see here.  So much for that cease and desist thing.

Thus, Judge Rakoff’s question in the Citigroup action – whether SEC injunctions against future violations have any meaning is a good question.  Specifically, Judge Rakoff requested an answer to the following question.  “The proposed judgment imposes injunctive relief against future violations.  What does the SEC do to maintain compliance?  How many contempt proceedings against large financial entities has the SEC brought in the past decade as a result of violations of a prior consent judgment?”

In its Citigroup brief the SEC responded as follows.

“Civil contempt is a remedy available to the SEC in the event either (1) that a defendant is engaging in an ongoing violation of an injunction, or (2) compensation is due the SEC as a result of a defendant’s violation of an injunction.  Because alternative effective remedies often are available, including the filing of an independent action with corresponding legal and equitable relief, the Commission has not frequently pursued civil contempt proceedings and does not appear to have initiated such proceedings against a ‘large financial entity’ in the last ten years.  However, prior unlawful conduct by a corporate entity is considered in determining the appropriate penalty in any subsequent enforcement action.”

For additional information see this recent New York Times article from Edward Wyatt.

 

Baker Hughes – Behind the Scenes

Tuesday, December 14th, 2010

In April, 2007, Baker Hughes entities settled related DOJ and SEC FCPA enforcement actions principally related to conduct in Kazakhstan. (See here, here, and here).

As noted in the DOJ release (here), Baker Hughes Services International Inc. (“BHSI”) – a wholly owned subsidiary of Baker Hughes Incorporated – pleaded guilty to violations of the anti-bribery provisions of the FCPA, conspiracy to violate the FCPA, and aiding and abetting the falsification of books and records of its parent company Baker Hughes. The conduct at issue involved “approximately $4.1 million in bribes over approximately a two-year period to an intermediary whom the company understood and believed would transfer all or part of the corrupt payments to an official of Kazakoil, the state-owned oil company.” BHSI agreed to pay a $11 million criminal fine. Baker Hughes entered into a deferred prosecution agreement regarding the same underlying conduct and accepted responsibility for conduct of its employees. As noted in the SEC release (here), Baker Hughes also agreed to pay more than $23 million in disgorgement and prejudgment interest and to pay a civil penalty of $10 million for violating a 2001 Commission cease-and-desist Order prohibiting violations of the books and records and internal controls provisions of the FCPA.

The combined $44 million in fines and penalties was (at the time) the largest monetary sanction ever imposed in an FCPA case.

An April 11, 2007 diplomatic dispatch released by WikiLeaks and published by the U.K. Guardian (here) provides some interesting behind the scenes action that took place prior to the public announcement of the enforcement action.

The cable states, other other things, as follows.

“A Foreign Corrupt Practices Act case involving malfeasance by U.S. oil technology and services firm Baker Hughes in Kazakhstan will soon be settled, revealing details of bribes paid by the firm’s local representatives. Baker Hughes representatives are in Astana to brief Prime Minister Masimov on the case before it becomes public, in hopes of limiting the negative impact on the firm’s ability to work in Kazakhstan. In order to minimize the damage from the case to U.S. investors and the bilateral relationship, post believes it would be helpful to inform the Kazakhstani government that the U.S. government authorized Baker Hughes’ representatives to brief them in advance of the settlement, and to share the text of the decision once it is issued.”

“The Ambassador met with Alan R. Crain, Senior Vice President and General Counsel of Baker Hughes Incorporated, and Amb. Beth Jones, Executive Vice President of APCO Worldwide, on April 10 in Astana to discuss a Foreign Corrupt Practices Act (FCPA) case involving Baker Hughes’ work in Kazakhstan. Crain and Jones informed the Ambassador that they would meet with Prime Minister Masimov later that day to brief him on the upcoming U.S. court decision in the case. They had met with Masimov on January 9 to inform him that legal proceedings were underway in the U.S., and now planned to share the details. They stated that the Department of Justice and the SEC had authorized both meetings.”

“Jones and Crain said that their goal in briefing PM Masimov was to demonstrate the respect that Baker Hughes as an investor has for Kazakhstan and its laws, and thereby ensure that the firm will still be able to operate here and that its employees will not face harassment. They will also emphasize the fact that the investigation centered on commercial malfeasance and did not reveal the involvement of any high-ranking Kazakhstani government officials. After the Masimov meeting took place, Jones contacted the Ambassador to relay Masimov’s request that the Embassy convey the court decision as soon as it is released.”

The cable also states as follows.

“Crain told the Ambassador that a former employee of Baker Hughes filed a report with the SEC in August 2003 detailing alleged malfeasance in several overseas subsidiaries, including Kazakhstan.” “Four separate incidents were discovered during the internal investigation, the second of which is the basis of the legal proceedings currently underway in the U.S.”

The DOJ enforcement action relates only to Kazakhstan. The SEC’s enforcement action also relates to conduct in Indonesia, Nigeria, and Angola as well.

As to the agent at the center of the Kazakhstan payments, see this related story from the U.K. Guardian.

Baker Hughes – BJ Services Merger

Monday, August 31st, 2009

The press (see here among other places) is reporting that Baker Hughes has agreed to buy BJ Services in a $5.5 billion cash and stock deal.

Both companies should be familiar to FCPA followers and there are many FCPA issues present in this announced merger.

For starters, a bit of background.

In 2007, Baker Hughes settled parallel DOJ and SEC FCPA enforcement actions concerning business conduct in Kazakhstan, Nigeria, Angola, Indonesia, Russia, and Uzbekistan. (See here for the DOJ release and related materials, see here for the SEC release and related materials). Combined fines and penalties were a then FCPA-record $44 million.

In 2004, BJ Services consented to entry of an SEC cease-and-desist order finding that it violated the FCPA’s anti-bribery, books and records, and internal control provisions in connection with the business conduct of its wholly-owned Argentinean subsidiary. (See here for the SEC order).

In addition, in its 2008 Annual Report (filed in November 2008 see here) BJ Services indicated (at pgs. 69-70) that it voluntarily disclosed to the DOJ/SEC the results of an internal investigation concerning problematic business conduct in the Asia-Pacific region that could implicate the FCPA. To my knowledge, no enforcement action has yet resulted from this disclosure.

At a minimum, the following FCPA issues are present in the Baker Hughes / BJ Services announced merger.

Baker Hughes settled the 2007 FCPA enforcement action by agreeing to a deferred prosecution agreement (see here). Pursuant to Paragraph 8 of the DPA, Baker Hughes agreed to engage an independent monitor to review the company’s compliance with the FCPA for a period of three years. Thus, per the DPA, Baker Hughes is still under an FCPA monitor – an individual who no doubt has been busy or soon will be busy in ensuring that Baker Hughes properly integrates BJ Services into Baker Hughes’ existing FCPA compliance policies and procedures.

What about the issue of Baker Hughes purchasing a company with disclosed, yet apparently unresolved, FCPA issues? This is one area where the DOJ has offered up substantive guidance to acquiring companies and the following DOJ Opinion Procedure Releases are relevant (in whole or in part): 08-02 (see here), 08-01 (see here), 04-02 (see here), and 03-01 (see here). For additional reading (see here).

I like to tell my students that the business law issues we cover in class are not merely historical, but rather are issues that companies deal with on a daily basis. For all you FCPA students out there, the Baker Hughes – BJ Services merger announcement provides a good real-world “issue-spotting” exam.