Investigation of Halliburton Co./ TSKJ's Nigerian business practices: model for analysis of the current anti-corruption environment on Foreign Corrupt Practices Act enforcement.

• Author: George, Barbara Crutchfield
• Position: The Changing Face of White-Collar Crime

1. INTRODUCTION

   The U.S. stood alone in its anti-bribery legislation from 1977, when the Foreign Corrupt Practices Act ("FCPA") (1) was initially passed, until the Organization for Economic Cooperation and Development (the "OECD") adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions ("OECD Convention") in 1997, resulting in OECD signatory nations adopting implementing legislation. (2) France's adoption of implementing legislation in 2002 provided the basis for the investigation by one of its magistrates into the allegations that a Halliburton subsidiary, TSKJ, (3) had engaged in bribery activities in Nigeria. (4) What began as a French investigation (5) into allegations of improper payments by a TSKJ agent to Nigerian government officials in exchange for favorable treatment in contracts connected with the construction of a multibillion dollar natural gas liquefaction complex at Bonny Island, Nigeria has widened into an investigation by the Nigerian government (6) and FCPA investigations by the U.S. Department of Justice (7) and Securities and Exchange Commission. (8)

   The issues raised by the French inquiry into Halliburton/TSKJ's alleged payments to Nigerian government officials of about $180 million in exchange for securing contractual advantages provide an excellent model for examining the influence of the current anti-corruption environment on FCPA enforcement. (9) The French are examining allegations of illicit payments to Nigerian government officials by the TSKJ joint venture in which Halliburton Company's subsidiary, Kellogg Brown & Root ("KBR"), (10) is a partner. (11) With an American corporation involved, (12) the French regulators related the information they had obtained to their U.S. compliance counterparts. (13)

   This Paper will: 1) discuss the factual background of the alleged Halliburton/TSKJ misconduct and the pending investigations by various government agencies in several countries; 2) identify the relevant FCPA provisions, case law and policy; and 3) examine the anti-corruption environment which has influenced increased enforcement of the FCPA and its potential implications for the pending Halliburton/TSKJ investigation.

2. CURRENT FRENCH, DO J, SEC, AND NIGERIAN INVESTIGATIONS OF HALLIBURTON/TSKJ FOR POTENTIAL FOREIGN CORRUPT PRACTICES ACT VIOLATIONS

   1. FACTUAL BACKGROUND OF ALLEGED HALLIBURTON/TSKJ BRIBERY MISCONDUCT

      TSKJ, through its agent, Tri Star, is alleged to have made payments to Nigerian government officials of up to $180 million in exchange for lucrative contracts. (14) Starting in 1994, the joint venture, TSKJ, (15) entered into a series of contracts to build and expand the liquefied natural gas project for Nigeria LNG Limited (16) at Bonny Island in Rivers State. M.W. Kellogg--a twenty-five percent partner in TSKJ--was allegedly its lead company. (17) M.W. Kellogg became part of Halliburton in 1998, when Halliburton acquired its parent company, Dresser Industries. (18) After the acquisition, M. W. Kellogg's business was merged with an earlier Halliburton acquisition, Brown & Root, to become KBR, the engineering and construction unit within Halliburton. (19) Some of the M.W. Kellogg executives, who later worked for KBR, have been targeted for alleged misdeeds in the government investigations of bribery. (20)

      Commencing in 1995, TSKJ entered into an agency agreement with Tri Star Investments, a firm headed by a British lawyer, Jeffrey Tesler. (21) The TSKJ joint venture allegedly engaged in its subterfuge by using Tri Star to act as an agent in making payments. (22) Reports estimate that TSKJ paid Tri Star $180 million which was remitted to Nigerian public officials through offshore accounts that allowed TSKJ to obtain contract awards for building the Bonny Island liquefied natural gas production units. (23) Some evidence has emerged in the French investigation that between 1995 and 2002, dates that "roughly coincided with contract awards for the Nigeria LNG project worth $6.7 billion," Tri Star paid officials $166 million. (24)

      Handwritten notes detailing conversations among representatives of the consortium between 1993 and 1998, discuss the possibility of bribes to Nigerian officials to win bids for construction of the $12 billion Nigeria Liquefied Natural Gas Project, thus offering support for allegations of bribery. (25) Subsequent to the discovery of the notes, Halliburton disclosed their contents to the SEC. (26)

      Although some of the alleged misconduct took place from 1995 to 1998, before the M.W. Kellogg parent corporation, Dresser, was acquired by Halliburton, the merger may have carried with it the liabilities of the target company. To further attach the possibility of liability to Halliburton, the suspect payments continued until 2002--after the merger--when a partner in the Nigerian project alerted the French prosecutor of TSKJ's alleged "slush fund." (27)

   2. FRENCH INVESTIGATION

      The bribery issue first came to the attention of the French in 2002 when a Paris prosecutor received information from an official of Technip, (28) a French company that was a partner in TSKJ consortium, about a Nigerian "slush fund" when the official was being questioned about his role in the alleged acts of fraud by the French oil company, Elf Aquitane (subsequently Total). (29) In January 2002, roughly at the same time of the Technip official's testimony, France implemented the OECD Convention through a Penal Code amendment. (30) The prosecutor then transferred the case to a French magistrate, Renaud van Ruymbeke of the Tribunal De Grande Instance De Paris, who began his investigation into the matter in October 2003--one of the first bribery scandals under the new amendment of the French Penal Code. (31) After the investigation is complete, Mr. Ruymbeke has the power to recommend either a criminal trial or that the authorities drop the matter. (32)

      Following the discovery, the French regulators informed their U.S. counterparts in the DOJ and SEC regarding the magistrate's pending investigation. (33)

   3. DOJ INQUIRY

      In February 2004, as a result of the information obtained from French regulators, the DOJ opened an inquiry into possible FCPA violations by Halliburton. (34) A report of this inquiry first appeared in Halliburton's 10K filed with the SEC on March 1, 2004 in which it stated that the U.S. Department of Justice and SEC have met with Halliburton to discuss the French magistrate's investigation. (35) It further stated that the agencies had "asked Halliburton for cooperation and access to information in reviewing the matter in light of the requirements of the United States Foreign Corrupt Practices Act." (36) In later SEC filings, there is mention of the company's understanding that the DOJ had "invoked its authority under a sitting grand jury to obtain letters rogatory for the purpose of obtaining information abroad." (37)

   4. SEC INVESTIGATION

      Although the SEC had made informal requests for cooperation earlier in the year, in June 2004 the SEC opened a formal investigation of Halliburton to determine if FCPA violations occurred. (38) Halliburton issued a press release regarding the SEC investigation into the "more than $100 million in payments that a joint venture involving its Kellogg Brown & Root subsidiary in the building of a huge Nigerian natural gas complex." (39) In SEC filings, Halliburton reports that it has produced documents to the SEC both voluntarily and pursuant to subpoenas, and that it is making its employees available to the SEC for testimony. (40)

   5. NIGERIAN INVESTIGATION

      The Nigerian House of Representatives Committee on Public Petitions engaged in an investigation of the alleged bribery activities of Halliburton/TSKJ and held hearings starting in early 2004 to identify those who may have benefited from the alleged bribe money and to determine the extent the Nigerian Government might have suffered losses in the transactions. (41) This was followed by a public inquiry into the same matter by the National Assembly. (42)

      According to the 10Q filed with the SEC by Halliburton on October 31, 2005, the Nigerian Economic and Financial Crimes Commission, "which is organized as part of the executive branch of the government," is also investigating these matters. (43) The 10Q further reports that "TSKJ notified the Nigerian Attorney General that TSKJ would not oppose the Attorney General's efforts to have sums of money held on deposit in banks in Switzerland transferred to Nigeria and to have the legal ownership of such sums determined in the Nigerian courts." (44)

3. RELEVANT FCPA PROVISIONS

   When the Foreign Corrupt Practices Act was adopted in 1977, it was the first anti-bribery legislation ever adopted by a nation. (45) For the next twenty years, corporations governed by U.S. securities laws were the sole companies constrained in competing on an increasingly global level, by the criminal and civil penalties integral to the FCPA. These corporations were vocal in expressing their concerns that they were placed at a competitive disadvantage by the restrictions imposed by the statute. (46) While the global marketplace has been altered by the adoption of the OECD, it is important to consider the FCPA provisions.

   The Act is divided into two sections: The first section specifically prohibits bribery of foreign officials, (47) and the second section includes accounting provisions--both corporate recordkeeping and internal control requirements--intended to deter and detect such illicit payments. (48)

   To facilitate understanding of the FCPA and its impact on government's ability to curb business corruption, the substantive content of the statute and its amendments are reviewed briefly in the following sections.

   1. ANTI-BRIBERY PROVISIONS

      The anti-bribery provisions include:

      1) a prohibition against the direct and indirect bribery of foreign officials by issuers and reporting firms under the jurisdiction of the...