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November
2, 2006
Is Cheney Getting Fitted for a Striped
Jumpsuit?
The
SEC's Probe of Halliburton
By EVELYN PRINGLE
The US Securities and Exchange Commission
is conducting a formal investigation into whether Halliburton
made improper payments to government officials in Nigeria in
connection with the construction and expansion by TSKJ of a natural
gas liquefaction complex and facilities at Bonny Island in Rivers
State, Nigeria.
TSKJ is a company registered
in Portugal whose members include Technip SA of France, Snamprogetti
Netherlands BV, a subsidiary of Saipem SpA of Italy, JGC Corporation
of Japan, and Kellogg Brown & Root, a successor to the MW
Kellogg Company, each of which has a 25% interest in the venture.
TSKJ entered into various contracts
to build and expand the liquefied natural gas project for Nigeria
LNG Limited, which is owned by the Nigerian National Petroleum
Corp, Shell Gas BV, Cleag Limited, and Agip International BV,
an affiliate of ENI SpA of Italy.
MW Kellogg Limited is a joint
venture in which Halliburton has a 55% interest; and MW Kellogg
Limited and the MW Kellogg Company were subsidiaries of Dresser
Industries before Halliburton's 1998 acquisition of Dresser Industries.
The MW Kellogg Company was later merged with a Halliburton subsidiary
to form Kellogg Brown & Root.
The US Department of Justice
is also conducting a related criminal investigation of the Nigerian
bribery matter pursuant to the US Foreign Corrupt Practices Act
(FCPA).
In addition to the SEC and
the DOJ investigations, other investigations are being conducted
in France, Nigeria and Switzerland and in Nigeria, a legislative
committee of the National Assembly and the Economic and Financial
Crimes Commission are also investigating the matter.
And last but not least, on
August 7, 2006, the Financial Times of London reported that KBR,
a subsidiary of Halliburton, is being investigated by Britain's
Serious Fraud Office over the company's role in an alleged plot
to pay more than $170 million in bribes to win $7 billion worth
of contracts at a Nigerian oil plant.
For part of the period under
investigation, the newspaper reported, Halliburton was headed
by Vice President Dick Cheney.
The SFO said it had conducted
searches at business and residential premises as part of its
investigation into KBR, which it said was opened in March 2006.
The probe comes after criticism that the SFO was doing too little
on the case even though a British-based company and a British
lawyer were at the centre of a plot, the Times noted.
During the investigations,
information has surfaced suggesting that at least 10 years ago,
members of TSKJ planned to make bribery payments to Nigerian
officials.
According the Times article,
documents from the French investigation show the payments relate
to four separate contracts under which the consortium agreed
to pay a total of just over $170 million to an offshore company
controlled by London-based attorney, Jeffrey Tesler.
Investigators in the US, France
and Nigeria, the Times said, have looked with particular interest
at handwritten meeting minutes surrendered by Halliburton, in
which the consortium partners use highly suggestive language
about how they plan to do business.
"One note," the Times
reports, "from December 1994 says that "all services
will cost the consortium $180m, with a further $60m allocated
to "culture.
"Elsewhere in the notes,"
the article says, "KBR and its consortium partners Technip
of France, Italy,s Snamprogetti and JGC of Japan discuss the
pros and cons of a series of possible "secret and "open
payments to agents."
The payments were made during
Cheney's tenure, and according to the Boson Globe, "If such
payments were made and Cheney approved them, he could be guilty
of violating the U.S. Foreign Corrupt Practices Act."
Mr Tesler swears that Cheney
knew about the bribes. He testified under oath in May, 2004 that
he made payments to Jack Stanley, while Stanley was president
of KBR, and specifically testified that Cheney approved the payments.
His testimony is backed up
by banking records that show that at least $5 million in payments
were wired to Stanley through a secret bank account in Zurich.
Mr Tesler also testified that he paid $350,000 to another Halliburton
executive, William Chaudran, through a secret bank account on
the isle of Jersey.
A French magistrate has officially
placed Mr Tesler under investigation for corruption of a foreign
public official and is said to be offering him a deal if he implicates
Dick Cheney.
Sources within the French legal
system contend that there is more than enough evidence to indict
Cheney on charges of bribery, money laundering and misuse of
corporate assets.
In connection with the Bonny
Island project, TSKJ entered into a series of agreements, including
with Tri-Star Investments, of which Mr Tesler is a principal,
beginning in 1995, and a series of subcontracts with a Japanese
trading company beginning in 1996.
The SEC and DOJ are seeking
to determine whether TSKJ,s engaged Tri-Star as an agent, and
the Japanese company as a subcontractor, to make improper payments
to Nigerian officials.
According to Halliburton's
SEC filing, company representatives have met with the French
magistrate and Nigerian officials and in October 2004, representatives
of TSKJ testified before the Nigerian legislative committee.
If violations of the FCPA are
found in these investigations, a guilty person or entity could
be subject to fines, and civil penalties of up to $500,000 for
each violation, as well as equitable remedies, including disgorgement,
and injunctive relief.
Under the statute, criminal
penalties could range from up to the greater of $2 million per
violation or twice the gross pecuniary gain or loss. The SEC
and the DOJ could also decide that continuing conduct constitutes
multiple violations for purposes of assessing the penalty amounts
for each violation.
Potential consequences of a
criminal indictment to Halliburton could include suspension by
the US Department of Defense, or other federal, state, or local
government agencies, of KBR and its affiliates from their ability
to contract with government agencies.
If a criminal or civil violation
is found, KBR and its affiliates could be debarred from receiving
future contracts and also from receiving new orders under existing
contracts to provide services to any such entities, which would
naturally include current KBR contracts in Iraq and Afghanistan.
And this would be no small
penalty for Halliburton. According to the company's SEC filing
for the quarter ending June 30, 2006, during 2005, "KBR
and its affiliates had revenue of approximately $6.6 billion
from its government contracts work with agencies of the United
States or state or local governments."
"Suspension or debarment
from the government contracts business," the filing states,
"would have a material adverse effect on the business, results
of operations, and cash flows of KBR and Halliburton."
The investigations could also
result in third-party claims against the company, "which
may include claims for special, indirect, derivative or consequential
damages, damage to our business or reputation, loss of, or adverse
effect on, cash flow, assets, goodwill, results of operations,
business, prospects, profits or business value, adverse consequences
on our ability to obtain or continue financing for current or
future projects or claims by directors, officers, employees,
affiliates, advisors, attorneys, agents, debt holders or other
interest holders or constituents of us or our subsidiaries,"
the SEC filing says.
In addition, Halliburton "could
incur costs and expenses for any monitor required by or agreed
to with governmental authority to review our continued compliance
with FCPA law," it notes.
On another front, during the
investigation into the Bonny Island project, the SEC filing states,
"information has been uncovered suggesting that Mr. Stanley
and other former employees may have engaged in coordinated bidding
with one or more competitors on certain foreign construction
projects, and that such coordination possibly began as early
as the mid-1980s."
On the basis of this information,
the DOJ is reportedly seeking to determine the nature of any
improper bidding practices, whether antitrust laws were violated,
and whether Halliburton employees have received payments as a
result of such bidding practices on foreign projects.
If violations of antitrust
laws are found to have occurred, according to Halliburton's SEC
filing, "the range of possible penalties includes criminal
fines, which could range up to the greater of $10 million in
fines per count for a corporation, or twice the gross pecuniary
gain or loss, and treble civil damages in favor of any persons
financially injured by such violations."
"Criminal prosecutions,"
the filing states, "under applicable laws of relevant foreign
jurisdictions and civil claims by, or relationship issues with
customers, are also possible."
As part of the investigation,
the SEC has issued subpoenas seeking information regarding current
and former agents used in connection with projects over the past
20 years located in and outside of Nigeria in which MW Kellogg
Company, MW Kellogg, Ltd, KBR or their joint ventures, as well
as the Halliburton energy services business, were participants.
Halliburton says it has "produced
documents to the SEC and the DOJ both voluntarily and pursuant
to company subpoenas from the files of numerous officers of Halliburton
and KBR, including current and former executives of Halliburton
and KBR, and we are making our employees available to the SEC
and the DOJ for interviews."
In addition, the SEC has issued
a subpoena to Jack Stanley, and to other current and former KBR
employees, former executive officers of KBR, and at least one
subcontractor of KBR.
The DOJ has invoked its authority
under a sitting grand jury to issue subpoenas for the purpose
of obtaining information abroad, and other partners in TSKJ have
provided information to the DOJ and the SEC related to the investigations.
Back in May of 2003, Halliburton
was forced to admit to the SEC that it had paid $2.4 million
in bribes to officials of Nigeria's Federal Inland Revenue Service
in 2001 and 2002 "to obtain favorable tax treatment."
Of course Halliburton pointed
the finger of blame at a couple of lowly employees for bribing
the Nigerian IRS, and claimed that none of its senior officers
were involved in the bribery plot. But as the Houston Chronicle
pointed out at the time, "left unanswered is how a 'low-level
employee' could channel that much money from the company to the
pockets of a corrupt official."
The current investigation into
the payment of $170 million in bribes could be near to a conclusion
because Halliburton seems to be ready to throw in the towel.
"We have reason to believe,"
Halliburton said in its SEC filing, "based on the ongoing
investigations, that payments may have been made to Nigerian
officials."
So if Dick Cheney goes missing
again, it probably just means that he's off being fitted for
a new Halliburton uniform - a striped jumpsuit.
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