General Electric has agreed to pay $23.4 million to settle Securities and Exchange Commission charges that it violated the Foreign Corrupt Practices Act by participating in a $3.6 million kickback scheme with Iraqi government agencies to win contracts to supply medical equipment and water purification equipment.
The SEC alleges that two GE subsidiaries along with two other subsidiaries of public companies that have since been acquired by GE made illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program.
GE agreed to pay $23.4 million to settle the SEC's charges against the company, as well as the two subsidiaries for which GE assumed liability upon acquiring: Ionics Inc. and Amersham plc. The SEC charged GE, Ionics and Amersham with violating the books and records and internal controls provisions of the FCPA. The SEC has now taken 15 FCPA enforcement actions against companies involved in Oil for Food-related kickback schemes with Iraq, recovering more than $204 million.
"GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win Oil for Food contracts, and it failed to properly record the true nature of the payments in its accounting records, said Cheryl J. Scarboro, chief of the SEC's Foreign Corrupt Practices Act Unit. Furthermore, corporate acquisitions do not provide GE immunity from FCPA enforcement of the other two subsidiaries involved."
According to the SEC's complaint, filed in U.S. District Court for the District of Columbia, the kickback scheme occurred from approximately 2000 to 2003. GE subsidiaries Marquette-Hellige and OEC-Medical Systems (Europa) AG made approximately $2.04 million in kickback payments to the Iraqi government under the Oil for Food Program. Ionics Italba SrL (a former subsidiary of Ionics) and Nycomed Imaging AS (a former subsidiary of Amersham) made approximately $1.55 million in cash kickback payments. Since their acquisitions by GE, Amersham and Ionics are now known as GE Healthcare Ltd. and GE Ionics Inc., respectively.
The SEC alleges that Germany-based Marquette paid or agreed to pay illegal kickbacks in the form of computer equipment, medical supplies, and services on three contracts worth $8.8 million. Through an Iraqi third-party agent, Marquette paid goods and services worth approximately $1.2 million to the Iraqi Health Ministry in order to obtain two of the contracts. The agent offered to make an additional in-kind kickback payment worth approximately $250,000 to obtain the third contract.
The SEC further alleges that Switzerland-based OEC-Medical made an in-kind kickback payment of approximately $870,000 on one contract worth $2.1 million through the same third-party agent who handled the Marquette contracts. OEC-Medical and the agent entered into a fictitious "services provider agreement" identifying phony services the agent would perform in order to justify his increased commission and conceal the illegal kickback from U.N. inspectors.
According to the SEC's complaint, Norway-based Nycomed entered into nine contracts with Iraqi ministries involving the payment of approximately $750,000 in cash kickbacks between 2000 and 2002. As a result, Nycomed earned approximately $5 million in wrongful profits on the contracts. GE acquired Nycomed's parent company Amersham in 2004. Italy-based Ionics Italba was a subsidiary of Ionics Inc., which GE acquired in 2005. Between 2000 and 2002, Ionics Italba paid $795,000 in kickbacks and earned $2.3 million in wrongful profits on five contracts to sell water treatment equipment to the Iraqi Oil Ministry.
Without admitting or denying the SEC's allegations, GE as well as Ionics and Amersham have consented to the entry of a court order permanently enjoining them from future violations of the Securities Exchange Act of 1934. GE is ordered to pay $18,397,949 in disgorgement of profits, $4,080,665 in prejudgment interest, and a penalty of $1 million. GE cooperated with the investigation.
GE is committed to the highest standards of conduct in all transactions in all of the jurisdictions where we do business throughout the world, the company said in a statement. In this case, the SEC has identified 18 contracts under the Oil for Food Program that it alleges were not accounted for or controlled properly. Fourteen of these transactions involve businesses that were not owned by GE at the time of the transactions. The SEC alleges that, in acquiring these companies, GE acquired their liabilities as well as their assets. The other four transactions relate to GE Healthcare units in Europe. These units declined to make cash payments to the Iraqi Ministry of Health, but they acquiesced when their agent offered instead to make in-kind payments of computer equipment, medical supplies, and services to the Iraqi Health Ministry, and then failed to reflect the transactions accurately in their books and records. This conduct did not meet our standards, and we believe that it is in the best interests of GE and its shareholders to resolve this matter now, without admitting or denying the allegations, and put the matter behind us.
