KBR Complains Abiding By U.S. Laws Puts Company at a ‘Competitive Disadvantage’
In a recent Securities and Exchange Commission filing, former Halliburton unit KBR complained that it will be at a “competitive disadvantage” to win “large-scale” international contracts because it is being forced to comply with U.S. laws.
In February, KBR pleaded guilty to violating the Foreign Corrupt Practices Act (FCPA) and admitted that it paid $180 million in “consulting fees” to two agents for use in bribing Nigerian government officials to win a lucrative construction contract for the Bonny Island natural gas liquefaction plant while former Vice President Dick Cheney headed the corporation. KBR paid a $402 million fine as part of its plea deal.
Under the terms of the plea agreement, KBR agreed to retain an independent compliance monitor for three years to ensure it is abiding by U.S. laws, limit its use of foreign agents, and promised to file regular reports on the compliance program with the Department of Justice.
KBR, which was spun off from Halliburton into a separate company in 2007, said in a 10-K filing with the SEC, however, that “limitations on our use of agents as part of our efforts to comply with applicable laws, including the FCPA, could put us at a competitive disadvantage in pursuing large-scale international projects.”
“Most of our large-scale international projects are pursued and executed using one or more agents to assist in understanding customer needs, local content requirements, and vendor selection criteria and processes and in communicating information from us regarding our services and pricing,” the company said in its quarterly filing, which was first reported by Footnoted.org, an investigative business news website whose reporters dig through SEC filings and pull out important nuggets of information.
“As a result of our settlement of the FCPA matters…a monitor will be appointed to review future practices for compliance with the FCPA, including with respect to the retention of agents. Our compliance procedures and our requirement to have a monitor may result in a more limited use of agents on large-scale international projects than in the past. Accordingly, we could be at a competitive disadvantage in successfully being awarded such future projects, which could have a material adverse effect on our ability to win contracts and our future revenue and business prospects.”
Additionally, KBR revealed in the same SEC filing that the company recently uncovered “information” that shows former executives may have been involved in a bidding scheme with its competitors but that the Department of Justice agreed not to pursue the matter in exchange for KBR’s guilty plea.
“In connection with the investigation into payments relating to the Bonny Island project in Nigeria, information has been uncovered suggesting that [former KBR Chief Executive Albert "Jack"] 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,” KBR said in its SEC filing. ” In connection with KBR LLC’s agreeing to enter into the plea agreement described above, the DOJ has agreed not to pursue any further investigation or penalties relating to the coordinated bidding allegations.”
According to the DOJ, at critical junctures before the EPC contracts were awarded, Stanley and others allegedly met with three successive former holders of a top-level office in the executive branch of the Nigerian government to ask the office holder to designate a representative with whom the joint venture should negotiate the bribes.
Last September, Stanley pleaded guilty to conspiracy to commit wire and mail fraud and conspiring to violate FCPA. The DOJ said Stanley paid more than $180 million in bribes to Nigerian government officials so KBR could win the Bonny Island liquefied natural gas plant contract.
Stanley is a close associate of Cheney who was promoted by the former vice president in 1998 to head Kellogg, Brown & Root, Halliburton’s engineering and construction subsidiary. Stanley faces seven years in prison and nearly $11 million in restitution payments. His sentencing is scheduled for August.
According to last year’s plea deal, Stanley started paying bribes began in 1995, the year Cheney was named chief executive of the corporation, and ended when Stanley was fired in 2004.
Stanley and others allegedly negotiated bribe amounts with the office holders’ representatives and agreed to hire UK attorney Jeffrey Tesler and the other agent to pay the bribes. Tesler was hired as a consultant to KBR after it was formed in a 1998 merger that Cheney engineered between Halliburton and Dresser Industries.
Two weeks ago, the Justice Department indicted Tesler and Wojciech Chodan, 71, of Maidenhead, England, with one count of conspiracy to violate FCPA and 10 counts of violating the FCPA.
According to the indictment, Tesler was hired in 1995 as an agent of a four-company joint venture that was awarded four engineering, procurement and construction (EPC) contracts by Nigeria LNG Ltd., (NLNG) between 1995 and 2004 to build liquid natural gas facilities on Bonny Island.
The scandal and plea deal, however, has not affected KBR’s ability to secure lucrative government contracts.
KBR was awarded a new $35 million defense contract last month to build a power plant and electrical distribution center in Iraq even though the company is under criminal investigation over the electrocution of two U.S. Soldiers who allegedly were killed as a result of KBR’s shoddy electrical work.
In fact, in its SEC filing KBR said it received written notification from the U.S. Department of the Army “stating that it does not intend to suspend or debar KBR from [Department of Defense] contracting as a result of the guilty plea by KBR LLC.”
KBR reported that government contracts the company received accounted for $11.6 billion in revenue in 2007 and 2008.