U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21229 / September 30, 2009
Securities & Exchange Commission v. AGCO Corporation, Civil Action No. 1:09-CV-01865 (D.D.C.)(RMU)
SEC Files Settled Books and Records and Internal Controls Charges Against AGCO Corporation For Improper Payments to Iraq Under the U.N. Oil for Food Program — AGCO Agrees to Pay Over $18.3 Million in Disgorgement, Interest, and Penalties
The Securities and Exchange Commission today filed Foreign Corrupt Practices Act books and records and internal controls charges against AGCO Corporation in the U.S. District Court for the District of Columbia. AGCO Corporation, headquartered in Duluth, Georgia, is a manufacturer and supplier of agricultural equipment. The Commission’s complaint alleges that from 2000 through 2003, certain AGCO subsidiaries made approximately $5.9 million in kickback payments in connection with their sales of equipment to Iraq under the United Nations Oil for Food Program (the “Program”). The kickbacks were characterized as “after sales service fees” (“ASSFs”), but no bona fide services were performed. The Program was intended to provide humanitarian relief for the Iraqi population, which faced severe hardship under international trade sanctions. The Program required the Iraqi government to purchase humanitarian goods through a U.N. escrow account; however, AGCO’s subsidiaries’ kickbacks diverted funds out of the escrow account and into Iraqi-controlled accounts at banks in Jordan.
According to the Commission’s Complaint:
Prior to the Oil for Food Program, AGCO tried unsuccessfully to increase its market share in Iraq. AGCO’s U.K. subsidiary, AGCO Ltd., marketed and negotiated the sale of agricultural equipment to Iraqi ministries. In December 2000, AGCO Ltd.’s business manager for Iraq learned from its Jordanian agent that the Iraqi Ministry of Agriculture was demanding a kickback of ten percent of the contract value as a condition to awarding contracts to AGCO. The business manager and his supervisor agreed to the kickbacks, and the agent agreed to make the payments on AGCO’s behalf. The agent asked AGCO to set up bank guarantees in favor of the agent to facilitate the payments. In a December 2000 e-mail, the agent stated that “the payments are in the ‘interest of continuity of our solid position we are enjoying now.’”
The fees AGCO normally paid to the agent were: (1) a flat rate commission; (2) a variable commission based upon the value of the equipment sold; and (3) an “After Sales” commission to allow the agent to establish and maintain an infrastructure in Iraq to support AGCO’s farm machinery. However, beginning in early 2001, AGCO paid additional amounts to the agent to make the kickbacks. To conceal the scheme, AGCO’s employees created a fictional account in its books and records denoted as “Ministry Accrual.” The kickbacks were recorded in this account. The AGCO employees made it appear that the account was being used to pay the agent for his After Sales commissions. Thus, AGCO maintained and used two accounts, both of which were described as for the purpose of After Sales work.
The accrual account was created by AGCO Ltd.’s marketing staff with virtually no oversight from AGCO Ltd.’s finance department. No one questioned the existence of the dual accounts. No one questioned why the Ministry Accrual account contained approximately ten percent of the contract value despite the fact that there was no contract in place requiring that such ten percent be paid to the ministry or anyone else. Unlike other payments to the agent, the Ministry Accrual payments were made by bank guarantee and in French francs or Euros instead of U.S. dollars. Marketing and finance employees in the U.K., Denmark, and France were all instrumental in the scheme. As part of the scheme, AGCO’s subsidiaries concealed the kickback payments from the UN by secretly inflating UN contract prices by an artificial ten percent. Altogether, AGCO’s subsidiaries paid approximately $5,912,393 in ASSFs on sixteen contracts. The ASSFs were inaccurately described as a “Ministry Accrual” for infrastructure repair in the company’s books and records and were included among legitimate commission payments to AGCO’s agent in Iraq.
On at least two occasions, the Jordanian agent asked for and received funds for “car payments” related to business in Iraq, and AGCO employees did not obtain any documentation as to the appropriateness of these expenses or ask if the cars were going to government officials. In October 2002, an employee who set up bank guarantees for the agent knowing that the payments would be forwarded to the ministry warned AGCO Ltd. that “we do not want the auditors raising any questions on Iraq business!” In February 2002, AGCO’s internal auditors noted numerous problems with AGCO Ltd.’s sales process, including the establishment of accrual accounts by the marketing department. However, AGCO failed to conduct a review of the accrual accounts that existed at the time of the report, and the Ministry Accrual account continued to be used in the scheme to make and record additional ASSF payments to Iraq. One AGCO Ltd. accounting employee described the Finance Department employees as “blind loaders” who input information into AGCO’s books without any adequate oversight role. AGCO’s legal department was aware that the company was conducting sales under the Program into Iraq, a sanctioned country, but failed to ensure that the sanctions or the UN rules and regulations were followed. In fact, AGCO’s General Counsel’s office assisted on at least one occasion with obtaining 661 Committee approval for an Oil for Food contract. The General Counsel’s office then sent a letter to a London bank asking that money be paid to the Jordanian agent.
AGCO failed to maintain an adequate system of internal controls to detect and prevent the payments and AGCO’s accounting for these transactions failed properly to record the nature of the payments. AGCO, without admitting or denying the allegations in the Commission’s complaint, consented to the entry of a final judgment permanently enjoining AGCO from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and ordering AGCO to disgorge $13,907,393 in profits plus $2,000,000 in pre-judgment interest plus a civil penalty of $2,400,000. AGCO will also pay a $1,600,000 penalty pursuant to a deferred prosecution agreement with the U.S. Department of Justice, Fraud Section. AGCO will also enter into a criminal disposition in which the Danish State Prosecutor for Serious Economic Crime will confiscate over $600,000.
The Commission considered remedial acts promptly undertaken by AGCO and the cooperation the company afforded the Commission staff in its investigation. The Commission acknowledges the assistance of the Department of Justice, Fraud Section and the United Nations Independent Inquiry Committee.