U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20363 / November 14, 2007
Securities and Exchange Commission v. Chevron Corporation, Civil Action No. 07 CIV 10299 (S.D.N.Y.) (SHS)
SEC Files Settled Books and Records and Internal Controls Charges Against Chevron Corporation For Improper Payments to Iraq Under the U.N. Oil for Food Program â" Company Agrees to Pay a Total of $30 MillionThe Securities and Exchange Commission today filed Foreign Corrupt Practices Act books and records and internal controls charges against Chevron Corporation ("Chevron"), a California-based oil company, in the U.S. District Court for the Southern District of New York. The Commission's complaint alleges that from approximately April 2001 through May 2002, third parties with which Chevron contracted paid approximately $20 million in illegal kickback payments in connection with Chevron's purchases of crude oil under the U.N. Oil for Food Program. Chevron knew or should have known that third parties paid a portion of the premiums they received from Chevron to Iraq as illegal surcharges. The Oil for Food Program provided humanitarian relief to the Iraqi population during the time that Iraq was subject to international trade sanctions. However, the surcharges paid by third parties in connection with Chevron's purchases of oil bypassed the escrow account and were instead paid to Iraqi-controlled bank accounts in Jordan and Lebanon.
According to the Commission's Complaint:
From April 17, 2001 through May 6, 2002, Chevron purchased approximately 78 million barrels of crude oil from Iraq pursuant to 36 contracts with third parties. Chevron's traders entered into oil transactions with third parties that included the payment of $20 million in illegal surcharges to Iraq. In January 2001, after learning of surcharge demands by Iraq's State Oil Marketing Organization ("SOMO"), Chevron implemented a company-wide policy prohibiting the payment of surcharges in connection with the purchase of Iraqi oil from third parties. Among other things, the policy required traders to obtain prior written approval for all proposed Iraqi oil purchases, and charged management with reviewing each proposed Iraqi oil deal. Chevron's traders did not follow the company-wide policy and Chevron's management was unsuccessful in ensuring its compliance. Despite being required to consider the identity, experience and reputation of a third party seller prior to approving a proposed Iraqi oil purchase, Chevron's management relied on its trader's representations. In one such instance, a credit check by Chevron of a proposed third party seller revealed that the seller was a "brass plate company." This meant that the company had no experience in the oil business, no real business operations, and no known assets. Despite concerns on the part of Chevron's management, Chevron entered into two transactions to purchase three million barrels of oil from the third party in January 2002. Illegal surcharges were paid on both of these transactions and passed back to Chevron in inflated premiums.
At least one trader responsible for a large portion of Chevron's purchases from Iraq factored the cost of the surcharge payments into price negotiations with third parties. One third party seller, whose company on occasion sold oil to Chevron, stated that the trader he dealt with at Chevron and the trader's bosses always knew about the illegal surcharge demands by Iraq. At one point, the Chevron trader even asked the third party seller to persuade Iraq to reduce the amount of its surcharges. Chevron's own internal documents show that it was well aware of the costs of doing business with Iraq. Chevron's premium payments to third parties increased after Iraq's surcharge demands began. Despite the obvious increase in premiums, Chevron's management routinely approved the Iraqi oil purchases proposed by Chevron's traders. Chevron failed to devise and maintain a system of internal accounting controls to detect and prevent such illicit payments. Chevron's accounting for its Oil for Food transactions failed properly to record the true nature of the company's payments to third parties.
Chevron, without admitting or denying the allegations in the Commission's complaint, consented to the entry of a final judgment permanently enjoining it from future violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, ordering it to disgorge $25,000,000 in profits, and to pay a civil penalty of $3,000,000. Chevron will satisfy its disgorgement obligation by forfeiting $20,000,000 pursuant to an agreement with the U.S. Attorney's Office for the Southern District of New York and paying disgorgement of $5,000,000 pursuant to an agreement with the Manhattan District Attorney's Office. Chevron will also pay the Office of Foreign Asset Controls of the U.S. Department of Treasury a penalty of $2,000,000.
Since being approached by the Commission's staff, Chevron has cooperated with the Commission's investigation, which is continuing. The Commission acknowledges the assistance of the United States Attorney's Office for the Southern District of New York, the Manhattan District Attorney's Office, the Office of Foreign Asset Controls of the U.S. Department of Treasury, and the United Nations Independent Inquiry Committee.
See also SEC v. El Paso Corp., LR-19991 (February 7, 2007); SEC v. Textron, LR-20251 (August 23, 2007); SEC v. York Int'l., LR-20319 (October 1, 2007); and SEC v. Ingersoll-Rand Co. Ltd., LR-20353 (October 31, 2007).-
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