SECURITIES AND EXCHANGE COMMISSION
Litigation Release No.17127 / September 12, 2001
Accounting and Auditing Enforcement Release No. 1446 / September 12, 2001
UNITED STATES OF AMERICA AND SECURITIES AND EXCHANGE COMMISSION v. KPMG SIDDHARTA SIDDHARTA & HARSONO AND SONNY HARSONO, Civil Action No. H-01-3105 (S.D. Tex.) (filed September 11, 2001)
SEC AND DEPARTMENT OF JUSTICE FILE FIRST-EVER JOINT CIVIL ACTION AGAINST KPMG SIDDHARTA SIDDHARTA & HARSONO AND ITS PARTNER SONNY HARSONO FOR AUTHORIZING THE PAYMENT OF A BRIBE IN INDONESIA
On September 11, 2001, the Securities and Exchange Commission and the United States Department of Justice filed a joint civil injunctive action in the United States District Court for the Southern District of Texas, Houston Division, against KPMG Siddharta Siddharta & Harsono ("KPMG-SSH"), a public accounting firm in Jakarta, Indonesia and Sonny Harsono ("Harsono"), a partner of KPMG-SSH. KPMG-SSH is an affiliate firm of KPMG International. This is the first time that the Commission and the Department of Justice, both of which have jurisdiction over the antibribery provisions of the Foreign Corrupt Practices Act ("FCPA"), have combined to file a joint civil action.
The complaint alleges that in 1999, Harsono authorized KPMG-SSH personnel to bribe an Indonesian tax official on behalf of one of KPMG-SSH's clients, PT Eastman Christensen ("PTEC"), an Indonesian company beneficially owned by Baker Hughes Incorporated ("Baker Hughes"). KPMG-SSH agreed to make the illicit payment to influence the Indonesian tax official to reduce a tax assessment for PTEC from $3.2 million to $270,000. Harsono advised KPMG-SSH personnel that if Baker Hughes represented directly to KPMG-SSH, not through PTEC, that it wanted KPMG-SSH to make the illicit payment, KPMG-SSH would be willing to pay the Indonesian tax official. To conceal the improper payment, Harsono agreed with KPMG-SSH personnel that KPMG-SSH should generate an invoice that would include money for the payment to the Indonesian tax official and for KPMG-SSH's fees for services rendered. The false invoice, although purporting to be for professional services rendered, in reality represented $75,000 to be paid to an Indonesian tax official, and the remainder for KPMG-SSH's actual fees and applicable taxes. After receiving the invoice, PTEC paid KPMG-SSH $143,000 and improperly entered the transaction on its books and records as payment for professional services rendered. On March 23, 1999, PTEC received a tax assessment of approximately $270,000 from the Indonesian government, almost $3 million lower than the original assessment.
Without admitting or denying the allegations of the complaint, the defendants have consented to the entry of a Final Judgment that permanently enjoins both defendants from violating and aiding and abetting the violation of the antibribery provisions of the FCPA and the internal controls and books and records provisions of the Securities Exchange Act of 1934 ("Exchange Act") (Sections 104A(a)(1), (2) and (3) of the FCPA and Sections 30A(a)(1), (2) and (3), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act).
The Commission also filed, on September 11, 2001, a civil injunctive action in the United States District Court for the Southern District of Texas, Houston Division, against Mattson and Harris alleging that they authorized the payment of a bribe of $75,000 through KPMG-SSH. Mattson and Harris directed that this payment be made while knowing that KPMG-SSH would pass all or part of the payment along to a foreign government official for the purpose of influencing the Indonesian tax official to issue a lower tax assessment for PTEC. The complaint alleges that Mattson and Harris violated Sections 30A(a) and 13(b)(5) of the Exchange Act and Exchange Act Rule 13b2-1 promulgated thereunder and aided and abetted Baker Hughes' violations of the books and records and internal controls provisions of the Exchange Act, Sections 13(b)(2)(A) and 13(b)(2)(B). See Litigation Release No. 17126 (September 12, 2001).
Finally, in a related action, the Commission instituted, on September 12, 2001, settled administrative proceedings against Baker Hughes. The Commission's Order finds that, in March 1999, Baker Hughes' CFO and its Controller authorized the above-described illegal payment, through KPMG-SSH, its agent in Indonesia, to a local government official in Indonesia. The Order also finds that in 1998 and 1995, senior managers at Baker Hughes authorized payments to Baker Hughes' agents in India and Brazil, respectively, without making an adequate inquiry as to whether the agents might give all or part of the payments to foreign government officials in violation of the FCPA. Without admitting or denying the Commission's findings, Baker Hughes consented to the entry of the Commission's Order. The Order directs that Baker Hughes cease and desist from committing or causing any violation and any future violation of the internal controls and books and records provisions of the Exchange Act (Sections 13(b)(2)(A) and Section 13(b)(2)(B) of the Exchange Act). See Securities Exchange Act Release No. 44784 (September 12, 2001); Accounting and Auditing Enforcement Release No. 1447.
The Commission wishes to thank the United States Department of Justice for its assistance in this matter.