AGCO Corporation Agrees to Pay $18.3 Million to Settle SEC Charges of FCPA Violations
FOR IMMEDIATE RELEASE
Washington, D.C., Sept. 30, 2009 — The Securities and Exchange Commission today charged AGCO Corporation with violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (FCPA), alleging that certain subsidiaries made approximately $5.9 million in kickback payments related to their sales of humanitarian goods to Iraq under the United Nations Oil for Food Program. AGCO Corporation, a manufacturer and supplier of agricultural equipment headquartered in Duluth, Ga., has agreed to pay more than $18.3 million to settle the SEC's charges.
According to the SEC's complaint, filed in the U.S. District Court for the District of Columbia, the Oil for Food Program required the Iraqi government to purchase humanitarian goods through a U.N. escrow account. However, AGCO's kickbacks diverted funds out of the escrow account and into Iraqi-controlled accounts at banks in Jordan. The kickbacks were characterized as "after sales service fees" (ASSFs) even though no bona fide services were performed.
"AGCO paid kickbacks to win business illegally, and attempted to hide them by creating a fictional account on their books," said Cheryl J. Scarboro, Associate Director in the SEC's Division of Enforcement. "This case represents continued coordinated efforts by the SEC, the U.S. Department of Justice and international law enforcement to prosecute corruption."
The SEC's complaint alleges that prior to the Oil for Food Program, AGCO tried unsuccessfully to increase its market share in Iraq. In December 2000, the business manager for Iraq at AGCO's U.K. subsidiary, AGCO Ltd., learned from its Jordanian agent that the Iraqi Ministry of Agriculture was demanding a kickback of 10 percent of the contract value as a condition to award Oil for Food Program contracts to AGCO. The business manager and his supervisor agreed to the kickbacks, and the agent agreed to funnel the payments to Iraq 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 SEC alleges that in early 2001, AGCO began to pay 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 kickback payments were all recorded in this account. AGCO employees made it appear that the account was being used to pay the agent for other commissions; however, they continued to maintain and use a separate accrual account for the payment of the agent's true commissions. Thus, AGCO maintained and used two accounts, both of which were described as for the purpose of "After Sales" work. The payments allocated to the Ministry Accrual account were approximately 10 percent of the contract price, which was much larger than the commissions that historically were paid to the agent for ostensibly the same services.
According to the SEC's complaint, 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 nor did they 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.
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 million in pre-judgment interest and a penalty of $2.4 million. AGCO will also pay a $1.6 million 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 more than $600,000. The Commission considered remedial acts promptly undertaken by AGCO and the cooperation the company afforded the SEC staff in its investigation. To date, the Commission has brought 12 Oil for Food related cases with more than $150 million in monetary relief obtained.
The Commission acknowledges the assistance of the Department of Justice, Fraud Section; the United Nations Independent Inquiry Committee; and the Danish State Prosecutor for Serious Economic Crime.
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