SEC Charges ABB For Bribery Schemes in Mexico and Iraq
FOR IMMEDIATE RELEASE
“There are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials.”
Scott W. Friestad
SEC Enforcement Division
Washington, D.C., Sept. 29, 2010 — The Securities and Exchange Commission today charged ABB Ltd with violations of the Foreign Corrupt Practices Act (FCPA) for using subsidiaries to pay bribes to Mexican officials to obtain business with government-owned power companies, and to pay kickbacks to Iraq to obtain contracts under the U.N. Oil for Food Program.
The SEC alleges that ABB's subsidiaries made at least $2.7 million in illicit payments in these schemes to obtain contracts that generated more than $100 million in revenues for ABB, a Swiss corporation that provides power and automation products and services worldwide.
ABB has agreed to pay more than $39.3 million to settle the SEC's charges.
"This investigation uncovered millions of dollars in bribes paid or promised to officials at Mexico's largest power company," said Scott W. Friestad, Associate Director of the SEC's Division of Enforcement. "As the sanctions in this case demonstrate, there are significant consequences for public companies that fail to implement strong compliance programs and prevent corrupt payments to government officials.
Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, added, "ABB's violations involved conduct at a U.S. subsidiary and six foreign-based subsidiaries. Multi-national companies that make illicit payments through layers of subsidiaries will be held accountable."
The SEC's complaint filed in federal court in Washington, D.C., alleges that from 1999 to 2004, ABB Network Management (ABB NM) — a business unit within ABB's U.S. subsidiary — bribed officials in Mexico to obtain and retain business with two government owned electric utilities, Comision Federal de Electricidad (CFE) and Luz y Fuerza del Centro (LyFZ). The bribes were funneled through ABB NM's agent and two other companies in Mexico. The SEC alleges that ABB failed to conduct due diligence on these payments and entities and improperly recorded the bribes on its books as payments for commissions and services on projects in Mexico. Illicit payments included checks and wire transfers to relatives of CFE officials, cash bribes to CFE officials, and a Mediterranean cruise vacation for CFE officials and their wives. As a result of this bribery scheme, ABB NM was awarded contracts with CFE and LyFZ that generated more than $90 million in revenues and $13 million in profits for ABB.
The SEC alleges that from approximately 2000 to 2004, ABB participated in the U.N. Oil for Food Program through six subsidiaries that developed various schemes to pay secret kickbacks to the former regime in Iraq to obtain contracts under the program. ABB's Jordanian subsidiary acted as a conduit for other ABB subsidiaries by making the kickback payments on their behalf. Some of the kickbacks were made in the form of bank guarantees and cash payments. ABB improperly recorded these kickbacks on its books as legitimate payments for after sales services, consultation costs, and commissions. Oil for Food contracts obtained as a result of the kickback schemes generated $13.5 million in revenues and $3.8 million in profits for ABB.
Without admitting or denying the allegations in the SEC's complaint, ABB consented to the entry of a final judgment that permanently enjoins the company from future violations of Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, orders the company to pay $17,141,474 in disgorgement, $5,662,788 in prejudgment interest, and a $16,510,000 penalty. The order also requires the company to comply with certain undertakings regarding its FCPA compliance program.
In related criminal proceedings, ABB has reached a settlement with the U.S. Department of Justice in which ABB has agreed to pay $19 million in criminal penalties.
Brian O. Quinn, Tracy L. Price, and Denise Hansberry conducted the SEC's investigation. The Commission acknowledges the assistance of the Department of Justice's Criminal Division-Fraud Section, the Federal Bureau of Investigation, and the U.N. Independent Inquiry Committee.
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For more information about this enforcement action, contact:
Cheryl J. Scarboro,
Chief, Foreign Corrupt Practices Act Unit, Division of Enforcement
Scott W. Friestad
Associate Director, Division of Enforcement