US undertakes formal investigations into Halliburton’s Nigerian business

by Evelyn Pringle

The US Securities and Exchange Commission is conducting a formal investigation into whether Halliburton made improper payments to government officials in Nigeria in connection with the construction and expansion by TSKJ of a natural gas liquefaction complex and facilities at Bonny Island in Rivers State, Nigeria.
TSKJ is a company registered in Portugal whose members include Technip of France, Snamprogetti Netherlands, a subsidiary of Saipem of Italy, JGC of Japan, and Kellogg Brown & Root, a successor to the MW Kellogg Company, each of which has a 25 % interest in the venture.

TSKJ entered into various contracts to build and expand the liquefied natural gas project for Nigeria LNG, which is owned by the Nigerian National Petroleum Corp, Shell Gas, Cleag, and Agip International, an affiliate of ENI of Italy.
MW Kellogg is a joint venture in which Halliburton has a 55 % interest; and MW Kellogg Limited and the MW Kellogg Company were subsidiaries of Dresser Industriesbefore Halliburton's 1998 acquisition of Dresser Industries. The MW Kellogg Company was later merged with a Halliburton subsidiary to form Kellogg Brown & Root.

The US Department of Justice is also conducting a related criminal investigation of the Nigerian bribery matter pursuant to the US Foreign Corrupt Practices Act (FCPA). In addition to the SEC and the DOJ investigations, other investigations are being conducted in France, Nigeria and Switzerland and in Nigeria, a legislative committee of the National Assembly and the Economic and Financial Crimes Commission are also investigating the matter.
And last but not least, on August 7, 2006, it was reported that KBR, a subsidiary of Halliburton, is being investigated by Britain's Serious Fraud Office over the company's role in an alleged plot to pay more than $ 170 mm in bribes to win $ 7 bn worth of contracts at a Nigerian oil plant. For part of the period under investigation, Halliburton was headed by Vice President Dick Cheney.

The SFO said it hadconducted searches at business and residential premises as part of its investigation into KBR, which it said was opened in March 2006. The probe comes after criticism that the SFO was doing too little on the case even though a British-based company and a British lawyer were at the centre of a plot.
During the investigations, information has surfaced suggesting that at least 10 years ago, members of TSKJ planned to make bribery payments to Nigerian officials. According to the article, documents from the French investigation show the payments relate to four separate contracts under which the consortium agreed to pay a total of just over $ 170 mm to an offshore company controlled by London-based attorney, Jeffrey Tesler.

Investigators in the US, France and Nigeria have looked with particular interest at handwritten meeting minutes surrendered by Halliburton, in which the consortium partners use highly suggestive language about how they plan to do business.
"One note," the report says, "from December 1994 says that “all services” will cost the consortium $ 180 mm, with a further $ 60 mm allocated to “culture”.
"Elsewhere in the notes," the article says, "KBR and its consortium partners -- Technip of France, Italy’s Snamprogetti and JGC of Japan -- discuss the pros and cons of a series of possible “secret” and “open” payments to agents."

The payments were made during Cheney's tenure, and according to another report, "If such payments were made and Cheney approved them, he could be guilty of violating the US Foreign Corrupt Practices Act."
Mr Tesler swears that Cheney knew about the bribes. He testified under oath in May, 2004 that he made payments to Jack Stanley, while Stanley was president of KBR, and specifically testified that Cheney approved the payments. His testimony is backed up by banking records that show that at least $ 5 mm in payments were wired to Stanley through a secret bank account in Zurich. Mr Tesler also testified that he paid $ 350,000 to another Halliburton executive, William Chaudran, through a secret bank account on the isle of Jersey.

A French magistrate has officially placed Mr Tesler under investigation for corruption of a foreign public official and is said to be offering him a deal if he implicates Dick Cheney. Sources within the French legal system contend that there is more than enough evidence to indict Cheney on charges of bribery, money laundering and misuse of corporate assets.
In connection with the Bonny Island project, TSKJ entered into a series of agreements, including with Tri-Star Investments, of which Mr Tesler is a principal, beginning in 1995, and a series of subcontracts with a Japanese trading company beginning in 1996. The SEC and DOJ are seeking to determine whether TSKJ’s engaged Tri-Star as an agent, and the Japanese company as a subcontractor, to make improper payments to Nigerian officials.

According to Halliburton's SEC filing, company representatives have met with the French magistrate and Nigerian officials and in October 2004, representatives of TSKJ testified before the Nigerian legislative committee. If violations of the FCPA are found in these investigations, a guilty person or entity could be subject to fines, and civil penalties of up to $ 500,000 for each violation, as well as equitable remedies, including disgorgement, and injunctive relief.
Under the statute, criminal penalties could range from up to the greater of $ 2 mm per violation or twice the gross pecuniary gain or loss. The SEC and the DOJ could also decide that continuing conduct constitutes multiple violations for purposes of assessing the penalty amounts for each violation.

Potential consequences of a criminal indictment to Halliburton could include suspension by the US Department of Defence, or other federal, state, or local government agencies, of KBR and its affiliates from their ability to contract with government agencies.
If a criminal or civil violation is found, KBR and its affiliates could be debarred from receiving future contracts and also from receiving new orders under existing contracts to provide services to any such entities, which would naturally include current KBR contracts in Iraq and Afghanistan.

And this would be no small penalty for Halliburton. According to the company's SEC filing for the quarter ending June 30, 2006, during 2005, "KBR and its affiliates had revenue of approximately $ 6.6 bn from its government contracts work with agencies of the United States or state or local governments."
"Suspension or debarment from the government contracts business," the filing states, "would have a material adverse effect on the business, results of operations, and cash flows of KBR and Halliburton."

The investigations could also result in third-party claims against the company, "which may include claims for special, indirect, derivative or consequential damages, damage to our business or reputation, loss of, or adverse effect on, cash flow, assets, goodwill, results of operations, business, prospects, profits or business value, adverse consequences on our ability to obtain or continue financing for current or future projects or claims by directors, officers, employees, affiliates, advisors, attorneys, agents, debt holders or other interest holders or constituents of us or our subsidiaries," the SEC filing says.
In addition, Halliburton "could incur costs and expenses for any monitor required by or agreed to with governmental authority to review our continued compliance with FCPA law," it notes.

On another front, during the investigation into the Bonny Island project, the SEC filing states, "information has been uncovered suggesting that Mr Stanley and other former employees may have engaged in coordinated bidding with one or more competitors on certain foreign construction projects, and that such coordination possibly began as early as the mid-1980s."
On the basis of this information, the DOJ is reportedly seeking to determine the nature of any improper bidding practices, whether antitrust laws were violated, and whether Halliburton employees have received payments as a result of such bidding practices on foreign projects.

If violations of antitrust laws are found to have occurred, according to Halliburton's SEC filing, "the range of possible penalties includes criminal fines, which could range up to the greater of $ 10 mm in fines per count for a corporation, or twice the gross pecuniary gain or loss, and treble civil damages in favour of any persons financially injured by such violations."
"Criminal prosecutions," the filing states, "under applicable laws of relevant foreign jurisdictions and civil claims by, or relationship issues with customers, are also possible."

As part of the investigation, the SEC has issued subpoenas seeking information regarding current and former agents used in connection with projects over the past 20 years located in and outside of Nigeria in which MW Kellogg Company, MW Kellogg, Ltd, KBR or their joint ventures, as well as the Halliburton energy services business, were participants.
Halliburton says it has "produced documents to the SEC and the DOJ both voluntarily and pursuant to company subpoenas from the files of numerous officers of Halliburton and KBR, including current and former executives of Halliburton and KBR, and we are making our employees available to the SEC and the DOJ for interviews."

In addition, the SEC has issued a subpoena to Jack Stanley, and to other current and former KBR employees, former executive officers of KBR, and at least one subcontractor of KBR.
The DOJ has invoked its authority under a sitting grand jury to issue subpoenas for the purpose of obtaining information abroad, and other partners in TSKJ have provided information to the DOJ and the SEC related to the investigations. Back in May of 2003, Halliburton was forced to admit to the SEC that it had paid $ 2.4 mm in bribes to officials of Nigeria's Federal Inland Revenue Service in 2001 and 2002 "to obtain favourable tax treatment."

Of course Halliburton pointed the finger of blame at a couple of lowly employees for bribing the Nigerian IRS, and claimed that none of its senior officers were involved in the bribery plot. But as the Houston Chronicle pointed out at the time, "left unanswered is how a 'low-level employee' could channel that much money from the company to the pockets of a corrupt official." The current investigation into the payment of $ 170 mm in bribes could be near to a conclusion because Halliburton seems to be ready to throw in the towel.
"We have reason to believe," Halliburton said in its SEC filing, "based on the ongoing investigations, that payments may have been made to Nigerian officials."

So if Dick Cheney goes missing again, it probably just means that he's off being fitted for a new Halliburton uniform -- a striped jumpsuit.