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GE pays $23m after Iraq probe
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FT - [7/28/2010]
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General Electric has agreed to pay $23.5m to settle allegations from US regulators that its subsidiaries bribed Iraqi officials to win contracts under the United Nations Oil for Food Programme between 2000 and 2003.
The settlement with the Securities and Exchange Commission is the second in as many years for GE. Last year, the company agreed to pay $50m to resolve charges of accounting fraud relating to hedging activities in 2002 and 2003.
In both cases GE said it had co-operated with investigators and, despite the settlements, it neither admitted nor denied the allegations.
According to the SEC, GE violated the Foreign Corrupt Practices Act as part of a $3.6m “kickback scheme”. Executives at two subsidiaries and two groups later bought by GE allowed agents to give Iraqi health ministry officials payments to win contracts for medical and water purification equipment, the SEC claimed.
“Bribes and kickbacks are bad business, period,” Robert Khuzami, SEC enforcement division director, said. “This case affirms that law enforcement is active across the globe. Offshore does not mean off-limits.”
GE said: “This conduct did not meet our standards, and we believe that it is in the best interests of GE and its shareholders to resolve this matter now . . . and put the matter behind us.”
Of the 18 contracts at issue, 14 were secured by businesses that GE did not own at the time, the company said. In the four contracts secured by GE Healthcare, company officials declined to make cash payments to Iraqi officials but allowed their agent to offer equipment and services instead.
GE said it had received assurances from the US department of justice that it would not be subject to any criminal enforcement proceedings.
GE is trying to move beyond the difficulties of the past two years when the company was forced to cut its dividend and lost its triple A rating.
The oil for food programme was introduced in 1996 as a way to channel vital supplies to Iraq, which was subject to UN sanctions. In exchange for oil, the Iraqi government was able to buy humanitarian goods through UN-controlled accounts.
The programme became a byword for corruption. A probe by Paul Volcker, former chairman of the Federal Reserve, found more than 2,000 groups made improper payments to secure contracts. The SEC has taken action against 15 groups, recovering more than $204m.
The SEC charges focused on two subsidiaries of GE’s healthcare unit and units of Ionics and Amersham, which GE subsequently acquired.
The $23.5m settlement comprises of $18.4m for the disgorgement of profits, $4.1m for interest on the profits, plus a $1m penalty.
GE shares were flat in early trading in New York at $16.19.
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