General Electric Co. will pay $23.4 million to settle charges brought by the U.S. Securities and Exchange Commission that it paid kickbacks to the Iraqi government to win lucrative supply contracts, the agency said Tuesday.
In a complaint filed in federal court in Washington, D.C., the SEC accused four GE subsidiaries of paying Iraqi government agencies $3.6 million in kickbacks to win contracts to supply medical and water purification equipment under the United Nations-run Oil-for-Food program. GE acquired two of the units — Nycomed Imaging A.S. and Ionics Italba S.r.l — after the conduct described in the complaint occurred.
The Justice Department closed its parallel investigation into the matter without bringing any criminal charges, GE said in a statement announcing the settlement.
“GE is committed to the highest standards of conduct in all transactions in all of the jurisdictions where we do business throughout the world,” the company said. “This conduct did not meet our standards.”
Between 2000 and 2003, according to the SEC, GE and the subsidiaries it acquired provided cash, computer equipment, medical supplies and services to the Iraqi health and oil ministries in order to obtain 18 contracts.
The SEC charged the company with failing to accurately account for the bribes on its books, which is a violation of the Foreign Corrupt Practice Act.
The Justice Department dropped its investigation because prosecutors believed the case against GE wasn’t as strong as the other Oil-for-Food cases brought by the agency, according to a person familiar with the case. Those cases were prosecuted as mail fraud violations, but it would have been difficult to prove such charges against GE, the person said. In contrast, books and records violations have a lower evidentiary threshold.
The two companies that were subsidiaries of GE at the time of the contracts — Marquette-Hellige and OEC-Medical Systems AG — concealed about $2 million in kickbacks by inflating the commission of the agents who brokered the deals with the Iraqi government, the SEC complaint said.
Nycomed, a subsidiary of Amersham plc, which GE acquired in 2004, entered into nine contracts with Iraqi Ministry of Health and paid about $750,000 in kickbacks, according to the complaint. The kickbacks were hidden by a 10 percent increase in the commission of the company’s Jordanian sales agent.
At one point, a U.N. official asked the company about the large commission, touching off a round of panicked emails between a marketing coordinator in Norway and the employees handling the inquiry, the complaint said.
Ionics, a subsidiary of Ionics Inc., which GE acquired in 2005, paid $795,000 in kickbacks and earned $2.3 million in profits from five contracts to sell equipment to the Iraqi Oil Ministry. Four of the five contracts were negotiated with side letters documenting the kickbacks, which were concealed in fake line items and by boosting sales commissions.
The SEC has brought 15 cases against companies implicated in the Oil-For-Food investigation, netting some $204 million in fines and disgorgement of illegal profits. The cases followed a scathing government report issued in 2005 about the $1.8 billion corruption scandal.
“Bribes and kickbacks are bad business, period,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This case affirms that law enforcement is active across the globe – offshore does not mean off-limits.”
The SEC’s Tracy L. Price and Robert I. Dodge conducted the investigation. Joseph Warin at Gibson Dunn & Crutcher LLP represented GE in the settlement.
The SEC complaint is embedded below.
With additional reporting by Joe Palazzolo and Christopher M. Matthews.