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Case 6-1
SEC v. Halliburton Company and KBR, Inc.
On February 11, 2009, the SEC announced settlements with KBR, Inc., and Halliburton Company to
resolve SEC charges that KBR subsidiary Kellogg Brown & Root LLC bribed Nigerian government
officials over a 10-year period, in violation of the Foreign Corrupt Practices Act, in order to obtain
construction contracts. The SEC also charged that KBR and Halliburton engaged in books and records
violations and internal controls violations related to the bribery.
The SEC had alleged that beginning as early as 1994, members of the joint venture determined that it
was necessary to pay bribes to officials within the Nigerian government in order to obtain the construction
contracts. The former CEO of the predecessor entities, Albert “Jack” Stanley, and others involved in the
joint venture met with high-ranking Nigerian government officials and their representatives on at least four
occasions to arrange the bribe payments. To conceal the illicit payments, the joint venture entered into sham
contracts with two agents, one based in the United Kingdom and one based in Japan, to funnel money to
Nigerian officials.
The SEC complaint describes a “cultural committee” to decide how to carry out the bribery scheme. The
committee decided to use the United Kingdom agent to make payments to high-ranking Nigerian officials
and to use the Japanese agent to make payments to lower-ranking Nigerian officials. The joint venture took
payments on a construction project and, in turn, made payments to the Japanese agent and to the Swiss and
Monaco bank accounts of the United Kingdom agent. The total payments to the two agents exceeded
$180 million. After receiving the money, the United Kingdom agent made substantial payments to accounts
controlled by Nigerian government officials, and beginning in 2002 paid $5 million in cash to a Nigerian
political party.
The SEC’s complaint also alleged that the internal controls of Halliburton, the parent company of the
KBR predecessor entities from 1998 to 2006, failed to detect or prevent the bribery, and that Halliburton
records were falsified as a result of the bribery scheme. In September 2008, Stanley pleaded guilty to
bribery and related charges and entered into a settlement with the SEC. Stanley’s high profile and -
punishment—he faces a potential seven-year sentence, the longest in the history of the federal statute
outlawing the bribing of foreign officials—also signal the federal government’s willingness to seek long
prison terms rather than fines and court injunctions.
Without admitting or denying the SEC’s allegations, KBR and Halliburton consented to be permanently
enjoined from violating the antibribery, records, and internal control provisions in SEC laws. The SEC also
imposed an independent consultant for Halliburton to review its policies and procedures as they relate to
compliance with the FCPA.
As a result of the indemnity and the KBR subsidiary’s criminal plea, Halliburton has agreed to pay $ 559
(including $177 million in disgorgement) of $ 579 million in criminal fines payable by KBR, with KBR
consenting to pay the remaining $20 million.
Questions
1. The mission of a global group called Transparency International is to stop corruption and promote
transparency, accountability and integrity at all levels and across all sectors of society. The
organization's "Core Values" are: transparency, accountability, integrity, solidarity, courage, justice
and democracy. Each year the organization evaluates business corruption in each country and
produces a Corruptions Perception Index (CPI), The 2012 CPI ranks Nigeria 139 of 174 nations.
Exhibit 1 provides a complete set of rankings.
Writing for Transparency International Chinyere Nwafor states that “One of the reasons why there
are so many foreign bribery cases going on related to Nigeria is basically that corruption in Nigeria is
deeply entrenched in almost every area of the public sector.” In Nigeria, facilitating payments called
“dash” are a way of life and necessity to get things done.
Given the apparent corrupt culture in Nigeria, why shouldn’t U.S. businesses just consider payoffs to
Nigerian officials as a cost of doing business in that country and not a payment in violation of the
FCPA?
If bribery is considered a cost of doing business in Nigeria, given the corrupt culture in Nigeria, it is giving
in to a fallacy or rationalization. It would not be an ethical argument. In fact, if bribery was okay in Nigeria,
there would be no grounds to say that it was not okay in the rest of the world. If using bribery in Nigeria is
defended on the grounds that companies that do not bribe there lose business to other companies who do
Using the argument, “Nigeria has a corrupt culture so bribery there is a cost of doing business
there” is an informal fallacy or argumentum ad populum. An informal fallacy or argumentum ad populum
is based on deceptive or misleading facts; it is based on perceptions of a majority of a population. It is using
2. Comment on the following statement from a values perspective: “Ethics Must be Global, Not
Local.”
Ethics are based on values. If the values of honesty and integrity are important, they are important no
matter where in the world you are. Instead of “what happens in Vegas stays in Vegas,” it should be “what
happens in Vegas should be fair to happen on any main street, anywhere.” In the discussion questions in
An interesting article in Business Week on this issue is contends that to build a truly great, global business,
business leaders need to adopt a global standard of ethical practices. Students might be asked to read the
3. Use ethical reasoning to respond to the following statement by a U.S. executive:
Bribery is bad for business. Bribery is inefficient; it’s wasteful. It often doesn’t
accomplish what its original purpose was. You may be competing with another
company that may ultimately out-bribe you. And then at the end of the day, of course,
there is a huge risk that the bribery is uncovered, that you are the subject of a
protracted investigation. And the costs can be quite, quite high at the end of the day.
The statements: “Bribery is bad for business” and “Bribery is inefficient” come from a PBS
interview with Mark Mendelsohn, who was the U.S. Justice Department main prosecutor for
Bribery is bad for business because it subjects the company to potential legal liability. It also
puts the audit at risk and reputation of the company hangs in the balance. Bribery is inefficient
Let’s look at the Foreign Corrupt Practices Act (FCPA). The potential
consequences of a FCPA violation for an individual are easy to explain and
understand. Personal tragedies result from the losses of freedom, jobs and
reputations, and there's often "nancial ruin and damage to families. But the
We've deleted a few KBR-specific references and broken the disclosure into smaller chunks for readability.
Otherwise, it's straight from the annual report.
Here it is:
A person or entity found in violation of the FCPA could be subject to fines, civil penalties of up to $500,000
per violation, equitable remedies, including disgorgement (if applicable) generally of profits, including
It is possible that both the SEC and the DOJ could assert that there have been multiple violations, which
could lead to multiple fines. The amount of any fines or monetary penalties which could be assessed would
Agreed dispositions of these types of violations also frequently result in an acknowledgement of
wrongdoing by the entity and the appointment of a monitor on terms negotiated with the SEC and the DOJ
Other potential consequences could be significant and include suspension or debarment of our ability to
contract with governmental agencies of the United States and of foreign countries. . . . Suspension or
These investigations could also result in (1) third-party claims against us, which may include claims for
special, indirect, derivative or consequential damages, (2) damage to our business or reputation, (3) loss of,
or adverse effect on, cash flow, assets, goodwill, results of operations, business, prospects, profits or
In addition, our compliance procedures or having a monitor required or agreed to be appointed at our cost
Continuing negative publicity arising out of these investigations could also result in our inability to bid
successfully for governmental contracts and adversely affect our prospects in the commercial marketplace.
The investigations by the SEC and DOJ and foreign governmental authorities are continuing. We do not
expect these investigations to be concluded in the immediate future. The various governmental authorities
