WASHINGTON – Baker Hughes Services International Inc. (BHSI)—a wholly owned subsidiary of Baker Hughes Incorporated—pleaded guilty to violating the Foreign Corrupt Practices Act (FCPA), Assistant Attorney General Alice S. Fisher of the Criminal Division announced today.
At a hearing today before U.S. District Judge Gray H. Miller, in the Southern District of Texas, BHSI pleaded guilty to violations of the anti-bribery provisions of the FCPA, conspiracy to violate the FCPA, and aiding and abetting the falsification of the books and records of its parent company Baker Hughes. Additionally, Baker Hughes simultaneously entered into a deferred prosecution agreement with the Justice Department regarding the same underlying conduct, and accepted responsibility for conduct of its employees.
As part of the plea and deferred prosecution agreements, it was agreed that BHSI would pay a criminal fine of $11 million, serve a three-year term of organizational probation and adopt a comprehensive anti-bribery compliance program. In a related matter, Baker Hughes reached a settlement of a complaint filed by the Securities and Exchange Commission under which it agreed to pay $10 million in civil penalties and more than $24 million in disgorgement of all profits it earned in connection with the Karachaganak project, including prejudgment interest. The $44 million in combined fines and penalties is the largest monetary sanction ever imposed in an FCPA case.
In the charging and plea documents, BHSI admitted that it violated the FCPA by paying approximately $4.1 million in bribes over approximately a two-year period to an intermediary whom the company understood and believed would transfer all or part of the corrupt payments to an official of Kazakhoil, the state-owned oil company. These corrupt payments were paid through a consulting firm retained as an agent for Baker Hughes in connection with a major oil field services contract.
As the charging and plea documents reflect, the government of Kazakhstan and Kazakhoil, entered into an agreement with a consortium of four international oil companies for the purpose of developing and operating a giant oil field known as Karachaganak in northwestern Kazakhstan. In February 2000, BHSI submitted a bid, on behalf of Baker Hughes, to perform comprehensive services such as project management, oil drilling, and support services in connection with the Karachaganak project.
Kazakhoil wielded considerable influence as Kazakhstan’s national oil company, and the ultimate award of any contract by the consortium of international oil companies depended upon the favorable recommendation of Kazakhoil officials. After BHSI submitted its bid for the Karachaganak project and before the award was announced, Kazakhoil officials demanded that Baker Hughes pay a commission to “Consulting Firm A,” located on the Isle of Man, to act as its agent. Although Consulting Firm A had performed no services to assist Baker Hughes, in September 2000, BHSI agreed to pay a commission equal to 2 percent of the revenue earned on the Karachaganak project, and 3 percent on future projects in Kazakhstan. Baker Hughes was awarded the contract for Karachaganak in October 2000. From May 2001 through November 2003, Baker Hughes paid a total of $4.1 million in commissions to Consulting Firm A. The payments were made from a BHSI bank account in Houston to an account of Consulting Firm A at a bank in London.
“Today's announcement demonstrates that the Department of Justice will continue to hold U.S. companies and their subsidiaries accountable for foreign bribery,” said Assistant Attorney General Alice Fisher. “The record penalties leveled in this case leave no doubt that foreign bribery is bad for business. By enforcing the FCPA, we are maintaining the integrity of U.S. markets and leveling the playing field for those companies that want to play by the rules.”
The resolution of the criminal investigation of Baker Hughes and its subsidiaries reflects, in large part, the actions of Baker Hughes in voluntarily disclosing this matter to the Justice Department; the extensive and thorough internal investigation of its business practices in Kazakhstan and throughout its high-risk global operations; and the significant remedial steps and controls enhancements it has implemented.
Under terms of the deferred prosecution agreement, Baker Hughes has agreed to hire an independent monitor for three years to oversee the creation and maintenance of a robust compliance program and to make a series of reports to the company and the Justice Department. Baker Hughes also agreed to continue to cooperate completely with the Department in ongoing investigations into corrupt payments by company employees and managers. If Baker Hughes fully complies with all the terms and conditions of the deferred prosecution agreement for a period of two years, the government has agreed not to bring any further criminal charges based on the underlying conduct and other conduct uncovered in the course of the investigations.
The criminal case is being prosecuted by Deputy Chief Mark F. Mendelsohn and Senior Trial Attorney John A. Michelich of the Fraud Section, with assistance from Assistant U.S. Attorney James R. Buchanan from the U.S. Attorney’s Office for the Southern District of Texas. The criminal case was investigated by agents of the Federal Bureau of Investigation, Houston Field Office.
The Department acknowledges and expresses its appreciation of the significant assistance provided by the staff of the Enforcement Division of the Securities and Exchange Commission over the course of this investigation.
The Department also acknowledges the help provided, in the form of mutual legal assistance, by the authorities of the United Kingdom and the Swiss Federation.