In October 2007, York International Corporation (York), a global provider of heating, ventilation, air conditioning, and refrigeration products and services, agreed to pay approximately $22 million in combined fines and penalties to settle DOJ and SEC enforcement actions relating to improper payments made by various subsidiaries to the Iraqi government under the United Nations Oil-for-Food Program (OFFP).
Pursuant to a three-year DOJ deferred prosecution agreement, York agreed to pay a $10 million criminal penalty and engage a compliance monitor in connection with improper kickbacks paid by employees and agents of certain subsidiary companies to the Iraqi government in order to obtain contracts with Iraqi ministries, and for other improper payments made in connection with government projects in Bahrain, Egypt, India, Turkey and the United Arab Emirates (UAE). York voluntarily disclosed the conduct at issue in connection with the DOJ's ongoing investigation of activity involving the OFFP, and its cooperation with government agencies was specifically noted in the agreement.
Based on the above conduct and pursuant to a three-count criminal information, the DOJ charged York with conspiracy, wire fraud, and violation of the FCPA's books and records provisions. The criminal information charges that two York wholly-owned subsidiaries, York Air Conditioning and Refrigeration (YACR) and York Air Conditioning and Refrigeration FZE (FZE), were engaged in a conspiracy to defraud the OFFP, made improper payments to government officials in Bahrain, Egypt, India, Turkey and UAE, and knowingly falsified books, records and accounts in violation of the FCPA. Specifically, FZE allegedly retained a Jordan based consulting company for purposes of obtaining contracts with the Iraqi government pursuant to the OFFP and made, between 2000 and 2003, approximately $650,000 in kickbacks to the Iraqi government through the consultant. The payments were characterized as "after-sales service fees," however, no bona fide services were actually performed. The DOJ also alleged that between 1999 and 2005, YACR and FZE authorized hundreds of improper payments to employees of government customers and contractors of government customers to obtain and retain government projects in Bahrain, Egypt, India, Turkey and UAE. These payments were primarily facilitated through contractors who generated and submitted false invoices to YACR and FZE for services that were not performed. YACR and FZE paid the amounts requested in the false invoices and then the contractors gave cash to YACR and FZE employees who used the cash to make the improper payments. These payments, like the payments in connection with the Iraqi contracts, were inaccurately reflected on York's books and records as "commission" and "consultancy" payments.
In the SEC matter, York and certain of its subsidiaries were charged with violating the anti-bribery, books and records, and internal controls provisions of the FCPA by making improper payments to obtain and retain business in several different countries. The SEC's complaint contains the same allegations concerning the OFFP and the improper kickback payments made to the Iraqi government via the Jordan based consultant as set forth in the DOJ's criminal information. In addition, the SEC also alleged that YACR paid approximately $525,000 to an intermediary (generated via a false invoice scheme) while knowing that the intermediary intended to use most of the money to bribe UAE officials to secure contracts in connection with the construction of a government-owned hotel. The SEC also alleged that company personnel made improper payments in the Middle East in connection with non-government projects. Outside the Middle East, the SEC alleged that York subsidiaries also made numerous improper payments in India, Nigeria, and China. In India, the SEC alleged that York India retained an Indian agent to represent the company in connection with products and services sold to the Indian Navy and that the agent made improper payments (from his commission payments from York India) to Indian Navy officials to secure York India business. In Nigeria, the SEC alleged that York United Kingdom made commission payments to a Nigerian agent in connection with contracts with the Nigerian National Petroleum Corporation (NNPC) while knowing that portions of the agent's commission payments would be shared by the agent with an official at NNPC. Finally, in China, the SEC alleged that York Refrigeration Marine (China) Ltd., made improper payments to agents and other individuals, including Chinese government personnel at shipping yards, including lap top computers and other electronics. Based on the above conduct, and without admitting or denying the SEC's allegations, York agreed to pay approximately $12 million in fines and penalties (approximately $9 million in disgorged profits, $1 million in pre-judgment interest, and a $2 million civil penalty).