Ingersoll-Rand Settles Iraqi Oil For Food Matter, Including FCPA Books and Records and Internal Control Charges

08 November 2007 Publication

In October 2007, Ingersoll-Rand Company Limited (Ingersoll-Rand), a global diversified industrial firm, agreed to pay approximately $6.7 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, Ingersoll-Rand agreed to pay a $2.5 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 pursuant to the OFFP. Specifically, the DOJ filed a criminal information against two wholly-owned subsidiaries of Ingersoll-Rand - Ingersoll-Rand Italiana Spa (IR Italiana) and Thermo King Ireland Limited (TKI). IR Italiana was charged with conspiracy to commit wire fraud and to violate the FCPA's books and records provisions. According to the criminal information, IR Italiana secured four contracts with the Iraqi government through a kickback scheme authorized by the company's Middle East Sales Manager and paid to the Iraqi government through a Jordanian agent and distributor. The kickback scheme was funded through fictitious purchase orders and the kickbacks were disguised on IR Italiana's books and records (which were consolidated with Ingersoll-Rand's books and records) as "sales deductions" and "other commissions." The criminal information also charges that IR Italiana's Middle East Regional Manager and the Jordanian agent and distributor arranged for eight Iraqi officials to visit Italy. During the week-long trip, the officials spent two days touring the company's facility, but spent the remainder of the time sightseeing. IR Italian spent approximately $20,000 on this trip, including "pocket money" for the Iraqi officials. TKI was charged with conspiracy to commit wire fraud for securing a contract with the Iraqi government through an offer to pay kickbacks. According to the criminal information, the kickback scheme was authorized by the Middle East Sales Manager and was to have been paid to the Iraqi government through an Iraqi agent and distributor via an inflated contract price scheme.

In announcing the deferred prosecution agreement, the DOJ noted that Ingersoll-Rand conducted a thorough investigation of the misconduct at issue, promptly and thoroughly reported all factual findings, cooperated with the DOJ's investigation, and undertook various remedial actions.

The SEC matter also concerns improper kickback payments to the Iraqi government in order to obtain contracts with Iraqi ministries pursuant to the OFFP. Specifically, the SEC alleged that certain of Ingersoll-Rand's wholly-owned European subsidiaries entered into twelve contracts in which a kickback payments were made (either directly or indirectly through various distributors) or agreed to be made. According to the SEC, certain of these payments were made after senior officials at Ingersoll-Rand's U.S. headquarters and certain subsidiaries were on notice that Iraqi officials were demanding cash kickbacks on OFFP contracts. However, the SEC alleged that Ingersoll-Rand did not withdraw from participation in the OFFP and did not conduct due diligence to prevent improper payments on future OFFP contracts. The improper kickback payments were not accurately described in the company's books and records, but were recorded as "sales deductions" or "other commissions". In addition, the SEC also alleged that the company paid for improper travel expenses for certain Iraqi officials. According to the SEC, IR Italiana sponsored several officials from the Iraqi Oil Ministry to spend two days touring the company's manufacturing facility in Italy. During this trip, the Iraqi officials also toured Florence, Italy at the company's expenses and were given "pocket money" - all in contravention of the Ingersoll-Rand's internal FCPA policies. According to the SEC, although the factory tour had a legitimate business purpose, the Florence tour did not and the "pocket money" payments were recorded in the company's books and records as "costs of sales deferred."

Based on the above conduct, and without admitting or denying the SEC's allegations, Ingersoll-Rand agreed to pay approximately $4.2 million in fines and penalties (approximately $1.7 million in disgorged profits, $560,000 in pre-judgment interest, and a $1.95 million civil penalty). The company's prompt remedial actions and its cooperation in the SEC's investigation were specifically noted by the SEC.

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