In February 2008, Flowserve Corporation (a Texas based manufacturer of pumps, valves, seals and components to the process industries with shares listed on the New York Stock Exchange) agreed to pay $10.5 million in combined fees and penalties to settle enforcement actions relating to improper payments made by two of its wholly-owned foreign subsidiaries to the Iraqi government under the United Nations Oil-for-Food Program (OFFP).
The conduct at issue involved approximately $820,000 in improper kickback payments made or authorized by Flowserve Pompes (a wholly-owned French subsidiary of Flowserve's Pump Division) or Flowserve B.V. (a wholly-owned Dutch subsidiary of Flowserve's Seals Division), via agents in connection with twenty contracts with the Iraqi government under the OFFP. The kickbacks were made in the form of "after-sales-service fees" and funded through inflated contracts and inflated commission payments to the agents.
Pursuant to a three year DOJ deferred prosecution agreement, Flowserve acknowledged responsibility for the actions of its subsidiaries, employees and agents, and agreed to pay a $4 million penalty. The DOJ also filed a criminal information against Flowserve Pompes charging it with conspiracy to commit wire fraud and to violate the FCPA's books and records provisions. In addition, Flowserve B.V. will reportedly enter into a criminal disposition with Dutch authorities pursuant to which it will pay a fine. The SEC also filed settled FCPA books and records and internal control charges against Flowserve. The SEC alleged that Flowserve either knew or was reckless in not knowing that the "after-sales-service fees" paid by its subsidiaries were prohibited, that it failed to accurately record the nature of the payments, and that it also failed to devise and maintain a system of internal accounting controls sufficient to detect and prevent the payments. Throughout the relevant time period, the financial results of Flowserve Pompes and Flowserve B.V. were included in the consolidated financial statements Flowserve filed with the SEC and the SEC alleged that the payments were falsely booked as payments for services never performed or inflated commission payments falsely recorded as "special project discounts." Without admitting or denying the SEC allegations, Flowserve agreed to pay approximately $6.5 million (disgorgement of approximately $2.7 million in profits on the contracts, pre-judgment interest, and a $3 million civil penalty).
In resolving the matter against Flowserve and its subsidiaries, both the DOJ and SEC noted Flowserve's cooperation in the investigations including its prompt implementation of remedial measures and enhanced compliance policies and procedures.