In March 2008, AB Volvo (a Swedish transportation and construction equipment company with American Depositary Receipts traded on NASDAQ) agreed to pay $19.6 million in combined fines and penalties to settle Department of Justice and Securities and Exchange Commission enforcement actions relating to improper payments made by two of its wholly-owned subsidiaries to the Iraqi government under the United Nations Oil-for-Food Program (OFFP).
The conduct at issue involved approximately $6.3 million in improper kickback payments and other improper payments made or authorized by Renault Trucks SAS (Renault) (a French wholly-owned subsidiary of AB Volvo) or Volvo Construction Equipment, AB (VCE) (a Swedish wholly-owned subsidiary of AB Volvo) via various third parties in connection with numerous contracts with the Iraqi government under the OFFP for the sale of trucks and heavy commercial construction equipment. Several of the improper payments were made in the form of after-sales-service fees (even though the fees did not represent any actual service performed) and were funded through inflated contracts or inflated commission payments to agents.
Pursuant to a three year DOJ deferred prosecution agreement, AB Volvo agreed to pay a $7 million penalty, acknowledged responsibility for the actions of its subsidiaries whose employees, agents, and distributors made the improper payments to the Iraqi government, and agreed to adopt internal controls, policies, and procedures designed to detect and deter violations of the FCPA. The DOJ also filed criminal informations against Renault and VCE for engaging in separate conspiracies to commit wire fraud and to violate the FCPA's books and records provisions. Specifically, the DOJ charged that Renault inflated the prices on several contracts with the Iraqi government by approximately 10% to fund the kickback payments. To facilitate the kickback payments, in some cases, Renault paid a Swiss bodybuilding company (which outfitted the trucks) inflated prices for its work and it, in turn, would use the excess funds to pay kickbacks to the Iraqi government on behalf of Renault. Similarly, the DOJ charged that VCE made improper kickback payments in connection with Iraqi government contracts through agents and distributors. Both Renault and VCE falsely described the improper payments on its books and records which were incorporated into AB Volvo's books and records for purposes of preparing AB Volvo's year-end financial statements. In agreeing to defer prosecution of Renault and VCE and dismiss the criminal charges if AB Volvo and its subsidiaries abide by the terms of the deferred prosecution agreement, the DOJ noted AB Volvo's thorough review of the improper payments and the company's implementation of enhanced compliance policies and procedures. In resolving the matter, the DOJ noted that AB Volvo conducted a thorough investigation of the conduct at issue, promptly and thoroughly reported the findings, and implemented remedial measures.
In a parallel SEC enforcement action, the SEC filed settled FCPA books and records and internal control charges against AB Volvo. The SEC alleged that AB Volvo knew or was reckless in not knowing that improper kickback payments were paid or agreed to in connection with its subsidiaries' sales to the Iraqi government and that it knew such payments were prohibited by the OFFP. The SEC alleged that AB Volvo failed to accurately record the improper payments in its books and records and that it failed to devise and maintain a system of internal accounting controls to detect and prevent such improper payments. Similar to the allegations in the DOJ criminal informations, the SEC alleged that both Renault and VCE acquiesced to the demands of the Iraqi government and made improper kickback payments to the Iraqi government through third parties such as agents and distributors in connection with OFFP contracts and that VCE also paid approximately $20,000 to an agent to purchase a car for an Iraqi Ministry. Among other things, the SEC alleged that VCE attempted to distance itself from the improper payment scheme by converting its Jordanian agent into a "distributor" (even though the agent lacked the infrastructure of a normal distributor and there was no written distributorship agreement) whereby VCE would sell its product to the "distributor" at a price high enough to ensure that the "distributor" had enough of a spread to make the improper payments. When VCE's relationship with the Jordanian agent / "distributor" deteriorated, VCE began utilizing a Tunisian distributor to facilitate the improper payments to the Iraqi government by reducing its prices to the distributor so that it could make improper payments on its behalf. Without admitting or denying the SEC allegations, AB Volvo agreed to pay a $4 million civil penalty and approximately $8.6 million in disgorgement of profits and prejudgment interest. In resolving the matter, the SEC considered the prompt remedial actions undertaken by AB Volvo and its cooperation in the investigation.