The Magazine of Corporate Responsibility

GE to Pay $23.4 Million to Settle SEC Oil-for-Food Charges

by Michael Connor

General Electric Co. agreed to pay $23.4 million to settle charges that two GE subsidiaries — along with two other subsidiaries of public companies that have since been acquired by GE — participated in a $3.6 million kickback scheme with Iraqi government agencies to win contracts to supply medical equipment and water purification equipment.

BribeThe U.S. Securities and Exchange Commission charged in a civil suit that from 2000 to 2003 the subsidiaries violated the U.S. Foreign Corrupt Practices Act by paying bribes in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts under the U.N. Oil for Food Program.

According to the complaint, GE subsidiaries Marquette-Hellige and OEC-Medical Systems (Europa) AG made approximately $2 million in kickback payments to the Iraqi government under the Oil for Food Program.

Subsidiaries of Ionics Inc. and Amersham plc made approximately $1.55 million in cash kickback payments, the SEC charged.  Amersham was acquired by GE in 2004 and is now known as GE Healthcare Ltd.  Ionics was acquired in 2005 and is now known as GE Ionics, Inc.

The settlement includes a $1 million penalty and $22.4 million in disgorgement of profits and interest.  The SEC said GE cooperated in the investigation.

"Bribes and kickbacks are bad business, period," said Robert Khuzami, Director of the SEC's Division of Enforcement. "This case affirms that law enforcement is active across the globe - offshore does not mean off-limits."

Cheryl J. Scarboro, Chief of the SEC's Foreign Corrupt Practices Act Unit, added, "GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win Oil for Food contracts, and it failed to properly record the true nature of the payments in its accounting records. Furthermore, corporate acquisitions do not provide GE immunity from FCPA enforcement of the other two subsidiaries involved."

In statement, GE said it “is committed to the highest standards of integrity and transparency in our business practices.  We constantly strive to improve in this regard, and we have already applied the lessons of this matter to help us further strengthen our policies and practices.”

As for this case, GE said, 14 of the 18 contracts cited by the SEC involve businesses that were not owned by GE at the time of the transactions. “The SEC alleges that, in acquiring these companies, GE acquired their liabilities as well as their assets,” the company said.

GE Healthcare units in Europe were involved in four of the contracts cited by the SEC.  GE said the subsidiaries “declined to make cash payments to the Iraqi Ministry of Health, but they acquiesced when their agent offered instead to make in-kind payments of computer equipment, medical supplies, and services to the Iraqi Health Ministry, and then failed to reflect the transactions accurately in their books and records.”

“This conduct did not meet our standards,” GE said, “and we believe that it is in the best interests of GE and its shareholders to resolve this matter now, without admitting or denying the allegations, and put the matter behind us.

GE also said it has received confirmation from the U.S. Department of Justice that the Department has closed its investigation and will take no action on the matters involved in the SEC suit.

The SEC said it has now taken 15 FCPA enforcement actions against companies involved in Oil for Food-related kickback schemes with Iraq, recovering more than $204 million.

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