Risk Management

Chevron Next to Pay Up in Oil for Food Scheme

Yet another major company agrees to a stiff penalty for paying illegal kickbacks to the former Iraqi government.
Stephen TaubNovember 14, 2007

Chevron Corp. is the latest company to settle charges that it made illegal payoffs to the former government of Iraq in connection with the United Nations’ Oil for Food Program.

To settle civil and criminal charges filed against it by a number of federal agencies, Chevron will pay $30 million, consisting of $25 million in disgorged profits, a $3 million civil penalty to the Securities and Exchange Commission, and a $2 million penalty to the U.S. Treasury Department.

Just since October 1, York International and Ingersoll-Rand have settled similar charges, agreeing to pay $22 million and $6.7 million, respectively.

According to the U.S. Attorney for the Southern District of New York, Chevron obtained Iraqi oil under the Oil for Food program from third parties that paid secret, illegal surcharges to the former Iraq government in 2001 and 2002 in violation of United States wire-fraud statutes and administrative regulations that prohibited transactions with that government.

The U.S. Attorney said that in making the agreement with Chevron it considered the company’s cooperation with the various government investigations and its implementation of new “enhanced compliance procedures.”

In its complaint, the SEC charged that in at least 36 transactions, a portion of the company’s purchase price for Iraqi crude oil constituted surcharge payments to Iraq in violation of U.N. regulations and U.S. and international trade sanctions. Chevron’s accounting for these transactions failed to properly record the nature of the payments to the third parties, characterizing them simply as “premiums.”

The commission also alleged that after becoming aware of the Iraqi demands and collection of illegal surcharges, Chevron failed to maintain a system of internal controls to ensure that its transactions and accounting for them were proper.

Despite Chevron’s policy of not purchasing Iraqi oil from third parties that paid kickbacks, the company sometimes failed to adhere to the policy when conducting due diligence on its contract partners beyond asking for a certification that Chevron officials knew or should have known was ineffective, the SEC asserted.

The SEC noted that this is its fifth action against a company for participating in the Oil for Food kickback scheme.

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