Risk Management

AB Volvo to Pay $19.6 Million in Iraqi Oil-for-Food Case

The truck and transport company — no longer a carmaker — consents to SEC charges of making improper payments in U.N. program.
Stephen TaubMarch 20, 2008

Swedish truck, bus, construction equipment company AB Volvo has agreed to pay $19.6 million to the U.S. Securities and Exchange Commission to settle charges of making improper payments to Iraq under the United Nations Oil for Food Program.

The regulator filed Foreign Corrupt Practices Act books-and-records and internal-controls charges against company — no longer the maker of the Volvo automobile brand, sold to Ford Motor Co. in 1999. The SEC alleged that from 1999 through 2003, two of AB Volvo’s subsidiaries and their agents and distributors made about $6.2 million in kickback payments, and authorized additional payments of $2.4 million in connection with their sales of humanitarian goods to Iraq under the U.N. program.

The kickbacks were characterized as “after-sales service fee,” on sales of its products to Iraq, but no bona fide services were performed, according to the SEC complaint. The SEC also said one of Volvo’s subsidiaries also made other types of illicit payments to Iraq.

The regulator has jurisdiction because, at the time of the violations, its American Depositary Receipts were registered in the U.S. and quoted on Nasdaq. In December 2007, Volvo delisted its ADRs and applied for termination of its registration with the commission.

The U.N. program was intended to provide humanitarian relief for the Iraqi population, which faced severe hardship under international trade sanctions. The program allowed the Iraqi government to purchase humanitarian goods through a U.N. escrow account.

The kickbacks paid by AB Volvo’s subsidiaries diverted funds out of the escrow account and into Iraqi-controlled accounts at banks in Jordan, according to the SEC.

Two Volvo subsidiaries, Renault V.I. and Volvo Construction Equipment International, were involved in sales of commercial vehicles and parts to Iraq during the Oil for Food Program.

The SEC asserted that AB Volvo either knew or was reckless in not knowing that illicit payments were either offered or paid in connection with certain transactions. The regulator also accused AB Volvo of failing to maintain an adequate system of internal controls to detect and prevent the payments and its accounting for these transactions failed properly to record the nature of the payments.

AB Volvo, without admitting to or denying the allegations in the Commission’s complaint, agreed to disgorge $7,299,208, in profits plus $1,303,441 in pre-judgment interest, and to pay a civil penalty of $4 million. It will also pay a $7 million penalty under a deferred prosecution agreement with the U.S. Department of Justice, Fraud Section.