Strategy

Ingersoll-Rand Settles Iraq Kickback Charges

The company had stood accused of deceiving the United Nations about its contracts with the Iraqi government under the U.N.’s Oil for Food Program.
Stephen TaubOctober 31, 2007

Ingersoll-Rand Co. has agreed to pay $6.7 million to settle charges that subsidiaries paid illegal kickbacks to the Iraq government relating to sales of humanitarian goods under the United Nations’ Oil for Food Program.

The company agreed with the Securities and Exchange Commission to the entry of a civil injunction and with the Department of Justice on a three-year deferred prosecution agreement. Under both settlements, Ingersoll-Rand agreed to improve its compliance program.

The SEC had filed charges under the books and records and internal controls provisions of the Foreign Corrupt Practices Act. The regulator alleged that from 2000 through 2003, four Ingersoll-Rand subsidiaries entered into contracts under which they made $963,148 in kickback payments and which authorized $544,697 in additional payments. The kickbacks were characterized as “after-sales service fees,” but no bona fide services were performed, the SEC asserted.

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The DOJ alleged that employees of Ingersoll-Rand subsidiaries paid about $600,000, and offered to pay an additional $250,000, in kickbacks to the Iraqi government. They did this by inflating the price of contracts by approximately 10 percent before submitting them to the United Nations for approval, and concealing from the United Nations the fact that the contract prices contained a kickback to the Iraqi government.

The Oil for Food Program was intended to provide humanitarian relief for the Iraqi population, which faced severe hardship under international trade sanctions during the Saddam Hussein regime. It allowed the Iraqi government to purchase humanitarian goods through a U.N. escrow account.

To make the kickbacks, the Ingersoll-Rand subsidiaries and third parties diverted funds out of the escrow account and into an Iraqi slush fund, according to the SEC.

The complaint also alleged that $8,000 in “pocket money” and travel expenses were paid to Iraqi government officials in connection with a trip to Italy.

The SEC charged that Ingersoll-Rand knew or was reckless in not knowing that the illicit payments were either offered or paid. It also claimed that the company failed to maintain an adequate system of internal controls to detect and prevent the payments.

Under the settlement with the SEC, IR will disgorge $1.71 million in profits, plus about $561,000 in pre-judgment interest, and pay a civil penalty of $1.95 million. It will also pay a $2.5 million fine under the deferred prosecution agreement with the DOJ.

The industrial equipment maker said that individuals who were involved with this matter have been terminated.