KBR / Halliburton: The Consulting Fee Followed the Bribe Negotiation

In the KBR / Halliburton FCPA case, the companies agreed to pay $177 million in a civil settlement over alleged bribery for Nigerian gas construction contracts and the false records and failed controls behind it. The Securities and Exchange Commission alleged that a joint venture used consulting contracts to move money to officials who could help award the work. If you knew the project, approved the agent or recorded the payment, this case shows how an ordinary commercial file can tell a very different story from the service described on its cover.

The SEC announced the settlement with KBR, Inc. and Halliburton on February 11, 2009. In the separate criminal case brought by the Justice Department, Kellogg Brown & Root LLC pleaded guilty to conspiracy and foreign-bribery charges, as the SEC’s announcement records. This foreign-bribery case reached the operating business, the agents and the parent company’s accounting.

The Nigerian LNG Joint Venture and the Contract Award

Behind that civil settlement stood more than $6 billion in engineering, procurement and construction contracts for liquefied natural gas facilities on Bonny Island, Nigeria. In his criminal plea agreement filed in December 2010, a former commercial vice president who became a consultant to M.W. Kellogg Ltd. described helping KBR and its three partners in the TSKJ joint venture obtain four contracts between 1995 and 2004.

The indictment of the consultant and the UK-based agent explains what the project involved. An LNG train took raw gas from wellheads through processing into purified liquefied natural gas and delivery to a tanker. The first contract covered the initial trains, and later contracts expanded the plant. According to the indictment, the initial award followed an ostensibly competitive international tender, while the remaining contracts were negotiated with the joint venture as the sole supplier.

Nigeria LNG Limited awarded the contracts. The indictment identifies the Nigerian National Petroleum Corporation as its largest shareholder, with a 49% interest, and describes government control through appointed board members, including the ability to block an award. That is the commercial importance of a customer with government decision-makers: the official relationship reaches the person who can stop the sale.

For someone working on the bid, the relevant connection is between that decision and the agent hired to influence it. An approval file can identify the promised commercial result. Customer communications can identify whose support the company believed it needed.

Two Agents and a Cultural Committee

The SEC alleged that the joint venture divided its bribery work between two agents. The UK-based agent handled high-ranking Nigerian officials, while the Japanese agent handled lower-ranking officials. The agency said a “cultural committee” decided how to carry out the scheme, and that the joint venture paid the agents as it received payment for construction work.

According to the SEC, payments to the two agents exceeded $180 million, more than the profits the companies later agreed to give up in the civil settlement. The alleged sham consulting contracts gave those transfers a business description while directing money toward the officials behind the awards. We see the absurdity in the committee’s name: paying the people who controlled the decision became a matter of culture.

The criminal indictment supplies an internal version of that language. It alleges that an August 1994 fax from the commercial executive to KBR’s leadership relayed an agreement to send this message:

The same alleged fax discussed securing support from people at the working level of Nigeria LNG. That pairing matters: the communication connected senior political access with the employees inside the customer who could help the project move forward.

A Portuguese Company Signed, and the Money Traveled

The indictment describes a joint venture whose steering committee included senior executives from each partner. That committee decided which agents to hire and how much to pay them, and the partners shared profits, revenue and expenses equally. The agent cost therefore sat inside the venture’s commercial arrangements, alongside the costs of delivering the project.

According to the indictment, Madeira Company 3, one of the venture’s three Portuguese companies, signed the consulting contracts. The UK agent used Tri-Star Investments Ltd., a Gibraltar company, to contract with the venture and receive its payments. Prosecutors alleged that the contracts promised vaguely described marketing and advisory services while their primary purpose was to fund bribes. They also alleged that the commercial executive and KBR’s chief executive discussed keeping U.S. citizens off Madeira Company 3’s board of managers.

The alleged payment trail crossed several more borders. Money left the Madeira company’s Amsterdam bank account, passed through accounts in New York and reached accounts controlled by the UK agent in Switzerland and Monaco. The Japanese agent received transfers from the Amsterdam account into its account in Japan. The country on a consulting agreement was only the start of the route.

The indictment also alleged that the UK agent used a subcontractor to deliver cash for a Nigerian political party. One delivery involved a pilot’s briefcase at a hotel in Abuja; another involved a vehicle left in a hotel parking lot until the money was removed. For an insider who knows the subcontractor or the payment approval, that is the connection a consulting invoice leaves out: who received value after the company’s bank transfer ended.

The Insider’s Plea Connected the Fee to the Bribe Negotiation

The former commercial vice president’s plea gives the consulting fee a precise explanation. He admitted agreeing with KBR’s chief executive and others to pay Nigerian officials to obtain and retain the Bonny Island contracts. He also admitted recommending the UK agent and Tri-Star with the expectation that they would bribe high-level officials, and the Tokyo trading company with the expectation that it would bribe lower-level officials. The SEC’s announcement records that the chief executive pleaded guilty to bribery and related charges in September 2008.

His plea describes meetings with successive senior Nigerian officials to establish whom the venture should negotiate with. At a London hotel meeting in March 1999, the participants negotiated bribes with the representative of a top executive-branch official in exchange for the award of the next construction contract. The plea then connects that negotiation to the company’s consulting agreement:

The fee followed the price negotiated for official support. That is why we look beyond whether a consulting agreement was signed: the negotiation behind the fee can explain what the company was actually buying. A project employee who knows how a commission was set may hold the part of the story that never reached the invoice.

A comparable connection appears in Alstom‘s criminal plea, which describes a consultant’s commission falling from 3% to 1% when part of the assignment moved to another consultant. For someone who negotiated the fee, the earlier drafts and the reason for changing them can explain which part of the assignment the company was paying for.

Halliburton’s Controls and the False Records

The SEC’s action against Halliburton concerned books, records and internal accounting controls. Halliburton acquired Dresser Industries, the parent of The M.W. Kellogg Company, in September 1998. The SEC identified Halliburton as the parent of KBR’s predecessor entities from 1998 to 2006 and alleged that its controls failed to detect or prevent the bribery.

The agency described different failures for the two agents. It alleged that Halliburton’s due diligence on the UK agent failed to detect or prevent the scheme, and that Halliburton conducted no due diligence on the Japanese agent. It also alleged failures to enforce existing controls and false information in numerous Halliburton records about agent payments.

For finance and audit staff, the agent’s approval and diligence files connect directly to the accounting question. Who approved the engagement, what service supported the fee, and what did the entry say the business received? The SEC’s allegations reached both the company’s ability to control the transaction and the description that survived in its books.

What an Insider Can Connect

The useful whistleblower evidence connects a project decision to a payment and the record used to explain it. Here, that means the award negotiations, steering-committee approvals, agent agreements, diligence files, invoices, transfers and parent-company records. A person who knows why a consultant was selected can add meaning that a bank statement cannot supply on its own.

The commercial questions are concrete. Did the agent’s promised service match the negotiations the project team was actually conducting? Did the payment approval identify the same recipient and purpose as the later transfer? How did the transaction reach the parent’s books? We work with the person who knows those records to connect the answers into a case.

There is a reason to take that inside knowledge seriously alongside formal controls. The 2019 working paper Do Corporate Whistleblower Laws Deter Accounting Fraud?, available through MIT Sloan, studied companies exposed to state False Claims Acts through state pension-fund ownership. It found a lower estimated likelihood of accounting fraud after exposure to those laws, but little evidence in its smaller internal-audit sample that greater audit investment explained the reduction. The finding gives us a reason to look beyond the audit program to what employees know.

For foreign-bribery information, we assess the SEC whistleblower award program and how the facts fit its requirements. A separate whistleblower case under the False Claims Act, concerning fraud against the U.S. government, can pay 15% to 30% of what the government recovers. We determine which program fits what you know and bring in foreign-bribery or False Claims Act whistleblower lawyers with the experience your case requires.

You Know Why the Consultant Was Hired

If the consulting contract you worked with described services while the conversations concerned officials, you may know the explanation missing from the invoice. We build the case around your knowledge of the project and the payments, bring in foreign-bribery whistleblower lawyers, and stand beside you through the process. Speak to one of our Whistleblower Experts about why that consultant was hired.