Volvo: The Kickback Inside the Equipment Price

In the Volvo FCPA case, AB Volvo agreed to pay a $4 million civil penalty over Oil for Food kickbacks concealed in truck and construction-equipment contracts. The Justice Department’s account of the criminal case described payments through employees, agents and distributors, including companies that outfitted Renault trucks. For someone who knows the equipment price or the supplier’s work, that is the revealing connection: part of the money paid for the sale was buying the government’s business.

The Civil Settlement and the Subsidiary Charges

The Justice Department announced the Volvo case on March 20, 2008. It filed criminal charges against Renault Trucks SAS and Volvo Construction Equipment AB, both AB Volvo subsidiaries. The charges described separate conspiracies to commit wire fraud and violate the Foreign Corrupt Practices Act’s books-and-records provisions.

In the criminal agreement summarized by the Justice Department, AB Volvo acknowledged responsibility for its subsidiaries’ actions. Their employees, agents and distributors had paid kickbacks to the Iraqi government to obtain truck and heavy commercial construction-equipment contracts.

The Securities and Exchange Commission reached a separate civil settlement with AB Volvo. Volvo also agreed to pay approximately $8.6 million in profits and prejudgment interest under that settlement, in addition to the $4 million civil penalty. The Justice Department identified its Criminal Division’s Fraud Section and the FBI’s Washington Field Office as the investigators, with assistance from the SEC’s Enforcement Division.

The Trucks and Equipment Sold Through Oil for Food

The United Nations Oil for Food program allowed Iraq to sell oil to fund humanitarian purchases under international sanctions. The program required oil-sale proceeds to go into a United Nations bank account, for use only on approved humanitarian goods and services, including food and medicine. The Volvo contracts brought truck and heavy construction-equipment sales into that controlled purchasing system.

The Justice Department reported that, beginning in 2000, the Iraqi government required companies seeking to sell humanitarian goods to its ministries under Oil for Food to pay kickbacks, often presented as after-sales services fees. The supposed service fee bought access to the contract. A kickback dressed as a service. Those payments were prohibited under the program.

The criminal charges and Volvo’s agreement, as described in the announcement, traced contract prices inflated by approximately 10% before submission to the United Nations. The subsidiaries concealed the kickbacks inside the prices submitted for approval. We call that charging a humanitarian program for the privilege of being cheated.

For a sales or finance employee, the point at which the price changed matters. The government described the increase as happening before the approval submission, which makes the pricing decision and the submitted contract part of the same payment trail. The later transfer explains where the extra money went.

Renault Trucks and the Companies That Outfitted Them

According to the announcement’s account of the criminal charges and Volvo’s agreement, Renault Trucks employees and agents paid approximately $5 million in kickbacks between November 2000 and April 2003. The associated contracts with Iraqi ministries were worth approximately €61 million.

The truck business supplied a route for moving the money through another supplier. Renault Trucks produced chassis and cabs, with other companies outfitting them. The announcement explained how that commercial relationship carried the kickback:

The outfitting company performed a recognizable job in the supply chain. That relationship also provided somewhere to send the excess money before it reached the Iraqi government. A payment to a company working on the truck could therefore carry both the commercial cost and money intended for a kickback.

That is where product knowledge becomes useful. Someone who understands the outfitting work can explain the price, a change to it or an instruction to pay the supplier more. We connect that knowledge to the supplier payment and its onward destination. The person processing the outfitter’s bill may know a part of the transaction that the final truck contract does not explain.

Volvo Construction Equipment and Its Distributors

The construction-equipment account concerned Volvo Construction Equipment International AB, the predecessor to Volvo Construction Equipment AB. The announcement’s account of the criminal charges and Volvo’s agreement said the predecessor and its distributors received approximately $13.8 million in contracts between December 2000 and January 2003. During the same period, its employees, agents and distributors paid approximately $1.3 million in kickbacks to the Iraqi government.

The same method of raising contract prices before United Nations approval concealed the kickback within them. Distributors participated in both the contract awards and the payments.

A distributor sits between the supplier’s price and the customer’s purchase. The people handling those sales can know what the supplier charged, what the customer agreed to pay and who authorized a change. In a transaction like the one described here, that commercial knowledge helps connect the contract submitted for approval to the money that left the selling business.

Finance and accounting staff may recognize the entry used to record the payment. Sales staff may know why the contract price changed or why a particular intermediary had to be involved. Compliance and audit staff may know what reviewers were told about that relationship. We use that knowledge to connect the explanation given for the payment with the decision it was intended to buy.

A Commercial Payment Can Carry a Different Purpose

The Volvo account shows why the recipient’s business role matters alongside the name on the payment. An outfitting company had a place in making the truck ready for sale, and a distributor had a place in selling equipment. The government’s account connected those roles to kickbacks paid for ministry contracts.

A related intermediary pattern appeared in Rolls-Royce‘s energy business. Under its deferred prosecution agreement announced in January 2017, Rolls-Royce admitted using adviser commissions and other payments to fund bribes for government information and contracts in countries including Iraq. The comparison is the commercial payment used to carry an improper benefit: an adviser’s commission in that case, an inflated outfitting payment in Renault’s. A supplier invoice can describe a commercial service while the instructions behind it explain why the company paid more and who was meant to receive the difference.

Whistleblower Rewards for Foreign Bribery Information

Whistleblower rewards depend on the program that fits the information. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Foreign-bribery reporting has its own SEC whistleblower award route, which we assess with you alongside the transactions you know.

You Know What the Supplier Was Paid to Do

If you know the truck contract, the equipment price or the payment that exceeded the supplier’s work, speak to our whistleblower experts about the transaction. We build the account with you, bring in foreign bribery whistleblower lawyers who understand supplier and distributor payments, and stay beside you as the case develops. Your knowledge of what the business actually bought can expose what its paperwork concealed.