GE settlement follows silence over inquiry …

It isn’t every day that one of the biggest industrial companies settles foreign bribery charges — and almost acknowledges the allegations in the process. Given that the company didn’t tell investors that the investigation was even underway, that’s not half bad.

Today General Electric (GE) settled allegations by the Securities and Exchange Commission that several subsidiaries had paid the Iraqi government to win contracts under the U.N. Oil for Food Program, before the U.S.-led invasion of that country. The government alleged that two foreign subsidiaries, and two companies that GE later acquired,

“made illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts …”

(Also see the SEC complaint (PDF).) GE, in its own press release notes that 14 of the 18 contracts in question went to Amersham plc and Ionics Inc. before GE owned them, while the other four went to GE units in Europe. Then it all but admits the allegations, saying of its own subsidiaries that they

“declined to make cash payments to the Iraqi Ministry of Health, but they acquiesced when their agent offered instead to make in-kind payments of computer equipment, medical supplies, and services to the Iraqi Health Ministry, and then failed to reflect the transactions accurately in their books and records. This conduct did not meet our standards…”

Then the company trots out the usual language about resolving the matter for the good of shareholders, “without admitting or denying the allegations.”

In the end, of course, it’s small potatoes for a company of GE’s size: a $1 million penalty “disgorgement” of $22.4 million of gains from the transactions. That’s one reason, a GE spokeswoman tells us, that the company never disclosed that government investigations were underway in the first place. Here’s the crux of her emailed statement:

“Based on the amounts in question, the nature of the allegations being made by the SEC Staff, the misconduct having been confined to predecessor companies or foreign subsidiaries, and the absence of any involvement by personnel at the GE level, this matter was not material.”

We we can understand some reluctance to owning up for something acquired companies may have done before the acquisition — though of course the consequences are the same for shareholders — but we’re not quite sure why it matters that the GE subsidiaries involved were overseas: Presumably they’re subject to the same internal corporate oversight and market disclosure rules that U.S. units would be. (Update: Not to suggest that disclosure was necessarily required — just that the subsidiary’s location wouldn’t alter whether it was or not.)

As for the settlement’s size, was GE always certain it would be so small? Moreover, given the nature of bribery scandals — they call into question everything from corporate culture to internal controls — we can’t help but wonder if some kinds of investigations should be disclosed even where the penalties are likely to be minimal in dollar terms.

It turns out the settlement has some other interesting features, as Butler University’s Mike Koehler notes at his FCPA Professor blog. For one thing, it doesn’t include parallel Justice Department charges and settlement — in fact, GE notes that it “has received confirmation” from the agency that it “will take no action relating to these matters.”

Image source: stopnlook via Flickr


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