SEC: ‘Offshore Does Not Mean Off-Limits’; Agency Charges Famous U.S. Firm With Violating Foreign Corrupt Practices Act In Alleged Bribery Scheme

Cheryl Scarboro, SEC.

Cheryl J. Scarboro, SEC

BULLETIN: The Securities and Exchange Commission has charged General Electric Co. and two foreign subsidiaries in an alleged kickback scheme with the Iraq government “to win contracts to supply medical equipment and water purification equipment.”

Robert Khuzami, director of the SEC’s Division of Enforcement, did not mince words when announcing the charges and a settlement in the case.

“Bribes and kickbacks are bad business, period,” said Khuzami. “This case affirms that law enforcement is active across the globe — offshore does not mean off-limits.”

GE, which neither admitted nor denied the allegations, agreed to pay $23.4 million to settle the case. The SEC said GE cooperated in the probe, which crossed into Europe and the Middle East. The United Nations assisted the SEC and the U.S. Department of Justice in the probe.

“GE failed to maintain adequate internal controls to detect and prevent these illicit payments by its two subsidiaries to win Oil for Food contracts, and it failed to properly record the true nature of the payments in its accounting records,” said Cheryl J. Scarboro, chief of the SEC’s Foreign Corrupt Practices Act Unit.

For its part, GE said the conduct “did not meet our standards, and we believe that it is in the best interests of GE and its shareholders to resolve this matter now, without admitting or denying the allegations, and put the matter behind us.”

“GE is committed to the highest standards of conduct in all transactions in all of the jurisdictions where we do business throughout the world,” the company said.

“In this case, the SEC has identified 18 contracts under the Oil-for-Food Program that it alleges were not accounted for or controlled properly. Fourteen of these transactions involve businesses that were not owned by GE at the time of the transactions,” the company said.  “The SEC alleges that, in acquiring these companies, GE acquired their liabilities as well as their assets.  The other four transactions relate to GE Healthcare units in Europe.  These units 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.”

Read the SEC civil complaint.

The case against GE and the subsequent settlement may be seen as a blow to other types of business pursuits that fall under the SEC’s purview. Ventures such as autosurfs and HYIPs  routinely claim that “offshore” locations shelter them from U.S. law enforcement, and commission-based shills and hucksters use the claim to recruit investors.

GE is an iconic company that traces its roots to 1890, when inventor Thomas Alva Edison founded Edison General Electric Co.

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