Originally published April 2008
Keywords: Chevron, oil company, crude oil, Iraq, SEC, crude oil, OFFP, Iraqi bank accounts, illegal surcharge,
From April 17, 2001 through May 6, 2002, Chevron, a California-based oil company, allegedly purchased approximately 78 million barrels of crude oil from Iraq pursuant to thirty-six contracts with third parties. SEC v. Chevron Corp., No. 07-CV-10299 (S.D.N.Y. filed Nov. 14, 2007), Litigation Release No. 20363 (Nov. 14, 2007). In January 2001, after learning of surcharge demands by Iraq's State Oil Marketing Organization, Chevron implemented a company-wide policy prohibiting the payment of surcharges in connection with the purchase of Iraqi oil from third parties. Chevron's policy required oil traders to obtain prior written approval for all proposed Iraqi oil purchases, and obligated management to review each proposed transaction. Supposedly, Chevron's traders did not follow the stated policy. As a result, the Commission alleged that Chevron violated the books and records and internal controls provisions of the FCPA. Id.
The Commission's complaint alleges that from approximately April 2001 through May 2002, third parties with which Chevron contracted paid approximately $20 million in illegal kickback payments in connection with Chevron's purchases of crude oil under the OFFP. Id. Chevron, allegedly, knew or should have known that third parties paid a portion of the premiums they received from Chevron to Iraq as illegal surcharges, which bypassed the escrow account and were instead paid to Iraqi-controlled bank accounts in Jordan and Lebanon. Id. At least one trader, responsible for a large portion of Chevron's purchases from Iraq, factored the cost of the surcharge payments into price negotiations with third parties. Id. One third-party seller, whose company on occasion sold oil to Chevron, stated that the trader he interacted with and the trader's bosses always knew about the illegal surcharge demands by Iraq. Id. Despite the obvious increase in premiums, Chevron's management routinely approved the Iraqi oil purchases proposed by Chevron's traders. Id. According to the Commission, Chevron failed to devise and maintain a system of internal accounting controls to detect and prevent such illicit payments, and its accounting for its OFFP transactions failed to properly record the true nature of the company's payments to third parties. Id.
The Commission ordered Chevron to disgorge $25,000,000 in profits, and to pay a civil penalty of $3,000,000. Id. Chevron satisfied its disgorgement obligation by forfeiting $20,000,000 pursuant to a November 14, 2007 non-prosecution agreement with the U.S. Attorney's Office for the Southern District of New York. DOJ Non-Prosecution Agreement (Nov. 14, 2007). In a resolution with the Manhattan District Attorney's Office, Chevron agreed to disgorge $5,000,000. Chevron also agreed to pay the Office of Foreign Asset Controls of the U.S. Department of Treasury $2,000,000 in penalties.
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