The guilty plea in a years-long bribery probe by the U.S. government of Halliburton Co and its former KBR Inc unit means more legal woes may be on the way for the global energy companies.
Albert "Jack" Stanley, a former KBR chief executive officer, pleaded guilty last week to charges involving a scheme to pay $180 million in bribes to Nigerian government officials to win work on the $6 billion Bonny Island liquefied natural gas (LNG) plant.
Stanley's guilty plea is a big development in an investigation that Halliburton revealed in 2004. The wide-ranging probe involves companies or individuals in at least six countries and court documents show the probe goes beyond the Nigerian Bonny Island deal.
"This is a big break in the case," said Dan Newcomb, a partner at Shearman & Sterling in New York who advises clients on compliance with anti-bribery law. "Now they have a guy who is going to explain what is going on."
According to his plea agreement, Stanley must "fully cooperate" with the government in its probe to find if others violated the Foreign Corrupt Practices Act, where it is illegal for U.S. companies or their agents to use bribes to win business in foreign countries.
"The whole point of a cooperating witness is not to tell people you have one until you really want to put the pressure on," Newcomb said. "Putting him out there is usually a sign that they are getting ready to indict somebody else."
Stanley, who worked under U.S. Vice President Dick Cheney when he was CEO of Halliburton, was fired in 2004 for violating the company's business code and receiving "improper personal benefits." The bribery scheme stretched from 1995 to 2004.
"There's really zero tolerance on this at the Department of Justice and the U.S. Securities and Exchange Commission," Neal Hochberg, senior managing director in the Forensics and Litigation Consulting unit for FTI Consulting, said.
In July, Halliburton said in regulatory filings that it and KBR had held talks with U.S. regulators and prosecutors, but there could be no assurance of a settlement of the matter.
Both KBR and Halliburton, who have not been charged in the Stanley case but are under scrutiny for possible FCPA violations, have said repeatedly in regulatory filings that they are cooperating with the bribery investigations.
A spokeswoman for the DOJ would only say the investigation was ongoing.
SEPARATE, NOT EQUAL
Halliburton has gone to great lengths to separate itself from KBR, executing a complex split of the engineering and construction company in April 2007.
At the time of the split, Halliburton said it wanted to focus on its more profitable energy business, but the separation was also a way for the parent company to shed some of KBR's problems. Those problems include government scrutiny for the quality and pricing of its work for the U.S. Army.
At the company's annual meeting in May 2007, Halliburton CEO Dave Lesar took a pass when a shareholder asked a question about the engineering and construction company.
"We no longer speak on behalf of KBR, nor is it appropriate for us to speak on behalf of KBR," Lesar said in response to the question.
More recently, KBR has come under criticism for its work in Iraq, where it is the Pentagon's largest private contractor.
In July, five Democratic U.S. senators called for an independent review of electrical work at U.S. bases in Iraq where more than a dozen soldiers have been electrocuted. KBR has said it found no link between its work and the electrocutions.
Halliburton also moved Lesar's office to Dubai, while KBR is still headquartered in Houston.
But even though there is a legal and physical separation, Halliburton and KBR remain linked in the bribery probe.
"Under the master separation agreement, Halliburton will continue to oversee and direct the investigations and, pursuant to the terms of the Master Separation Agreement, will at all times have and maintain control over the investigation, defense and/or settlement of the matters under investigation," KBR said in its latest quarterly filing with the SEC.
