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Baker Hughes: Greasing the Wheels in Kazakhstan. 1. Introduction 2. FCPA and Anti-Bribery Legislation 3. SEC and DOJ Increase Enforcement 4. Roy Fearnley Bribes in Kazakhstan 5. Baker Hughes Compliance Program 6 . Case Questions and Assignments. 1. Introduction

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Baker Hughes: Greasing the Wheels in Kazakhstan

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Baker hughes greasing the wheels in kazakhstan

Baker Hughes: Greasing

the Wheels in Kazakhstan


Baker hughes greasing the wheels in kazakhstan

1. Introduction

2. FCPA and Anti-Bribery Legislation

3. SEC and DOJ Increase Enforcement

4. Roy Fearnley Bribes in Kazakhstan

5. Baker Hughes Compliance Program

6. Case Questions and Assignments


Baker hughes greasing the wheels in kazakhstan

1. Introduction

2. FCPA and Anti-Bribery Legislation

3. SEC and DOJ Increase Enforcement

4. Roy Fearnley Bribes in Kazakhstan

5. Baker Hughes Compliance Program

6. Case Questions and Assignments


Baker hughes greasing the wheels in kazakhstan

Case Perspective

Students are put into the positions of a newly appointed Audit Committee member of

Baker Hughes board of directors shortly after Baker Hughes’s FCPA violations.

Students have to research documents related to the Baker Hughes FCPA violations and

answer ten case questions.


Baker hughes greasing the wheels in kazakhstan

  • Baker Hughes (BH) Profile

  • Oil and Gas Services Industry -

  • Drilling, Evaluation, Consulting

  • 58,000 Employees in 80 Countries

  • Created in 1987 with the merger of Baker International and Hughes Tool Company - both founded over 100 years ago by R.C. Baker &Howard Hughes, Sr.


Kazakhstan profile

Kazakhstan Profile


Baker hughes greasing the wheels in kazakhstan

  • Kazakhstan Profile

  • 9th largest country in the world (4x Texas)

  • In 1991, the USSR was dissolved and Kazakhstan became independent

  • Population is 15.5 MM

  • Kazakhstan holds 4 billion tons of proven recoverable oil reserves

  • By 2015, Kazakhstan will be among the top 10 oil-producing nations


Baker hughes greasing the wheels in kazakhstan

The Karachaganak Oil Field is located near Aksai, Kazakhstan


Baker hughes greasing the wheels in kazakhstan

  • Consequences of BH’s FCPA Violations

  • (2002-2007)

  • 330 lawyers, 82 support staff, 31 forensic accountants

  • Documents and electronic media from 20 cities on four continents

  • Reviewed data from approximately 300 computers

  • 245 witness interviews

  • BHI reviewed (either page-by-page or using term searches) approximately 1.69 terabytes of electronic data, the approximate equivalent of 90 million pages, as well as hundreds of thousands of pages of hard-copy documents

  • Source:Baker Hughes Inc. · 10-Q · For 3/31/07 · EX-99.3


Baker hughes greasing the wheels in kazakhstan

1. Introduction

2. FCPA and Anti-Bribery Legislation

3. SEC and DOJ Increase Enforcement

4. Roy Fearnley Bribes in Kazakhstan

5. Baker Hughes Compliance Program

6. Case Questions and Assignments


Baker hughes greasing the wheels in kazakhstan

Two Events led to the FCPA’s Creation in 1977

Watergate 1972-74

Lockheed $22 million

bribe to Japan 1976


Baker hughes greasing the wheels in kazakhstan

3 MAJOR PARTS OF FCPA

Anti-Bribery

Accurate Record-Keeping

Internal Controls


Baker hughes greasing the wheels in kazakhstan

1. ANTIBRIBERY PROVISIONS

“It is a crime for any U.S. person or company to directly or indirectly pay or promise anything of value to any foreign official to obtain or retain any improper advantage.”


Baker hughes greasing the wheels in kazakhstan

2. ACCOUNTING REQUIREMENTS

“Make and keep books, records, and accounts, which in reasonable detail, accurately reflect the transactions and dispositions of assets.”


Baker hughes greasing the wheels in kazakhstan

3. INTERNAL CONTROLS

“Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurance that transactions are recorded appropriately and in accordance with rules and regulations.”


Baker hughes greasing the wheels in kazakhstan

FCPA Penalties


Baker hughes greasing the wheels in kazakhstan

Other FCPA Remedies

  • Criminal fraud charges

  • Civil injunctive action

  • Administrative cease and desist proceedings

  • Disgorgement of ill-gotten gains

    Implementation of FCPA compliance program

    Independent Monitor

    Continuing reporting obligation


Baker hughes greasing the wheels in kazakhstan

  • Recent Changes in U.S. FCPA

  • Enforcement Agencies_____

  • DOJ - added 25 FCPA prosecutors

  • FBI – FCPA unit of investigative agents

  • SEC - special FCPA enforcement unit


Baker hughes greasing the wheels in kazakhstan

Significant Anti-Bribery and related Legislation

FCPA (1977)

OECD Anti-Bribery Convention (1997)

Sarbanes-Oxley (2002)

UK Bribery Act of 2010

Dodd-Frank – Whistleblower (2011)

Canada’s Corruption of Foreign Public Officials Act (2013)


Baker hughes greasing the wheels in kazakhstan

1. Introduction

2. FCPA and Anti-Bribery Legislation

3. SEC and DOJ Increase Enforcement

4. Roy Fearnley Bribes in Kazakhstan

5. Baker Hughes Compliance Program

6. Case Questions and Assignments


Baker hughes greasing the wheels in kazakhstan

1. Introduction

2. FCPA and Anti-Bribery Legislation

3. SEC and DOJ Increase Enforcement

4. Roy Fearnley Bribes in Kazakhstan

5. Baker Hughes Compliance Program

6. Case Questions and Assignments


Baker hughes greasing the wheels in kazakhstan

BH andthe Corruption Perception Index


Baker hughes greasing the wheels in kazakhstan

Corruption Perceptions Index of 2001


Baker hughes greasing the wheels in kazakhstan

Principal of the Agent Company,

(identified in 2010 by Wikileaks cable as Robert Kissin, UK Banker)

Agent Company

(in Isle of Man)

2% of Baker Hughes

Revenues - Bribes

Roy Fearnley, Baker Hughes,

Team Leader for the Tender

3 year Oil Service Contract

($200 million total)

Baker Hughes,

(VP of Marketing)

Karachaganak Integrated Oil (KIO)

British Gas (UK), 32.5 %

Eni-AGIP (Italy) , 32.5 %

ChevronTexaco (US), 20 %

Lukoil (Russia), 15 %

Kazakhoil (National Oil Company)

& Government of Kazakhstan

40 year Production

Sharing Agreement


Baker hughes greasing the wheels in kazakhstan

Quotes from the SEC Complaint

“Winning the Karachaganak Project was crucial for the future health of Baker Hughes in Kazakhstan”

Baker Hughes VP of Marketing Nov., 1999

--------------------------------------------------------------------

“I heard unofficially Baker Hughes won the contract, we should know within a week”

Roy Fearnley to the VP of Marketing, Sept. 2, 2000

--------------------------------------------------------------------

“An agent for Kazakhoil is demanding unless we

pay a commission, we can say goodbye to this and future business”

Roy Fearnley, Sept. 24, 2000


Baker hughes greasing the wheels in kazakhstan

  • Timeline of the FCPA Violations

  • On Sept. 27, 2000, BH agrees to pay commissions

  • On Oct. 23, 2000, BH awarded contract by KIO

  • Between May, 2001 and Nov., 2003, BH made 27

  • “Commission Payments” totaling $4.1 MM

  • Payments recorded on BH books as “Commissions”, “Fees” and “Legal Services”


Baker hughes greasing the wheels in kazakhstan

1. Introduction

2. FCPA and Anti-Bribery Legislation

3. SEC and DOJ Increase Enforcement

4. Roy Fearnley Bribes in Kazakhstan

5. Baker Hughes Compliance Program

6. Case Questions and Assignments


Baker hughes greasing the wheels in kazakhstan

Example of Actual Case and Hypothetical Question


Baker hughes greasing the wheels in kazakhstan

1. Introduction

2. FCPA and Anti-Bribery Legislation

3. SEC and DOJ Increase Enforcement

4. Roy Fearnley Bribes in Kazakhstan

5. Baker Hughes Compliance Program

6. Case Questions and Assignments


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