June Foray died this week. You may not think you have heard of her but let me assure you; you have heard her. Foray was the voice of Rocket J. Squirrel in perhaps the greatest cartoon show ever, Rocky and Bullwinkle. According to her obituary in the New York Times (NYT), Foray’s work in voice animation won her the sobriquet “The First Lady of Animated Voicing”. Her work was prodigious, including big screen cartoon voices as Lucifer the cat in Walt Disney’s “Cinderella” (1950), a mermaid and a squaw in “Peter Pan” (1953), and Wheezy Weasel and Lena Hyena in “Who Framed Roger Rabbit” (1988). Yet it was on television where Foray was the most well-known, having voiced “Cindy-Lou Who in “How the Grinch Stole Christmas” (1966); Ursula in “George of the Jungle” (1967); and Aunt May Parker in “Spider-Man and His Amazing Friends.” As noted in her obituary in Variety, she also voiced “Looney Tunes’ Witch Hazel, Nell from “Dudley Do-Right,” Granny in the “Tweety and Sylvester” cartoons” among hundreds of others, many uncredited.”
At 94, she became the oldest person to win an Emmy, cited for her Mrs. Cauldron on “The Garfield Show,” and in 2013 she received an Emmy Governors Award. Perhaps the greatest tribute came from Chuck Jones, the legendary animator who proposed her star on Hollywood’s Walk of Fame and who was quoted in the NYT obit, “June Foray is not the female Mel Blanc. Mel Blanc was the male June Foray.”
Almost as interesting was yesterday’s announcement by the Securities and Exchange Commission (SEC) of the resolution of its outstanding Foreign Corrupt Practices Act (FCPA) enforcement action with Halliburton. [Full disclosure – I am a Halliburton shareholder] In a Cease and Desist Order which also covered former employee Jeannot Lorenz, the SEC spelled out a bribery scheme facilitated by both a failure and over-ride of company internal controls. The matter involved Halliburton’s work in Angola with the national oil company Sonangol, which had a local content requirement. The nefarious acts giving rise to the FCPA violation involved a third-party agent for Halliburton’s contracts with the state-owned enterprise.
According the SEC Press Release, “officials at Angola’s state oil company Sonangol advised Halliburton management in 2008 that it was required to partner with more local Angolan-owned businesses to satisfy local content regulations for foreign firms operating in Angola. Halliburton tasked Lorenz to spearhead these efforts. When a new round of oil company projects came up for bid, Lorenz began a lengthy effort to retain a local Angolan company owned by a former Halliburton employee who was a friend and neighbor of the Sonangol official who would ultimately approve the award of the contracts. It took three attempts but Halliburton ultimately outsourced more than $13 million worth of business to the local Angolan company.”
There was an initial attempt to bring a local Angolan company in as a commercial agent for Halliburton but, as the Order noted, the idea was abandoned because of the lengthy internal process for approving agents at the company. The agent was then moved to a supplier so the approval process would be easier. The local Angolan company was to provide “real estate maintenance, travel and ground transportation services” but would be approved through the supplier process, which required the internal controls of business justification and competitive bidding, both which were over-ridded and a Consulting Contract was entered into with the local Angolan company. However, the true purpose of the Consulting Contract, “to provide bridge payments as a show of good faith to the Sonangol government official and the local Angolan company until the latter successfully emerged from the bidding process”, was never provided to the contract approvers. Instead a fictional purpose was articulated, as stated in the Order, “the scope of work falsely stated that the local Angolan company would be “developing reports with respect to findings and recommendations” addressing local content requirements and how Halliburton could meet those requirements with respect to areas of travel, local logistics, and real estate.” As the Order noted, this violated Halliburton’s internal controls which mandate “an assessment of the critically or risk of a material or services”; not with a particular supplier and certainly not without “competitive bids or providing an adequate single source justification.” There were also delegation of authority controls which were over-ridden.
Yet this Consulting Contract was not deemed sufficient local content by Sonangol officials. In an attempt to salvage the relationship, there was the involvement of an un-named senior executive of Halliburton who “flew to Portugal to meet the Sonangol government official at the vacation home of the Sonangol government official’s friend, the owner of the local Angolan company. Both Lorenz and the friend were present. The Halliburton senior executive explained to the Sonangol government official the delays associated with a large company’s procurement processes and affirmed that Halliburton was negotiating a deal with the local Angolan company to satisfy local content requirements. The Halliburton senior executive also asked the Sonangol government official for his support for the international oil company’s award of an upcoming contract to Halliburton, in light of progress Halliburton was making to satisfy Halliburton’s local content requirements.”
After all of this and further negotiations, Halliburton entered into a near agreement where the “local Angolan company would lease commercial and residential real estate and then sublease the properties to Halliburton at a substantial markup, and also provide real estate transaction management consulting services.” (the ‘Real Estate Transaction Management Agreement’). This proposed agreement was questioned internally by Halliburton for its use of a single source for procurement, the upfront payment terms, the high costs, and the rationale for entering into subleases for properties that would cost less if leased directly from the landlord.” Indeed, “One Finance & Accounting reviewer at headquarters noted that he could not think of any legitimate reason to pay the local Angolan company over $13 million under the Real Estate Transaction Management Agreement and that it would not have cost that much to run Halliburton’s entire real estate department in Angola.” Senior executives allowed the Real Estate Transaction Management Agreement to move forward to execution in May 2010.
After receipt of an anonymous email alleging “possible misconduct surrounding the transactions with the local Angolan company” Halliburton terminated the Real Estate Transaction Management Agreement in April 2011 after paying out some $3.705MM. As noted in the Order, “Between May and December 2010, Sonangol approved the award of seven lucrative subcontracts to Halliburton and Halliburton profited by approximately $14 million.”
Halliburton agreed to pay some $29.2MM, consisting of $14,000,000 for profit disgorgement, along with prejudgment interest of $1.2 million and a civil penalty of $14,000,000. The company also agreed to an 18 month Monitorship (termed ‘Independent Consultant’ in the Order) where the role “responsibility is to review and evaluate Respondent’s anti-corruption policies and procedures, including policies and procedures related to retaining local content and the use of single source justifications, for Respondent’s business operations in Africa” and to make recommendations on them. Additionally, “The Independent Consultant shall consider whether the ethics and compliance function has sufficient resources, authority, and independence, and provides sufficient training and guidance to the business operations in Africa”. The individual involved, Lorenz, agreed to a civil penalty of $75,000.
This FCPA enforcement action emphasizes that company’s must do more than have internal compliance controls, they must also be effective. The Order is replete with examples where the company allowed the internal controls to be disregarded or over-ridden. Even the company’s internal audit reports were not followed up on, when they noted deficiencies in the contracting process. As bribery and corruption schemes become more sophisticated, we will likely see more enforcement actions like this Halliburton FCPA enforcement action. Chief Compliance Officers (CCOs) and compliance professionals need to take note that in high risk jurisdictions internal controls must be enforced and followed to be effective. Additional auditing, monitoring and testing should be routinely performed to ensure that policies and procedures are not only in place, but being followed.
As for myself, I think this weekend I will settle down with the full five seasons of The Rocky and Bullwinkle Show as my personal tribute to June Foray.
To watch and listen to the Opening Theme of Rocky and Bullwinkle on YouTube, click here.
The Halliburton FCPA enforcement action drives home the requirement that internal controls must be effective.Click to tweet
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© Thomas R. Fox, 2017