Chevron Corp. has agreed to pay $30 million to settle charges that it made illegal kickbacks to Iraq for oil purchased in 2001 and 2002 under the United Nations' oil-for-food program.
The Securities and Exchange Commission on Wednesday said Chevron agreed to the settlement brought under the Foreign Corrupt Practices Act without admitting or denying the allegations. But the U.S. Attorney for the Southern District of New York said the second-largest U.S. oil company still could be prosecuted for criminal tax violations.
Chevron agreed to remit $25 million in profits and pay a $3 million civil penalty. The company also will pay the Treasury Department's Office of Foreign Asset Controls $2 million.
Four other companies have agreed to settle SEC corruption charges stemming from alleged kickbacks to Saddam Hussein's regime: oil and gas company El Paso Corp., diversified manufacturer Textron Inc., diversified industrial company Ingersoll-Rand Co., and York International Corp., which was purchased in 2005 by auto supplier Johnson Controls Inc. Chevron's financial penalty is by far the largest of the five.
The SEC said in its complaint that Chevron found out in 2001 that Iraq's State Oil Marketing Organization was demanding surcharges, and that the San Ramon, California-based company adopted a policy prohibiting payment.
The company then purchased, through intermediaries, about 78 million barrels of crude oil from Iraq under 36 contracts between April 2001 and May 2002. But these traders failed to follow the company's prohibition against kickbacks, and Chevron's management did not ensure compliance, the SEC said.
One person whose company occasionally sold oil to Chevron said Chevron's trader and his bosses always knew about the illegal surcharge demands by Iraq. The Chevron trader asked the seller to persuade Iraq to reduce the amount of its surcharges, according to the SEC complaint.
"The U.S. government advises us that one former Chevron crude oil trader participated in transactions when he knew or should have known that surcharges were to be paid by the third party merchants from which Chevron purchased the crude oil," company spokesman Donald Campbell said in a prepared statement. "There are no allegations that Chevron paid surcharges and the trader is no longer affiliated with Chevron."
The oil-for-food program, which ran from 1996 to 2003, was created to help Iraqis cope with U.N. sanctions imposed after Saddam Hussein's 1990 invasion of Kuwait. It let the Iraqi government sell oil primarily to buy humanitarian goods. It was later found that the program was often used as a means to funnel kickbacks.
Chevron will satisfy its $25 million profit obligation by forfeiting $20 million under an agreement with the U.S. Attorney's Office for the Southern District of New York and paying $5 million under an agreement with the Manhattan District Attorney's Office.