General Electric Co. will pay $23.4 million to settle federal charges that some of its subsidiaries paid illegal kickbacks to the Iraqi government in order to win contracts under a U.N. program.
The Securities and Exchange Commission said in a civil complaint filed Tuesday in federal court that GE subsidiaries gave cash, computers, medical supplies and other goods worth $3.6 million to the Iraqi health and oil ministries from 2000 to 2003.
The SEC alleged the kickbacks were in return for contracts to supply medical and water purification equipment under the United Nations' oil-for-food program, which provided humanitarian aid to prewar Iraq.
Cheryl Scarboro, head of the SEC's Foreign Corrupt Practices Act unit, said GE "failed to maintain adequate internal controls to detect and prevent these illicit payments."
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GE agreed to pay a $1 million penalty and give up about $22.5 million in profit and interest earned from the transactions. The company does not admit or deny wrongdoing under the settlement. GE also said that the Department of Justice has closed its own investigation into the matter.
"This conduct does not meet our standards, and we believe that it is in the best interests of GE and its shareholders to resolve this matter now," the company said in a statement.
The U.N.'s oil-for-food program was meant to allow aid such as medical supplies and food to flow into Iraq despite tough international sanctions against the government of Saddam Hussein. Iraq sold $64.2 billion of crude oil and bought $34.5 billion of supplies through the program.
But it was also rife with corruption. According to the SEC, all Iraqi ministries demanded a 10 percent kickback on each contract. The federal government has brought similar charges against several other companies, including Chevron, Textron and Ingersoll-Rand.
The SEC said the GE case involves four subsidiaries, two owned by the conglomerate at the time of the alleged kickbacks and two that GE acquired after 2003. Two of the units, Ionics Inc. of Burlington, Ma., and the British firm Amersham PLC, are also named as defendants.
In some cases, the subsidiaries made payments, while in others, they provided goods and services instead, according to GE. A total of 18 contracts were involved. GE said 14 of the contracts were awarded before GE was involved, but that it assumed liability when it acquired the subsidiaries.