Pump Maker Settles In Iraqi Oil-for-Food Kickback Scheme
By Dan Caterinicchia
February 22, 2008
The Washington Post
Original Source: http://www.washingtonpost.com/wp-dyn/content/article/2008/02/21/AR2008022103345.html
http://financial.washingtonpost.com/custom/wpost/html-qcn.asp?dispnav=business&mwpage=qcn&symb=FLS&nav=el \t  Flowserve, a maker of pumps and valves for the energy sector, has agreed to pay more than $10.5 million in penalties for making illegal kickbacks through the http://www.washingtonpost.com/ac2/related/topic/United+Nations?tid=informline \t  United Nations' oil-for-food program, the http://www.washingtonpost.com/ac2/related/topic/U.S.+Department+of+Justice?tid=informline \t  Justice Department said yesterday. 
Flowserve will pay $4 million as part of an agreement with the Justice Department and more than $6.5 million under a settlement with the http://www.washingtonpost.com/ac2/related/topic/U.S.+Securities+and+Exchange+Commission?tid=informline \t  Securities and Exchange Commission. The investigation is being conducted by the Justice Department and the http://www.washingtonpost.com/ac2/related/topic/Federal+Bureau+of+Investigation?tid=informline \t  FBI, with assistance from the SEC. 
The Justice Department said Flowserve acknowledged responsibility for the actions of its subsidiary, whose employees and agents paid kickbacks to the Iraqi government in order to obtain contracts for the sale of large-scale water pumps and spare parts for use in Iraqi oil refineries. 
From July 2002 to February 2003, employees of the subsidiary, Flowserve Pompes, paid more than $600,000 and offered to pay $174,000 more in kickbacks to the Iraqi government by inflating the price of contracts before submitting them to the U.N. for approval. The company's French and Dutch subsidiary also concealed that the contract prices contained a kickback to the Iraqi government. 
Under the SEC settlement, Flowserve agreed to pay a $3 million civil penalty and more than $3.5 million to return all profit associated with contracts. 
Chief executive Lewis M. Kling said in a statement that Flowserve fully cooperated with the agencies' inquiries and that the settlement amounts were in line with the accruals disclosed in November in its third-quarter financial statements. 
Because of the company's review of the improper payments and new compliance policies, the Justice Department said it will defer prosecution of Flowserve Pompes for three years and will dismiss the criminal information if all agreement terms are met. 
Operating from 1996 to 2003, the oil-for-food program was designed to let the Iraqi government sell oil primarily to buy food and medicine for its citizens. By 2000, http://www.washingtonpost.com/ac2/related/topic/Saddam+Hussein?tid=informline \t  Saddam Hussein's regime began insisting that kickbacks be paid to secure oil contracts. Sanctions had been imposed after http://www.washingtonpost.com/ac2/related/topic/Iraq?tid=informline \t  Iraq invaded http://www.washingtonpost.com/ac2/related/topic/Kuwait?tid=informline \t  Kuwait, which led to the http://www.washingtonpost.com/ac2/related/topic/Persian+Gulf?tid=informline \t  Persian Gulf War. 
An investigation led by former http://www.washingtonpost.com/ac2/related/topic/U.S.+Federal+Reserve?tid=informline \t  Federal Reserve chairman http://www.washingtonpost.com/ac2/related/topic/Paul+Volcker?tid=informline \t  Paul Volcker concluded in October 2005 that 2,200 companies from about 40 countries had colluded with Hussein's regime to bilk the humanitarian program of $1.8 billion.