Extracted from Global Business Today 5th ed, By Charles W.L.Hill
Case 1: (see page 152-153)
In 1998, the large Texas-based oil and gas service firm Halliburton acquired Dresser Industries. Among other businesses, Dresser owned M.W. Kellogg, one of the world's largest general contractors for construction projects in distant parts of the globe. After the acquisition, Kellogg was combined with an existing Halliburton business and renamed Kellogg, Brown & Root, or KBR for short. At the time it looked like a good deal for Halliburton. Among other things, Kellogg was involved in a four-firm consortium that was building a series of liquefied natural gas (LNG) plants in Nigeria. By early 2004, the total value of the contracts associated with these plants had exceeded $8 billion.
In early 2005, however, Halliburton put KBR up for sale. The sale was seen as an attempt by Halliburton to distance itself from several scandals that had engulfed KBR. One of these concerned allegations that KBR had systematically overcharged the Pentagon for services it provided to the U.S. military in Iraq. Another scandal centered on the Nigerian LNG plants and involved KBR employees, several former officials of the Nigeria government, and a mysterious British lawyer named Jeffrey Tesler.
The roots of the Nigerian scandal date back to 1994 when Kellogg and its consortium partners were trying to win an initial contract from the Nigerian government to build two LNG plants. The contract was valued at around $2 billion. Each of the four firms held a 25 percent stake in the consortium, and each had veto power over its decisions. Kellogg employees held many of the top positions at the consortium, and two of the other members, Technip of France and JGC of Japan, have claimed that Kellogg managed the consortium (the fourth member, ENI of Italy, has not made any statement regarding management).
The KBR consortium was one of two to submit a bid on the initial contract, and its bid was the lower of the two. By early 1995, the KBR consortium was deep in final negotiations on the contract. It was at this point that Nigeria's oil minister had a falling out with the country's military dictator, General Abacha, and was replaced by Dan Etete. Etete proved to be far less accommodating to the KBR consortium, and suddenly the entire deal looked to be in jeopardy. According to some observers, Etete was a tough customer who immediately began to use his influence over the LNG project for personal gain. Whether this is true or not, what is known is that at the KBR consortium quickly entered into a contract with Jeffrey Tesler, the British lawyer. The contract, signed by a Kellogg executive, called on Tesler to obtain government permits for the LNG project, maintain good relations with government officials, and provide advice on sales strategy. Tesler's fee for these services was $60 million.
Tesler, it turned out, had long-standing relations with some 20 to 30 senior Nigeria government and military officials. In his capacity as a lawyer, for years he had handled the London affairs of those officials, helping them to purchase real estate and set up financial accounts. Kellogg had a relationship with Tesler that dated back to the mid-1980s, when they had employed him to broker the sale of Kellogg's minority interest in a Nigerian fertilizer plant to the Nigerian government.
What happened next is currently the subject of government investigations in France, Nigeria, and the United States. The suspicion is that Tesler promised to funnel big sums to Nigerian government officials if the deal was done. Investigators base these suspicions on a number of factors, including the known corruption of General Abacha's government, the size of the payment to Tesler, which seemed out of all proportion to the services he was contracted to provide, and a series of notes turned up by internal investigators at Halliburton. The handwritten notes, taken by Wojciech Chodan, a Kellogg executive, document a meeting between Chodan and Tesler in which they discussed the possibility of channeling $40 million of Tesler's $60 million payment to General Abacha. It is not known whether a bribe was actually paid. What is known is that in December 1995, Nigeria awarded the $2 billion contract to the KBR consortium. The LNG plant soon became a success. Nigeria contracted to build a second plant in 1999, two more in 2002, and a sixth in July 2004. KBR rehired Jeffrey Tesler in 1999 and again in 2001 to help secure the new contracts, all of which it won. In total, Tesler was paid some $132.3 million from 1994 through to early 2004 by the KBR consortium.
Tesler's involvement in the project might have remained unknown were it not for an unrelated event. Georges Krammer, an employee of the French company Technip, which along with KBR was a member of the consortium, was charged by the French government for embezzlement. When Technip refused to defend Krammer, he turned around and aired what he perceived to be Technip's dirty linen. This included the payments to Tesler to secure the Nigeria LNG contracts.
This turn of events led French and Swiss officials to investigate Tesler's Swiss bank accounts. They discovered that Tesler was kicking back some of the funds he received to executives in the consortium and at subcontractors. One of the alleged kickbacks was a transfer of $5 million fromTesler's account to that of Albert J. "Jack" Stanley, who was head of M.W. Kellogg and then Halliburton's KBR unit. Tesler also transferred some $2.5 million into Swiss bank accounts held under a false name by the Nigerian oil minister Dan Etete.
Other payments included a $1 million transfer into an account controlled by Wojciech Chodan, the former Kellogg executive whose extensive handwritten notes suggest the payment of a bribe to General Abacha, and $5 million to a German subcontractor on the LNG project in exchange for "information and advice."
After this all came out in June 2004, Halliburton promptly fired Jack Stanley and severed its long-standing relationship with Jeffrey Tesler, asking its three partners in the Nigeria consortium to do the same. The U.S. Justice Department took things further, establishing a grand jury investigation to determine if Halliburton, through its KBR subsidiary, had been in violation of the Foreign Corrupt Practices Act. In November 2004, the Justice Department widened its investigation to include payments in connection with the Nigeria fertilizer plant that Kellogg had been involved with during the 1980s under the leadership of Jack Stanley. In March 2005, the Justice Department also stated that it was looking at whether Stanley had tried to coordinate bidding with rivals and fix prices on certain foreign construction projects.
Case Discussion Questions
1. Could the alleged payment of bribes to Nigerian government officials by Jeffrey Tesler be considered facilitating payments or speed money under the terms of the Foreign Corrupt Practices Act?
2. Irrespective of the legality of any payments Tesler may have made, do you think it was reasonable for KBR to hire him as an intermediary?
3. Given the known corruption of the Abacha government in Nigeria, should Kellogg and its successor, KBR, have had a policy in place to deal with bribery and corruption? What might that policy have looked like?
4. Should Kellogg have walked away from the Nigerian LNG project once it became clear that the payment of bribes might be required to secure the contract?
5. There is evidence that Jack Stanley, the former head of M.W. Kellogg and KBR, may have taken kickback payments from Tesler. At least one other former Kellogg employee, Wojciech Chodan, may have taken kickback payments. What does this tell you about the possible nature of the ethical climate at Kellogg and then KBR?
6. Should Halliburton be called to account if it is shown that its KBR unit used bribery to gain business in Nigeria? To what extent should a corporation and its officers be held accountable for ethically suspect activities by the managers in one of its subsidiaries, particularly given that many of those activities were initiated before the subsidiary was owned by Halliburton?
Case 2: Refer: Global business today Text: chapter two (read the opening case: Country focus on India) and answer the case discussion questions in item 6(page 83).
Case 3: Refer: Global business today Text: chapter two (read the closing case: Country focus on Indonesia - The Trouble Giant) and answer the case discussion questions (page 84-85).