On February 11, 2009, the SEC announced settlements with KBR, Inc., and Halliburton Company to resolve SEC charges that KBR subsidiary Kellogg Brown & Root LLC bribed Nigerian government officials over a 10-year period, in violation of the FCPA, in order to obtain construction contracts. The SEC also charged that KBR and Halliburton engaged in books and records violations and internal controls violations related to the bribery. 1 The SEC had alleged that beginning as early as 1994, members of the joint venture determined that it was necessary to pay bribes to officials within the Nigerian government in order to obtain the construction contracts.

The former CEO of the predecessor entities, Albert "Jack" Stanley, and others involved in the joint venture met with high-ranking Nigerian government officials and their representatives on at least four occasions to arrange the bribe payments. To conceal the illicit payments, the joint venture entered into sham contracts with two agents, one based in the United Kingdom (U.K.) and one based in Japan, to funnel money to Nigerian officials. The SEC complaint describes a "cultural committee" to decide how to carry out the bribery scheme. The committee decided to use the U.K. agent to make payments to highranking Nigerian officials and to use the Japanese agent to make payments to lower-ranking Nigerian officials.

The joint venture took payments on a construction project, and in turn made payments to the Japanese agent and to the Swiss and Monaco bank accounts of the U.K. agent. The total payments to the two agents exceeded $180 million. After receiving the money, the U.K. agent made substantial payments to accounts controlled by Nigerian government officials and, beginning in 2002, paid $5 million in cash to a Nigerian political party. The SEC's complaint also alleged that the internal controls of Halliburton, the parent company of the KBR predecessor entities from 1998 to 2006, failed to detect or prevent the bribery, and that Halliburton records were falsified as a result of the bribery scheme.

In September 2008, Stanley pleaded guilty to bribery and related charges and entered into a settlement with the SEC. Stanley's high profile and punishment-he faces a potential seven-year sentence, the longest in the history of the federal statute outlawing the bribing of foreign officials-also signal the federal government's willingness to seek long prison terms rather than fines and court injunctions. Without admitting or denying the SEC's allegations, KBR and Halliburton consented to be permanently enjoined from violating the antibribery, records, and internal control provisions in SEC laws. The SEC also imposed an independent consultant for Halliburton to review its policies and procedures as they relate to compliance with the FCPA. As a result of the indemnity and the KBR subsidiary's criminal plea, Halliburton has agreed to pay $559 million (including $177 million in disgorgement) of $579 million in criminal fines payable by KBR, with KBR consenting to pay the remaining $20 million.

Questions
1. The mission of a global group called Transparency International is to stop corruption and promote transparency, accountability, and integrity at all levels and across all sectors of society. The organization's "Core Values" are transparency, accountability, integrity, solidarity, courage, justice, and democracy. Each year, the organization evaluates business corruption in each country and produces a Corruptions Perception Index (CPI). The 2012 CPI ranks Nigeria 139 of 174 nations. Exhibit 1 provides a complete set of rankings. Writing for Transparency International, Chinyere Nwafor states that "One of the reasons why there are so many foreign bribery cases going on related to Nigeria is basically that corruption in Nigeria is deeply entrenched in almost every area of the public sector .

"2 In Nigeria, facilitating payments called "dash" are a way of life and necessity to get things done. Given the apparent corrupt culture in Nigeria, why shouldn't U.S. businesses just consider payoffs to Nigerian officials as a cost of doing business in that country and not a payment in violation of the FCPA?

2. Comment on the following statement from a values perspective: "Ethics must be global, not local."

3. Use ethical reasoning to respond to the following statement by a U.S. executive: Bribery is bad for business. Bribery is inefficient; it's wasteful. It often doesn't accomplish what its original purpose was. You may be competing with another company that may ultimately out-bribe you. And then at the end of the day, of course, there is a huge risk that the bribery is uncovered, that you are the subject of a protracted investigation. And the costs can be quite, quite high at the end of the day. The court opined that it would have no difficulty finding a duty in this case, in the absence of a specific financial transaction, if it can be shown that P&T intended the shareholders to rely on the financial statements for the purpose of evaluating the financial health of the company and, therefore, their investment in the company.

In this case, the "particular transaction" contemplated by the Restatement relates to the purpose for which the financial statements would be used-the shareholders' decision whether to withdraw capital or not. While it remains to be proved that P&T actually did foresee that its financial statements would be used by the shareholders in this manner, the absence of a particular financial transaction does not preclude the finding of a duty in this case. Because the value of the shareholders' investment was limited to the amounts reflected in the company balance sheets, any loss from malpractice was an insurable risk for which accounting professionals can plan. 9 Further, the accountants may have further curtailed their exposure by placing an appropriate disclaimer on the financial statements to warn shareholders that they rely on the financial statements at their peril. 

Therefore, the policy that would justify limits on accountant liability would not apply if the requisite intent were found. The defendants argued that the plaintiff's theory of damages is speculative and against public policy. Anjoorian based his damage claims on the assertion that he relied on four annual audited financial statements to evaluate the status of his $1.26 million investment in FCC.

Because the statements failed to include a loan loss reserve figure, he argued that the statements overstated the value of the corporation at the end of each year from 1990 to 1993. When Anjoorian sought dissolution in 1994, the value he obtained for his shares was significantly less than his expectation. He contended that if he had accurate financial information, he would have liquidated his investment earlier when his shares were more valuable. At issue was the existence and amount of the loan loss reserve.

An appraiser of the value of the corporation in the dissolution action determined that the inclusion of a loan loss reserve in the financial statements was proper, and that created a genuine issue as to whether a breach of the duty of care occurred. The defendant had questioned the computation of the loan loss reserve but the court disagreed. (A detailed analysis of the amount of loan loss reserve has been omitted.)

Questions
1. The auditors (P&T) claimed to have no duty to Anjoorian as a shareholder of FCC. The Rhode Island Supreme Court acknowledged that the duty of accounting professionals to third parties is an open question in the state, but it did identify at least three competing views: the foreseeability test, the near-privity test, and the Restatement test. Briefly describe the legal reasoning with respect to each of the three liability standards and how they pertain to the facts of the case.

2. The court decision refers to the importance of the auditors' knowing about third-party usage of the audited financial statements. What role does such knowledge play in enabling auditors to meet their professional and ethical responsibilities?