Quarterly Report — Form 10-Q Filing Table of Contents
Document/ExhibitDescriptionPagesSize
1: 10-Q Quarterly Report HTML 281K
2: EX-3.1 Certificate of Amendment HTML 48K
3: EX-3.2 Blyaws HTML 91K
4: EX-10.1 Agreement of Resignation, Appointment and HTML 19K
Acceptance
5: EX-10.4 Deferred Prosecution Agreement HTML 93K
6: EX-10.5 Plea Agreement HTML 82K
7: EX-31.1 Certification of Chief Executive Officer HTML 13K
8: EX-31.2 Certification of Chief Financial Officer HTML 13K
9: EX-32 Statement of Chief Executive Officer and Chief HTML 11K
Financial Officer
10: EX-99.1 Baker Hughes Incorporated Information Document HTML 55K
11: EX-99.2 Baker Hughes Service International, Inc. HTML 53K
Information Document
12: EX-99.3 Sentencing Memorandum and Motion for Waiver HTML 56K
13: EX-99.4 Baker Hughes Services International, Inc. HTML 35K
Sentencing Letter
14: EX-99.5 The Complaint by the SEC V. Baker Hughes HTML 109K
Incorporated
15: EX-99.6 News Release HTML 26K
UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
:
UNITED STATES OF AMERICA
:
v.
:
NO:H-07-129
:
BAKER
HUGHES SERVICES
:
PLEA AGREEMENT
INTERNATIONAL, INC.,
:
:
Defendant
:
:
The United States of America, by and through Mark F. Mendelsohn, Deputy Chief, and John A.
Michelich, Senior Trial Attorney, United States Department of Justice, Criminal Division, Fraud
Section (the “Department” or the “Fraud Section”), the defendant, BAKER HUGHES SERVICES
INTERNATIONAL, INCORPORATED (“BHSI”), and the defendant’s counsel, Reid M. Figel, Esq., Kellogg,
Huber, Hansen, Todd, Evans & Figel, P.L.L.C., pursuant to Rule 11(c)(1)(B) of the Federal Rules of
Criminal Procedure, state that they have entered into an agreement, the terms and conditions of
which are as follows:
The Defendant’s Agreement
1. Defendant BHSI agrees to waive indictment and plead guilty to a three-count criminal
information filed in the Southern District of Texas charging BHSI with conspiracy to violate the
Foreign Corrupt Practices Act of 1977 (“FCPA”), as amended, 15 U.S.C. §§ 78dd-1, et. seq., in
violation of 18 U.S.C. § 371 (Count One); a substantive violation of the FCPA, 15 U.S.C. §
78dd-2(a) (Count Two); and aiding and abetting the falsification of books and records in violation
of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a), and 18 U.S.C. § 2 (Count
Three). The defendant further agrees to persist in that plea through sentencing and, as set
forth below, to fully cooperate with the United States.
2. This plea agreement is between the Department and the defendant BHSI, and does not bind any
other division or section of the Department of Justice or any other federal, state, or local
prosecuting, administrative, or regulatory authority. This agreement does not apply to any other
charges other than those specifically mentioned herein. However, the Department will bring this
Agreement and the cooperation of BHSI, its direct or indirect affiliates, subsidiaries, and parent
corporations, to the attention of other prosecuting authorities or other agencies, if requested.
3. Defendant agrees that this Agreement will be executed by an authorized corporate
representative. Defendant further agrees that a Resolution duly adopted by the Board of Directors
of Baker Hughes, on behalf of its subsidiary BHSI, in the form attached to this Agreement as
Exhibit 3, or in a substantially similar form, represents that the signature on this Agreement by
BHSI and its counsel are authorized by the Board of Directors of Baker Hughes, on behalf of its
subsidiary BHSI.
4. Defendant BHSI agrees that it has the full legal right, power and authority to enter into
and perform all of its obligations under this Agreement and defendant agrees to abide by all terms
and obligations of this Agreement as described herein.
5. Defendant agrees that any fine or restitution imposed by the Court will be due and payable
within five (5) business days from the date of sentencing, and defendant will not attempt to avoid
or delay payments. Defendant further agrees to pay the Clerk of the Court for the
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United States District Court for the Southern District of Texas the mandatory special
assessment within five (5) business days from the date of sentencing.
6. Defendant agrees that if the company or any of its direct or indirect affiliates,
subsidiaries, or parent corporations issues a press release in connection with this Agreement,
Defendant shall first consult the Department to determine whether the text of the release is
acceptable, and shall only issue a press release that has been deemed acceptable to the Department.
7. Defendant BHSI agrees that in the event it sells, merges or transfers all or substantially
all of its business operations as they exist as of the date of this Agreement, whether such sale(s)
is/are structured as a stock or asset sale, merger, or transfer, BHSI shall include in any contract
for sale, merger or transfer, a provision fully binding the purchaser(s) or any successor(s) in
interest thereto to the obligations described in this Agreement.
The United States’ Agreement
8. In exchange for the corporate guilty plea of BHSI and the complete fulfillment of all of
its obligations under this Agreement, the Department agrees not to file additional criminal charges
against BHSI for any of the corrupt payments described in the Statement of Facts attached as
Exhibit 1. This Agreement will not close or preclude the investigation or prosecution of any
natural persons, including any officers, directors, employees, agents or consultants of BHSI, or of
any other Baker Hughes entity, including all of its direct or indirect affiliates, subsidiaries, or
parent corporations, who may have been involved in any of the matters set forth in the Information,
Statement of Facts or in any other matters.
Factual Basis
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9. Defendant BHSI is pleading guilty because it is guilty of the charges contained in the
Information. Defendant BHSI agrees and stipulates that the factual allegations set forth in the
Information are true and correct, that it is responsible for the acts of its officers and employees
described in the Statement of Facts attached hereto and incorporated herein as Exhibit 1, and that
the Statement of Facts accurately reflects its criminal conduct.
Defendant’s Obligations
10. Defendant BHSI agrees:
a. To plead guilty as set forth in this Agreement;
b. To abide by all sentencing stipulations contained in this Agreement;
c. To: (i) appear, through its duly appointed representatives, as ordered for all court
appearances; and (ii) obey any other ongoing court order in this matter;
d. To commit no further crimes;
e. To be truthful at all times with the Court;
f. To pay the applicable fine and special assessment;
g. To create and implement a Compliance Code which, at a minimum, contains all of the
obligations and provisions described in the Compliance Code attached as Exhibit 2 hereto and
incorporated herein; and
h. To ensure that in the event BHSI sells, merges or transfers all or substantially all of its
business operations as they exist as of the date of this Agreement, whether such sale(s) is/are
structured as a stock or asset sale, merger or transfer, BHSI shall include in any contract for
sale, merger, or transfer a provision fully binding the purchaser(s) or any
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successor(s) in interest thereto to the obligations described in this Agreement, including the
obligations described in Exhibit 2 with respect to a Compliance Code.
11. BHSI shall continue to cooperate fully with the Department, and with all other authorities
and agencies designated by the Department, and shall truthfully disclose all information with
respect to the activities of BHSI and its present and former directors, officers, employees,
agents, consultants, contractors and subcontractors thereof, concerning all matters relating to
corrupt payments in connection with their operations, related false books and records, and
inadequate internal controls about which BHSI has any knowledge or about which the Department shall
inquire. This obligation of truthful disclosure includes the obligation of BHSI to provide to the
Department, upon request, any document, record, or other tangible evidence relating to such corrupt
payments, books and records, and internal controls about which the Department shall inquire of
BHSI.
a. The Department specifically reserves the right to request that BHSI provide the Department
with access to information, documents, records, facilities and/or employees that may be subject to
a claim of attorney-client privilege and/or the attorney work-product doctrine.
b. Upon written notice to the Department, BHSI specifically reserves the right to withhold
access to information, documents, records, facilities and/or employees based upon an assertion of a
valid claim of attorney-client privilege or application of the attorney work-product doctrine.
Such notice shall include a general description of the nature of the information, documents,
records, facilities and/or employees that are being withheld, as well as the basis for the claim.
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c. In the event that BHSI withholds access to the information, documents, records, facilities
and/or employees of BHSI, the Department may consider this fact in determining whether BHSI has
fully cooperated with the Department.
d. Except as provided in this paragraph, BHSI shall not withhold from the Department, any
information, documents, records, facilities and/or employees on the basis of an attorney-client
privilege or work product claim.
Waiver of Constitutional Rights
12. BHSI knowingly, intelligently, and voluntarily waives its right to appeal the conviction
in this case. BHSI similarly knowingly, intelligently, and voluntarily waives the right to appeal
the sentence imposed by the court. In addition, BHSI knowingly, intelligently, and voluntarily
waives the right to bring a collateral challenge pursuant to 28 U.S.C. § 2255, challenging either
the conviction, or the sentence imposed in this case, except for a claim of ineffective assistance
of counsel. BHSI waives all defenses based on the statute of limitations and venue with respect to
any prosecution that is not time-barred on the date that this Agreement is signed in the event
that: (a) the conviction is later vacated for any reason; (b) BHSI violates this Agreement; or (c)
the plea is later withdrawn. The Department is free to take any position on appeal or any other
post-judgment matter.
Penalty Range
13. The statutory maximum sentence that the Court can impose for a violation of Title 18,
United States Code, Section 371 is a fine of $500,000 or twice the gross gain or gross loss
resulting from the offense, whichever is greatest, 18 U.S.C. §§ 3571(c)(3) and (d); five years’
probation, 18 U.S.C. § 3561(c)(1); and a mandatory special assessment of $400, 18 U.S.C. §
6
3013(a)(2)(B). The statutory maximum sentence that the Court can impose for a violation of
Title 15, United States Code, Section 78dd-2, et seq., is a fine of $2,000,000 or twice the gross
gain or gross loss resulting from the offense, whichever is greatest, 15 U.S.C. § 78dd-2(g)(1)(A),
18 U.S.C. § 3571(d), five years’ probation, 18 U.S.C. § 3561(c)(1), and a mandatory special
assessment of $400, 18 U.S.C. § 3013(a)(2)(B). The statutory maximum sentence that the Court can
impose for a violation of Title 15, United States Code, Section 78m(b)(2)(A) is a fine not
exceeding $25,000,000, 15 U.S.C. § 78ff(a); five years’ probation, 18 U.S.C. § 3561(c)(1), and a
mandatory special assessment of $400, 18 U.S.C. § 3013(a)(2)(B). The statutory maximum sentences
for multiple counts can be aggregated and may run consecutively.
14. Calculation of Fine. The parties stipulate that the 2003 Guidelines Manual
applies to this matter and to the factual predicates set forth below and that the following is the
proper application of the sentencing guidelines to the offense alleged in the Information:
a. Calculation of Offense Level
Base Offense Level (U.S.S.G. § 2C1.1(a)):
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Benefit received or to be received of approximately
$19 million (U.S.S.G. §§ 2C1.1(b)(2)(a), 2B 1.1(b)(1)(K)):
+20
TOTAL OFFENSE LEVEL:
30
b. Calculation of Culpability Score:
Base Score (U.S.S.G. § 8C2.5(a)):
5
Involvement in or tolerance of criminal activity
in an organization of 200 or more employees and
an individual within high level personnel of the
organization participated in, condoned, or was willfully
ignorant of the offense (U.S.S.G. § 8C2.5(b)(3)(A)):
+ 3
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Prior history: Commission of the offense less than
5 years after a civil or administrative adjudication
based on two or more separate instances of similar
misconduct (U.S.S.G. § 8C2.5(c)(2)):
+ 2
Self-reporting, cooperation, acceptance
of responsibility (U.S.S.G. § 8C2.5(g)(1)):
- 5
TOTAL CULPABILITY SCORE:
5
c. Calculation of Fine Range:
Base Fine: Greater of the amount from table in
U.S.S.G. § 8C2.4(a)(1) & (d) corresponding to offense
level of 30 ($10,500,000), or the pecuniary gain to the
organization from the offense ($19,000,000)
(U.S.S.G. § 8C2.4(a)(2)):
$
19,000,000
Multipliers, culpability score of 5 (U.S.S.G. § 8C2.6):
1.00 - 2.00
Fine Range (U.S.S.G. § 8C2.7):
$
19,000,000 –$38,000,000
d. The parties agree that the offenses of conviction should
be grouped together for purposes of sentencing pursuant
to U.S.S.G. § 3D1.2.
Sentencing Factors
15. The parties agree that pursuant to United States v. Booker, 543 U.S. 220 (2005),
the Court must determine an advisory sentencing guideline range pursuant to the United States
Sentencing Guidelines. The Court will then determine a reasonable sentence within the statutory
range after considering the advisory sentencing guideline range and the factors listed in 18 U.S.C.
§ 3553(a). The parties’ agreement herein to any guideline sentencing factors constitutes proof of
those factors sufficient to satisfy the applicable burden of proof.
Sentencing Recommendation
16. Fine. Assuming BHSI accepts responsibility as explained above, the parties will
recommend the imposition of a fine in the amount of $11,000,000 payable to the Clerk of the
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Court for the United States District Court for the Southern District of Texas. The parties
further agree that this amount shall be paid as a lump sum within five (5) business days after
imposition of sentence in this matter.
17. The parties have agreed that the fine of $11,000,000 for defendant BHSI is an appropriate
disposition of the case based upon the following factors:
a. By entering and fulfilling the obligations under this Agreement, defendant BHSI has
demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct;
b. The plea underlying this Agreement is a result of the voluntary disclosure made by BHSI and its
parent corporation Baker Hughes Incorporated, through their counsel, to the Department beginning in
May 2003, and the disclosure of evidence obtained as a result of the extensive investigation their
attorneys subsequently conducted into the operations of BHSI, its parent, affiliates, and
subsidiaries;
c. At the time of the initial disclosure, the conduct was unknown to the Department;
d. By entering into a deferred prosecution agreement with the Department, Baker Hughes, the
defendant’s parent corporation has, among other things, agreed to: (i) implement and continue to
implement a compliance and ethics program designed to detect and prevent violations of the FCPA,
U.S. commercial bribery laws and foreign bribery laws throughout its operations, including those of
Baker Hughes and its subsidiaries (including defendant BHSI), affiliates, and successors; and (ii)
engage a monitor.
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18. The parties agree not to seek any adjustments to, or departures from, the agreed upon
payment of $11,000,000 as set forth herein.
19. Organizational Probation. The parties agree that organizational probation is
appropriate in this case and shall include, as a condition of probation, the creation and
implementation of a Compliance Code which, at a minimum, contains all of the obligations and
provisions described in Exhibit 2. The parties recommend a three (3) year term of probation.
20. Community Service. The parties agree that community service need not be ordered
in this case.
21. Forfeiture. The parties agree that forfeiture need not be ordered in this case.
22. Special Assessment. Defendant BHSI further agrees to pay the Clerk of the Court
for the United States District Court for the Southern District of Texas within (5) business days of
the time of sentencing the mandatory special assessment of $400 per count, for a total of $1,200.
23. Waiver of Pre-Sentence Report. The parties further agree, with the permission of
the Court, to waive the requirement for a pre-sentence report pursuant to Federal Rule of Criminal
Procedure 32(c)(1)(A), based on a finding by the Court that the record contains information
sufficient to enable the Court to meaningfully exercise its sentencing power. However, the parties
agree that in the event the Court orders the preparation of a pre-sentence report prior to
sentencing, such order will not affect the agreement set forth herein.
24. Entry of Guilty Plea and Sentencing. The parties further agree to ask the Court’s
permission to combine the entry of the plea and sentencing into one proceeding, and to conduct the
plea and sentencing hearings of defendant BHSI in one proceeding. However, the parties
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agree that in the event the Court orders that the entry of the guilty plea and sentencing
hearing occur at separate proceedings, such an order will not affect the agreement set forth
herein.
25. Court Not Bound. The Court is not bound by the recommendations of the parties or
those made in any pre-sentence report. Because this Agreement is made under Rule 11(c)(1)(B) of
the Federal Rules of Criminal Procedure, BHSI may not withdraw any guilty plea or rescind this Plea
Agreement if the Court does not follow the agreements or recommendations herein.
26. Full Disclosure/Reservation of Rights. In the event the Court directs the
preparation of a pre-sentence report, the Department will fully inform the preparer of the
pre-sentence report and the Court of the facts and law related to BHSI’s case. Except as set forth
in this Agreement, the parties reserve all other rights to make sentencing recommendations and to
respond to motions and arguments by the opposition.
Breach of Agreement
27. If the Department determines, in its sole discretion, that BHSI has committed any federal
crimes subsequent to the date of this Agreement, has provided deliberately false, incomplete, or
misleading information under this Agreement, or has otherwise breached the Agreement, the
Department is relieved of its obligations under this Agreement but BHSI may not withdraw any guilty
plea.
28. In the event of a breach of this Agreement by BHSI, if the Department elects to pursue
criminal charges, or any civil or administrative action that was not filed as a result of this
Agreement, then:
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a. BHSI agrees that any applicable statute of limitations is tolled between the date of BHSI’s
signing of this Agreement and the discovery by the Department of any breach by the defendant; and
b. BHSI gives up all defenses based on the statute of limitations, any claim of pre-indictment
delay, or any speedy trial claim with respect to any such prosecution or action, except to the
extent that such defenses existed as of the date of the signing of this Agreement.
Complete Agreement
29. This document states the full extent of the agreement between the parties. There are no
other promises or agreements, express or implied. Any modification of this Plea Agreement shall be
valid only if set forth in writing in a supplemental or revised plea agreement signed by all
parties.
Senior Trial Attorney, Fraud Section
United States Department of Justice
Fraud Section, Criminal Division
10th & Constitution Avenue, NW Washington, D.C.20530
(202) 514-7023
Filed at Houston, Texas, on this 11 day of April, 2007.
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EXHIBIT 1
STATEMENT OF FACTS
The following Statement of Facts is incorporated by this reference as part of the Plea
Agreement (“Agreement”) between the United States Department of Justice (the “Department”) and
Baker Hughes Services International, Inc. (“BHSI”), and the parties hereby agree and stipulate that
the following information is true and accurate. As set forth in Paragraph 9 of the Agreement, BHSI
accepts and acknowledges that it is responsible for the acts of its officers and employees as set
forth below. If this matter were to proceed to trial, the United States would prove beyond a
reasonable doubt, by admissible evidence, the facts alleged in the Information. This evidence
would establish the following:
Baker Hughes Incorporated
1. Baker Hughes Incorporated (“Baker Hughes”), headquartered in Houston, Texas, was a
corporation organized under the laws of the State of Delaware, with principal offices in Houston,
Texas. Baker Hughes was a global provider of comprehensive oil-field services and products which
it provided through several subsidiaries and operating divisions, and operated in more than 80
countries.
2. Baker Hughes issued and maintained a class of securities registered pursuant to Section
12(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 781) and was required to file periodic
reports with the United States Securities and Exchange Commission under Section 13 of the
Securities Exchange Act (15 U.S.C. § 78m). Accordingly, Baker Hughes was an “issuer” within the
meaning of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1(a).
Baker Hughes Services International, Inc.
3. From in or about 1993 to the present, Baker Hughes maintained BHSI, a wholly owned
subsidiary which was organized under the laws of the State of Delaware and which conducted business
in the Republic of Kazakhstan, the Southern District of Texas and elsewhere. Accordingly, BHSI was
a “domestic concern” within the meaning of the FCPA, (15 U.S.C. § 78dd-2). During the relevant
period, BHSI was engaged in the business of providing comprehensive oil-field services and products
in the Republic of Kazakhstan and elsewhere, and maintained an office in Almaty, Kazakhstan.
4. BHSI regularly sought approval for management decisions from superiors at Baker Hughes
management offices in Houston, Texas. BHSI maintained a bank account at the Chase Bank of Texas,
N.A., in Houston, Texas. For internal accounting purposes, BHSI regularly sent invoices to the
various Baker Hughes operating divisions requesting them to remit funds directly to BHSI’s account
at Chase Bank in Houston. Accordingly, BHSI operated within the territorial jurisdiction of the
United States.
The Karachaganak Project in Kazakhstan
5. The government of the Republic of Kazakhstan managed its national petroleum exploration and
production through Kazakhoil, its state-owned oil company. Kazakhoil is a government
instrumentality and its employees are foreign government officials within the meaning of the
Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-2(h)(2)(A). From time to time, Kazakhoil would
form consortiums, in which Kazakhoil would join with several different oil companies, in order to
undertake collectively particular petroleum exploration and production projects.
2
6. Karachaganak was a giant gas and oil field located in northwestern Kazakhstan. Beginning
in or about 1997, the government of Kazakhstan and Kazakhoil entered into a Final Production
Sharing Agreement with a consortium of four international oil companies known as the Karachaganak
Integrated Organization (“KIO”), for the development and operation of the oil production facilities
in Karachaganak.
7. The four international oil companies formed the Karachaganak Petroleum Operating Company,
B.V. (“KPO”), a company organized and registered under the laws of The Netherlands, which
maintained its principal offices in the Republic of Kazakhstan. KPO was responsible for developing
and operating the Karachaganak field on behalf of all partners in the joint venture. KPO solicited
bids from outside vendors for comprehensive oil-field drilling services and products including
project management, oil drilling and engineering support. In December, 1999, Baker Hughes was
invited to submit a bid to KPO for a contract to provide a wide range of oil-field drilling and
production services for the Karachaganak project.
The Co-Conspirators
8. BHSI Employee A (hereinafter, “Employee A”), who is named in the Information as a
co-conspirator but not as a defendant, was employed as Country Manager and Business Development
Manager of BHSI. Employee A also served as a Business Development Manager and as the Team Leader
for the Karachaganak tender. Employee A’s duties included, among other things, the coordination of
the various Baker Hughes operating divisions with respect to the Baker Hughes bid on the
Karachaganak project. As such, Employee A was an employee of a “domestic concern” within the
meaning of the FCPA, 15 U.S.C. § 78dd-2.
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9. Consulting Firm A, which is named in the Information as a co-conspirator but not as a
defendant, was a consulting firm incorporated and registered as a private limited liability company
in the Isle of Man, where it maintained its principal place of business. Consulting Firm A
maintained a business office in London, United Kingdom, and also maintained a bank account in the
name of Consulting Firm A at Barclay’s Bank in London, United Kingdom. Generally, Consulting Firm
A provided unspecified administrative and consulting services and acted as an agent for companies
doing business in the Republic of Kazakhstan and elsewhere.
10. Agent A, who is named in the Information as a co-conspirator but not as a defendant, was a
director of Consulting Firm A, and acted as the representative of Consulting Firm A and as the
agent for Baker Hughes regarding its bid for Karachaganak. Agent A informed Employee A that a
Kazakhoil official demanded that BHSI pay a commission to Consulting Firm A in order for BHSI to
obtain the Karachaganak contract. Agent A is a citizen of the United Kingdom.
The Baker Hughes Bid for Karachaganak
11. In or about February 2000, Baker Hughes, through BHSI, submitted a consolidated bid to KPO
for various categories of work on the Karachaganak project. The bid was submitted for work to be
performed by Baker Hughes operating divisions Baker Atlas, Baker Oil Tools and INTEQ, and was
coordinated and submitted by Baker Hughes Enterprise Services & Technology Group (“BEST”). BEST
was a team of Baker Hughes business development and enterprise account managers responsible for
coordinating, structuring and marketing Baker Hughes oilfield services for significant contracts
across its various operating divisions, and was not itself a business unit.
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12. Although it was not a member of the KPO consortium, Kazakhoil wielded considerable
influence as Kazakhstan’s national oil company and, in effect, the ultimate award of a contract by
KPO to any particular bidder depended upon the approval of Kazakhoil officials. Kazakhoil was
controlled by officials of the Government of Kazakhstan and, as such, was an “instrumentality” of a
foreign government and its officers and employees were “foreign officials,” within the meaning of
the FCPA, 15 U.S.C. § 78dd-2(h)(2)(A). Baker Hughes understood that KPO’s approval of their bid
for the contract depended heavily on a favorable recommendation from Kazakhoil.
Kazakhoil Officials Direct BHSI to Retain an Agent
13. In or about early September 2000, Baker Hughes managers and executives received unofficial
notification that their bid was successful and that Baker Hughes would win the Karachaganak tender.
Nevertheless, in or about mid-September 2000, a Kazakhoil official demanded that, in order for
Baker Hughes to win the Karachaganak contract, BHSI should pay Consulting Firm A, an agent located
on the Isle of Man, a commission equal to 3.0% of the revenue earned by Baker Hughes on the
Karachaganak contract.
14. On September 17, 2000, Employee A sent an e-mail informing his supervisor that Kazakhoil
officials were demanding that Baker Hughes retain an agent in order to receive approval for the
Karachaganak project and stated, among other things, that “. . . Kazakhoil approached me through an
agent in London stating that to get Kazakhoil approval a 3% commission is required. This as you
know I refused and said that it is utterly outrageous to wait until a contractor is chosen and
start demanding amounts that have been suggested.” Further, Employee A suggested that Baker Hughes
should make a counter-offer to retain the agent only
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for future business which “. . . keeps us clear of any critcism (sic) for this KIO contract.”
Further, Employee A stated, “. . . unless we do something we are not going to get the Kazakhoil
support . . .” and “. . . we are in the driving seat but if one our (sic) competitors comes in with
a pot of gold, it is not going to be our contract.”
15. On September 19, 2000, Employee A sent an e-mail to Agent A, a director of Consulting Firm
A, in London, stating that Employee A had the “green light” from his corporate superiors to proceed
with the agency agreement as proposed.
16. Although Consulting Firm A had performed no services to assist Baker Hughes or BHSI in
preparing and submitting their bid for Karachaganak, BHSI sought and obtained approval from
executives of operating divisions Baker Atlas, Baker Oil Tools, and INTEQ, to retain and pay a
commission to Consulting Firm A of 2.0% of the revenue earned by each operating division in the
Karachaganak project.
17. On or about September 24, 2000, Employee A sent an e-mail to his supervisor and others
informing them that Kazakhoil had rejected the Baker Hughes counter-offer to hire an agent only for
future business in Kazakhstan, and stated “unless we pay a commission relative to the KIO contract
we can say goodbye to this and future business.” Also, Employee A sent an e-mail to Agent A of
Consulting Firm A and attached a side-letter agreement retaining Consulting Firm A as an agent for
BHSI and agreeing to pay a 2.0% commission based upon revenue earned by Baker Hughes on the
Karachaganak contract and 3.0% of revenue for all future services it would perform in Kazakhstan.
In the e-mail, Employee A stated, “You will note the consideration has been greatly increased and
trust this will receive the recognition it deserves in the necessary corners of Kazakhstan in
confirming their support to Baker Hughes.” The side-
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letter, dated September 1, 2000, stated that Consulting Firm A had been retained by Baker
Hughes “. . . in recognition of the said work and assistance given by [Consulting Firm A] towards
Baker Hughes in pursuit of the Karachaganak contract . . .” and that Baker Hughes had decided to
reward Consulting Firm A by payment of consideration equal to 2.0% of the contract revenues.
18. On September 25-26, 2000, Employee A and his supervisor began to canvass officers of
operating divisions Baker Atlas, Baker Oil Tools and INTEQ requesting their agreement to pay their
share of the agency commission. On September 26, 2000, Employee A received an e-mail from his
supervisor directing Employee A not to sign any agency agreement until they had discussed several
remaining issues. On September 27, 2000, Employee A received an e-mail from his supervisor
informing him that the operating divisions had approved the plan to pay a 2.0% to 3.0% commission
to Consulting Firm A for the Karachaganak contract.
19. On September 27, 2000, Employee A signed a “Sales Representation Agreement” on behalf of
BHSI with Consulting Firm A, which was backdated to September 1, 2000. In early October 2000,
officials of KPO notified BHSI and Baker Hughes that the Baker Hughes tender was successful and the
Karachaganak contract was awarded to Baker Hughes. The Integrated Services Contract between KPO
and BHSI became effective on or about October 23, 2000. Thereafter, Baker Hughes and operating
divisions Baker Atlas, Baker Oil Tools and INTEQ, through Baker Hughes’s subsidiary BHSI, performed
services pursuant to the contract with KPO.
Baker Hughes Divisions and BHSI Pay Commissions
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20. On approximately a monthly basis, beginning in May 2001, and continuing through at least
November 2003, BHSI would notify the three Baker Hughes operating divisions of the amount of
commission charges each division owed based upon calculating 2.0% of that division’s revenue for
the month. BHSI sent an invoice to each operating division requesting it to send its commission
payment to the BHSI bank account at Chase Bank in Houston, Texas.
21. Beginning in May 2001, and continuing through at least November 2003, BHSI and Baker
Hughes made commission payments to Consulting Firm A totaling $4,100,162.70, which represented 2.0%
of the revenue earned by Baker Hughes and its sub-contractors on the Karachaganak project. Each
commission payment was wire- transferred from the BHSI bank account at Chase Bank in Houston to an
account in the name of Consulting Firm A at Barclay’s Bank in London, United Kingdom.
22. On the dates set forth below, the following payments were made via wire transfer from a
BHSI bank account at Chase Bank in Houston, Texas, to a bank account maintained by Consulting Firm
A at Barclay’s Bank, in London, United Kingdom:
23. Baker Hughes and BHSI failed to properly account for the purported commission payments to
Consulting Firm A, and failed to describe accurately the transactions in their books and records.
Instead, Baker Hughes and BHSI improperly characterized the payments made as legitimate payments
for, among other things, “commissions,”“fees,” or “legal services.” However, Consulting Firm A
had no office or presence in Kazakhstan and rendered no goods or ancillary agency services to Baker
Hughes or BHSI in Kazakhstan or elsewhere. In fact, the so-
9
called “commission” payments made to Consulting Firm A were bribes, paid and authorized by
employees of BHSI, all or part of which BHSI understood and intended to be transferred to an
undisclosed official or officials of Kazakhoil, in exchange for which Baker Hughes and BHSI would
receive the contract to provide services on the Karachaganak oilfield project.
24. Net revenues realized by Baker Hughes on the Karachaganak project were $189.2 Million.
After offsetting net revenues by the company’s expenses, Baker Hughes recognized a profit of
approximately $19.9 million.
Conclusion
25. Based upon the facts as set forth above, BHSI admits that it is a “domestic concern”
within the meaning of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-2, et seq.; that its
officers, employees and agents made use of and caused the use of the mails and means and
instrumentalities of interstate commerce corruptly in furtherance of a payment of money to
Consulting Firm A, while knowing that all or a portion of the money would be given, directly or
indirectly, to an official of Kazakhoil, an instrumentality of the government of Kazakhstan, for
the purpose of influencing acts and decisions of a foreign official in his official capacity to
secure an improper advantage for Baker Hughes and BHSI, and to assist Baker Hughes in obtaining and
retaining business; and that BHSI aided, abetted and assisted Baker Hughes in failing to accurately
reflect in its books and records the payment of commissions to Consulting Firm A totaling
$4,100,162.70.
Senior Trial Attorney, Fraud Section
United States Department of Justice
Fraud Section, Criminal Division
10th & Constitution Avenue, NW Washington, D.C.20530
(202) 514-7023
Filed at Houston, Texas, on this _______ day of April, 2007.
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EXHIBIT 2
COMPLIANCE CODE
Defendant BHSI represents and agrees, as a condition of organizational probation as set forth
in Paragraph 19 of the Plea Agreement, that it will, at a minimum, undertake the following steps:
1. Adopt a system of internal accounting controls and a system designed to ensure the making
and keeping of accurate books, records, and accounts; and
2. Adopt a rigorous anti-corruption compliance code (“Compliance Code”), as described further
below, that is designed to detect and deter violations of the FCPA, U.S. commercial bribery laws
and foreign bribery laws. The anti-bribery Compliance Code applicable to BHSI will consist of the
following elements, at a minimum:
a. A clearly articulated corporate policy against violations of the FCPA, U.S. commercial
bribery laws and foreign bribery laws;
b. Promulgation of compliance standards and procedures to be followed by all directors,
officers, employees and, where appropriate, business partners, including, but not limited to,
agents, consultants, representatives, teaming partners, joint venture partners and other parties
acting on behalf of Baker Hughes in a foreign jurisdiction (respectively, “agents” and “business
partners”), that are reasonably capable of reducing the prospect that the FCPA, U.S. commercial
bribery laws, foreign bribery laws or the Compliance Code of Baker Hughes will be violated;
c. The assignment to one or more independent BHSI senior corporate officials who shall report
directly to the Compliance Committee of the Board of Directors, the responsibility for the
implementation and oversight of compliance with policies, standards, and
procedures established in accordance with the Compliance Code applicable to BHSI;
d. The effective communication to all directors, officers, employees and, where appropriate,
agents and business partners, of corporate and compliance policies, standards, and procedures
regarding the FCPA, U.S. commercial bribery laws and foreign bribery laws. This shall include: (A)
training concerning the requirements of the FCPA, U.S. commercial bribery laws and foreign bribery
laws on a periodic basis to all directors, officers and employees; and (B) periodic certifications
by all directors, officers, employees, including the head of each Baker Hughes business or
division, and, where appropriate, agents and business partners, certifying compliance therewith;
e. A reporting system, including a “Helpline” for directors, officers, employees, agents and
business partners to report suspected violations of the Compliance Code or suspected criminal
conduct;
f. Appropriate disciplinary procedures to address violations of the FCPA, U.S. commercial
bribery laws, foreign bribery laws, or the Compliance Code;
g. Extensive pre-retention due diligence requirements pertaining to, as well as post-retention
oversight of, all agents and business partners, including the maintenance of complete due diligence
records at BHSI;
h. Clearly articulated corporate procedures designed to ensure that BHSI exercises due care to
assure that substantial discretionary authority is not delegated to individuals who BHSI knows, or
should know through the exercise of due diligence, have a propensity to engage in illegal or
improper activities;
i. A committee consisting of senior BHSI officials to review and to record, in writing,
actions relating to: (A) the retention of any agent or subagents thereof; and (B) all contracts and
payments related thereto;
j. The inclusion in all agreements, contracts, and renewals thereof with all agents and
business partners, written provisions that are reasonably calculated to prevent violations of the
FCPA, U.S. commercial bribery laws, foreign bribery laws and other relevant laws, which may,
depending upon the circumstances, include: (A) setting forth anti-corruption representations and
undertakings relating to compliance with the FCPA, U.S. commercial bribery laws, foreign bribery
laws and other relevant laws; (B) allowing for internal and independent audits of the books and
records of the agent or business partner to ensure compliance with the foregoing; and (C) providing
for termination of the agent or business partner as a result of any breach of anti-corruption laws
and regulations or representations and undertakings related thereto;
k. Financial and accounting procedures designed to ensure that BHSI maintains a system of
internal accounting controls and makes and keeps accurate books, records, and accounts; and
l. Independent audits by outside counsel and auditors, at no longer than three (3) year
intervals beginning after the completion of the term of Organizational Probation, to ensure that
the Compliance Code, including its anti-corruption provisions, are implemented in an effective
manner.
Dates Referenced Herein and Documents Incorporated by Reference