Using the AAA model on ethical decision-making (see below), analyze the case. On

Question

Using the AAA model on ethical decision-making (see below), analyze the case.

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 Foreign Corrupt Practices Act, 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.

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 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 United Kingdom agent to make payments to high-ranking 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 United ­Kingdom agent. The total payments to the two agents exceeded $180 million. After receiving the money, the United ­Kingdom 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 anti-bribery, 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 (including $177 million in disgorgement) of $ 579 million in criminal fines payable by KBR, with KBR consenting to pay the remaining $20 million.

Question (complete using AAA model)

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.

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.” 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?

American Accounting Association (AAA) model 1 What are the facts of the case? 2 What are the ethical issues in the case? 3 What are the norms, principles, and values related to the case? What are the alternative courses of action? What is the best course of action that is consistent with the norms, principles, and values identified in Step 3? What are the consequences of each possible course of action? What is the decision? 4 5 6 7

Explanation / Answer

Step 1: What are the facts of the case?
The facts are that the auditor has uncovered what he believes to be a bribe and has, in turn, been offered a bribe to ignore or overlook it.

Step 2: What are the ethical issues in the case?
The ethical issue is whether or not an auditor should accept a bribe. In accepting the bribe he would be acting illegally and would also be negligent of his professional duties.

Step 3: What are the norms, principles, and values related to the case?
The norms, principles, and values are that auditors are assumed (by shareholders and others active in capital markets) to have impeccable integrity and to assure that the company is providing a ‘true and fair view’ of its financial situation at the time of the audit. Auditors are entrusted with the task of assuring a company’s financial accounts and anything that prevents this or interferes with an auditor’s objectivity is a failure of the auditor’s duty to shareholders.

Step 4: What are the alternative courses of action?
Option 1 is to accept the bribe and ignore the irregular cash payment. Option 2 is to refuse the bribe and take appropriate actions accordingly.

Step 5: What is the best course of action that is consistent with the norms, principles, and values identified in Step 3?
The course of action consistent with the norms, principles, and values in Step 3 is to refuse the bribe. The auditor would report the initial irregular payment and then also probably report the client for offering the second bribe.

Step 6: What are the consequences of each possible course of action?
Under Option 1, the auditor would accept the bribe. He would enjoy the increase in wealth and presumably an increase in his standard of living but he would expose himself to the risk of being in both professional and legal trouble if his acceptance of the bribe was ever uncovered. He would have to ‘live with himself’ knowing that he had taken a bribe and would be in debt to the client, knowing that the client could expose him at any time.

Under Option 2, the auditor would refuse the bribe. This would be likely to have a number of unfortunate consequences for the client and possibly for the future of the client–auditor relationship. It would, however, maintain and enhance the reputation and social standing of auditors, maintain public confidence in audit, and serve the best interests of the shareholders.

Step 7: What is the decision?
The ethical decision is Option 2. The auditor should refuse the brib

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