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GE Seeks Power Sales in Iraq, but Report Spotlights Corruption Concerns

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GE Seeks Power Sales in Iraq, but Report Spotlights Corruption Concerns

Post by GirlBye on Mon Nov 19, 2018 12:34 pm

FILE PHOTO: The logo of Dow Jones Industrial Average stock market index listed company General Electric is shown at their subsidiary company GE Aviation in Santa Ana, California, U.S., April 13, 2016. REUTERS/Mike Blake/File Photo GLOBAL BUSINESS WEEK AHEAD

General Electric Co. learned from a consultant’s report this past summer of corruption allegations against key business partners in Iraq, where the company is trying to shore up its position in one of the most important foreign markets for its struggling power business.

The industrial giant said it has a robust compliance operation and doesn’t believe it has violated any federal laws, including ones covering foreign corruption. However, that confidential report, parts of which were reviewed by The Wall Street Journal, underscores the dilemma GE faces as it chases new business in one of the few places with demand for its multimillion-dollar heavy duty gas turbines.

The study, prepared for GE by corporate intelligence firm Hakluyt & Co., paints a portrait of widespread corruption and bribery in the Iraqi power sector, accusing high-ranking officials in the Ministry of Electricity, from which GE is currently vying with Siemens AG for $15 billion in new power contracts. Siemens declined to comment.

The Hakluyt report, based on interviews with business people and political officials working in the power sector, provides a broad overview of the corruption concerns in the industry and advises GE to distance itself from at least one of its contractors. Hakluyt’s staff includes former British MI-6 officers and strategic consultants from the business world.

One Iraqi government official is quoted in the report estimating that “not one single contract” in a recent wave of power agreements “has been done without some kind of deal benefiting one of the religious and political parties.”

The report, prepared for GE this spring, follows a previously unreported Justice Department inquiry into corruption allegations against GE employees in Iraq in April. That inquiry was triggered by a whistleblower complaint alleging employees of GE Power, the conglomerate’s power unit, in the country were involved in corruption, according to people familiar with the complaint.

GE said it investigated the whistleblower accusation and found it to be without merit. The company learned of the whistleblower when U.S. agencies, including the departments of State and Commerce, withdrew their commercial support for the company’s efforts in Iraq over the accusation. The embassy resumed its support for GE after the company agreed to investigate the allegation, the people familiar with the complaint said.

The status of the Justice Department’s inquiry into the whistleblower’s claims couldn’t be determined. The Justice Department declined to comment.

However, the corruption concerns are an unwelcome headwind for GE’s power business, its oldest and largest industrial unit, whose revenues and operating profit have plummeted over the past year, dragging GE’s share price to historic lows. Management has said reversing the decline of the power business will take years.

 In the quarter ended Sept. 30, the power business recorded a $631 million loss, and took a $22 billion goodwill charge, writing down virtually all of the goodwill in the business.

Ties to bribery and corruption in foreign markets, even among third-party partners, could mean the possibility of violations of the Foreign Corrupt Practices Act among other laws—and millions of dollars in fines.

The industrial giant has “robust processes for all kinds of ethics and compliance issues,” a spokeswoman said. “We believe that based on our review, the company hasn’t committed any FCPA violations or violated any other laws.”
GE shares closed down 1.9% on Friday to close at $8.02, a roughly 45% fall over the past six months.
The Hakluyt report warned about corruption allegations against construction magnate Ali Shamara, a central figure in the Iraqi power sector, with whom the company has worked on multiple projects since 2004, including a massive 2008 deal in which GE sold 56 9E turbines to the Iraqi Ministry of Electricity. Mr. Shamara’s firm was contracted to install some of the units.

“Ali Shamara earned his fortune largely through his relationship with former Prime Minister Nouri al-Maliki,” Hakluyt said in its report. “This presents what is acknowledged by these contacts as a real dilemma: currently, any firm that completely avoids Ali Shamara will struggle to win major contracts from the (Ministry of Electricity), yet any firm that partners with him runs—at the very least—serious reputational risks.”

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