The SEC has filed and settled a FCPA books and records and internal controls violations charge against El Paso Corporation. At issue is that the NYSE-listed Texas energy company, during 2001 and 2002, indirectly paid nearly $5.5 million in illegal surcharges to Iraq in connection with its purchases of crude oil from third parties under the United Nations Oil for Food Program.

The Commission’s complaint alleged that 25 to 30 cents per barrel purchased by El Paso was illegally kicked back to Iraq in the form of a secret oil surcharge and that El Paso knew, or was reckless in not knowing, that illegal surcharges were made.

Without admitting or denying the Commission’s allegations, El Paso simultaneously consented to the entry of a court order ordering it to pay $5.4 million in disgorgement of profits and a civil penalty of $2.3 million.

Commentary: El Paso was at the mercy of DOJ and SEC on this one, as recorded telephone calls of El Paso officials and oil traders showed that the company knew that the surcharges that it was paying on purchases were being kicked back to Iraqi government officials. This case underscores the importance of maintaining an adequate system of internal controls to detect and prevent such payments, as well as to properly to record the nature of the any such related payments.