Document:

exv10w4

 

Exhibit 10.4

UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF TEXAS

HOUSTON DIVISION

	 	 	 	 	 
	UNITED STATES OF AMERICA

	 	:	 	 
	 

	 	:	 	 
	          v.

	 	:
	 	                       No. H-07-130
	 

	 	:	 	 
	BAKER HUGHES INCORPORATED,

	 	:
	 	DEFERRED PROSECUTION
	 

	 	:
	 	AGREEMENT
	Defendant

	 	:	 	 
	 

	 	:	 	 
	 

	 	 	 	 

     Defendant BAKER HUGHES INCORPORATED (“Baker Hughes”), Delaware Corporation, by its undersigned
attorneys, pursuant to authority granted by its Board of Directors, and the United States
Department of Justice, Criminal Division, Fraud Section (“Department of Justice” or the
“Department”) enter into this Deferred Prosecution Agreement (“Agreement”) which shall apply to
Baker Hughes and all its affiliates and subsidiaries including Baker Hughes Services International,
Inc. (“BHSI”). The terms and conditions of this Agreement are as follows:

     1. Baker Hughes accepts and acknowledges that the United States will file a three-count
criminal Information in the United States District Court for the Southern District of Texas
charging Baker Hughes 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-1(a) (Count Two); and falsification of books
and records in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5) and 78ff(a) (Count Three). In so
doing,

 

 

Baker Hughes knowingly waives its right to indictment on these charges, as well as all rights
to a speedy trial pursuant to the Sixth Amendment to the United States Constitution, Title 18,
United States Code Section 3161, Federal Rule of Criminal Procedure 48(b), and all applicable Local
Rules of the United States District Court for the Southern District of Texas for the period during
which this Agreement is in effect.

     2. Baker Hughes accepts and acknowledges that it is responsible for the acts of its officers,
employees and its wholly-owned subsidiary, BHSI, as set forth in the Statement of Facts annexed
hereto as “Attachment A.” Should the Department initiate the prosecution that is deferred by this
Agreement, Baker Hughes agrees that it, will neither contest the admissibility of, nor contradict,
in any such proceeding, the facts contained in the Statement of Facts. Baker Hughes does not
endorse, ratify or condone criminal conduct and, as set forth below, has taken and commits to
continue to take significant steps to prevent such conduct from recurring.

     3. This Agreement is agreed to by the Department based upon the fact that Baker Hughes has
voluntarily disclosed the misconduct referenced in the Statement of Facts; conducted a thorough
investigation of that misconduct and other possible misconduct; regularly reported all its findings
to the Department; cooperated in the Department’s subsequent investigation of this matter; agreed
to implement remedial measures to ensure that this conduct will not recur and to continue to
cooperate with

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the Department in its ongoing investigation of the conduct of Baker Hughes, BHSI, and the
officers, directors, employees and agents thereof.

     4. During the two (2) year term of this Agreement, Baker Hughes agrees to cooperate fully with
the Department, and any other authority or agency, domestic or foreign, designated by the
Department investigating Baker Hughes, BHSI, or any of its present and former directors, officers,
employees, agents, consultants, contractors and subcontractors, or any other party, in any and all
matters relating to corrupt payments in connection with its operations. Baker Hughes agrees that
its cooperation shall include, but is not limited to, the following:

          a. Baker Hughes 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 Baker Hughes and its present and former subsidiaries
and affiliates, and the 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
Baker Hughes has any knowledge or about which the Department shall inquire. This obligation of
truthful disclosure includes the obligation of Baker Hughes to provide to the Department, upon
request, any document, record, or other tangible

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evidence relating to such corrupt payments, books and records, and internal controls about
which the Department shall inquire of Baker Hughes.

               i. The Department specifically reserves the right to request that Baker Hughes 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.

               ii. Upon written notice to the Department, Baker Hughes 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.

               iii. In the event that Baker Hughes withholds access to the information, documents, records,
facilities and/or employees of Baker Hughes, the Department may consider this fact in determining
whether Baker Hughes has fully cooperated with the Department.

               iv. Except as provided in this paragraph, Baker Hughes 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.

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          b. Upon request of the Department, with respect to any issue relevant to its investigation of
corrupt payments in connection with the operations of Baker Hughes, or any of its former
subsidiaries or affiliates, related books and records and inadequate internal controls, Baker
Hughes shall designate knowledgeable employees, agents, or attorneys to provide to the Department
the information and materials described in Paragraph 4(a) above, on behalf of Baker Hughes. It is
further understood that Baker Hughes must at all times provide complete, truthful, and accurate
information.

     c. With respect to any issue relevant to the department’s investigation of corrupt payments in
connection with the operations of Baker Hughes, or any of its present or former subsidiaries or
affiliates, Baker Hughes shall use its best efforts to make available for interviews or testimony,
as requested by the Department, present or former directors, officers, employees, agents and
consultants of Baker Hughes, or any of its present or former subsidiaries or affiliates, as well as
the directors, officers, employees, agents and consultants of contractors and sub-contractors.
This includes, but is not limited to, sworn testimony before a federal grand jury or in federal
trials, as well as interviews with federal law enforcement authorities. Cooperation under this
Paragraph will include identification of witnesses who, to the knowledge of Baker Hughes, may have
material information regarding the matters under investigation.

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     d. With respect to any information, testimony, document, record, or other tangible evidence
provided to the Department pursuant to this Agreement, Baker Hughes consents to any and all
disclosures to other government agencies, whether agencies of the United States or a foreign
government, of such materials as the Department, in its sole discretion, shall deem appropriate.

     5. In return for the full and truthful cooperation of Baker Hughes, and compliance with all
the terms and conditions of this Agreement, the Department agrees not to use any information
related to the conduct described in the attached Statement of Facts against Baker Hughes in any
criminal or civil case, except in a prosecution for perjury or obstruction of justice; in a
prosecution for making a false statement after the date of this Agreement; in a prosecution or
other proceeding relating to any crime of violence; or in a prosecution or other proceeding
relating to a violation of any provision of Title 26 of the United States Code. In addition, the
Department agrees, except as provided herein, that it will not bring any criminal or civil case
against Baker Hughes, or any subsidiary of Baker Hughes, related to the conduct of present and
former employees as described in the attached Statement of Facts, or relating to information Baker
Hughes disclosed to the Department prior to the date of this Agreement, concerning its business
affairs in Kazakhstan, Angola, Nigeria, Indonesia, Russia, Uzbekistan, Turkmenistan and Azerbaijan,
among other countries. This Paragraph does not provide any protection against prosecution for any

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corrupt payments or false accounting, if any, made in the future by Baker Hughes, or any of
its officers, directors, employees, agents or consultants, whether or not disclosed by Baker
Hughes, pursuant to the terms of this Agreement. This paragraph also does not provide any
protection against prosecution for any corrupt payments made in the past which are not described in
the attached Statement of Facts or were not disclosed to the Department prior to the date of this
Agreement. In addition, this Paragraph does not provide any protection against criminal
prosecution of any present or former officer, employee, director, shareholder, agent or consultant
of Baker Hughes for any violations committed by them.

     6. Baker Hughes represents that it has implemented and will 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 its subsidiaries,
affiliates, joint ventures, and those of its contractors and subcontractors, with responsibilities
that include interactions with foreign officials. Implementation of these policies and procedures
shall not be construed in any future enforcement proceeding as providing immunity or amnesty for
any crimes not disclosed to the Department as of the date of the execution of this Agreement for
which Baker Hughes would otherwise be responsible.

     7. In particular, Baker Hughes represents that, at a minimum, it has undertaken, or agrees
that it will undertake, the following steps:

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          a. Adopt a system of internal accounting controls and a system designed to ensure the making
and keeping of accurate books, records, and accounts; and

          b. 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 of Baker Hughes will consist of the
following elements, at a minimum:

               i. A clearly articulated corporate policy against violations of the FCPA, U.S. commercial
bribery laws and foreign bribery laws;

               ii. 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;

               iii. The assignment to one or more senior corporate officials of Baker Hughes, who shall
report directly to the Audit/Ethics Committee of the Board of Directors, of responsibility for the
implementation and oversight of

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compliance with policies, standards, and procedures established in accordance with the
Compliance Code of Baker Hughes;

               iv. 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;

               v. 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;

               vi. Appropriate disciplinary procedures to address violations of the FCPA, U.S. commercial
bribery laws, foreign bribery laws, or the Compliance Code;

               vii. 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 Baker Hughes;

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               viii. Clearly articulated corporate procedures designed to ensure that Baker Hughes exercises
due care to assure that substantial discretionary authority is not delegated to individuals whom
Baker Hughes knows, or should know through the exercise of due diligence, have a propensity to
engage in illegal or improper activities;

               ix. A committee consisting of senior officials of Baker Hughes and each Baker Hughes business
or division 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;

               x. The inclusion in all agreements, contracts, and renewals thereof with all agents and
business partners 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;

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               xi. Financial and accounting procedures designed to ensure that Baker Hughes maintains a
system of internal accounting controls and makes and keeps accurate books, records, and accounts;
and

               xii. Independent audits by outside counsel and auditors, at no longer than three-year
intervals beginning after the completion of the term of the Monitor, as discussed below, to ensure
that the Compliance Code, including its anti-corruption provisions, are implemented in an effective
manner.

     8. Baker Hughes agrees to engage an independent monitor (“Monitor”) within sixty (60) calendar
days of the signing of this Agreement, to monitor the Company’s compliance program with respect to
the FCPA, U.S. commercial bribery laws, and foreign bribery laws for a period of three (3) years
from the execution of this Agreement, subject to the provisions of paragraphs 9 through 15 below.
For thirty (30) calendar days after the signing of this Agreement, the Company and the Department
shall use mutual best efforts to identify a mutually acceptable person to serve as the Monitor.
If, after that period, the parties have been unable to identify a mutually acceptable person then
the Department in its sole discretion shall select a person to serve as the Monitor. The Monitor
will review and evaluate the effectiveness of Baker Hughes’s internal controls, record-keeping, and
financial reporting policies and procedures as they relate to Baker Hughes’s compliance with the
books and records, internal accounting controls, and anti-bribery provisions of the

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FCPA, U.S. commercial bribery laws, and foreign bribery laws. This review and evaluation shall
include an assessment of those policies and procedures as actually implemented.

     9. Baker Hughes shall cooperate fully with the Monitor and the Monitor shall have the
authority to take such reasonable steps, in his or her view, as may be necessary to be fully
informed about the operations of Baker Hughes within the scope of his or her responsibilities under
this Agreement. To that end, Baker Hughes shall provide the Monitor with access to all
information, documents, records, facilities and/or employees that fall within the scope of
responsibilities of the Monitor under this Agreement. Any such disclosure to the Monitor retained
by Baker Hughes concerning corrupt payments, related books and records and internal controls, shall
not relieve Baker Hughes of its obligation to truthfully disclose such matters to the Department.

          a. The parties agree that no attorney-client relationship shall be formed between Baker Hughes
and the Monitor.

          b. In the event that Baker Hughes seeks to withhold from the Monitor access to information,
documents, records, facilities and/or employees of Baker Hughes which may be subject to a claim of
attorney-client privilege or to the attorney work-product doctrine, Baker Hughes shall promptly
provide written notice of this determination to the Monitor and the Department. Such notice shall
include a

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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. The Department may then
consider whether to make a further request for access to such information, documents, records,
facilities and/or employees, as provided in Paragraph 4(a) of this Agreement.

          c. Except as provided in this paragraph, Baker Hughes shall not withhold from the Monitor any
information, documents, records, facilities and/or employees on the basis of an attorney client
privilege or work product claim.

     10. Baker Hughes agrees that the Monitor shall assess whether these entities’ policies and
procedures are reasonably designed to detect and prevent violations of the FCPA, U.S. commercial
bribery laws, and foreign bribery laws, and, during the three (3) year period, shall conduct an
initial review and prepare an initial report, followed by two (2) follow-up reviews and follow-up
reports as described below. With respect to each of the three (3) reviews, after initial
consultations with Baker Hughes and the Department, the Monitor shall prepare a written work plan
for each of the reviews, which shall be submitted in advance to Baker Hughes and the Department for
comment. In order to conduct an effective initial review and to fully understand any existing
deficiencies in controls, policies and procedures related to the FCPA, U.S. commercial bribery
laws, and foreign bribery laws, the Monitor’s initial work plan shall include such steps as are
necessary to develop an understanding of the

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facts and circumstances surrounding any violation that may have occurred. Any disputes
between Baker Hughes and the Monitor with respect to the work plan shall be decided by the
Department in its sole discretion.

     11. In connection with the initial review, the Monitor shall issue a written report within one
hundred twenty (120) calendar days of his or her retention setting forth the Monitor’s assessment
and making recommendations reasonably designed to improve the policies and procedures of Baker
Hughes for ensuring compliance with the FCPA, U.S. commercial bribery laws, and foreign bribery
laws. The Monitor shall provide the report to the Board of Directors of Baker Hughes and
contemporaneously transmit copies to Mark F. Mendelsohn, (or his successor), Deputy Chief, Fraud
Section, Criminal Division, U.S. Department of Justice, 10th and Constitution Ave.,
N.W., Bond Building, Fourth Floor, Washington, D.C. 20530. The Monitor may extend the time period
for issuance of the report with prior written approval of the Department.

     12. Within sixty (60) calendar days after receiving the Monitor’s report, Baker Hughes shall
adopt all recommendations in the report; provided, however, that within thirty (30) calendar days
after receiving the report, Baker Hughes shall advise the Monitor and the Department in writing of
any recommendations that Baker Hughes considers unduly burdensome, impractical, or costly. With
respect to any recommendation that Baker Hughes considers unduly burdensome, impractical, or

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costly, Baker Hughes need not adopt that recommendation within that time but shall propose in
writing an alternative policy, procedure or system designed to achieve the same objective or
purpose. As to any recommendation on which Baker Hughes and the Monitor do not agree, such parties
shall attempt in good faith to reach an agreement within thirty (30) calendar days after Baker
Hughes serves the written advice. In the event Baker Hughes and the Monitor are unable to agree on
an alternative proposal, Baker Hughes shall abide by the determination of the Monitor. With
respect to any recommendation that the Monitor determines cannot reasonably be implemented within
sixty (60) calendar days after receiving the report, the Monitor may extend the time period for
implementation with prior written approval of the Department.

     13. The Monitor shall undertake two (2) follow-up reviews to further monitor and assess
whether the policies and procedures of Baker Hughes are reasonably designed to detect and prevent
violations of the FCPA, U.S. commercial bribery laws, and foreign bribery laws. Within sixty (60)
calendar days of initiating each follow-up review, the Monitor shall: (a) complete the review; (b)
certify whether the anti-bribery compliance program of Baker Hughes, including its policies and
procedures, is appropriately designed and implemented to ensure compliance with the FCPA, U.S.
commercial bribery laws, and foreign bribery laws; and (c) report on the Monitor’s findings in the
same fashion as set forth in Paragraph 11 with respect to the

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initial review. The first follow-up review shall commence one year after appointment of the
Monitor under this Agreement. The second follow-up review shall commence at least one year after
completion of the first review. The Monitor may extend the time period for these follow-up reviews
with prior written approval of the Department.

     14. In undertaking tale assessments and reviews described in Paragraphs 10 through 13 of this
Agreement, the Monitor shall formulate conclusions based on, among other things: (a) inspection of
documents, including all the policies and procedures relating to the anti-bribery compliance
program of Baker Hughes and all its affiliates and subsidiaries; (b) onsite observation of the
systems and procedures of Baker Hughes, including its internal controls and its recordkeeping and
internal audit procedures; (c) meetings with and interviews of employees, officers, and directors
of Baker Hughes and all its affiliates and subsidiaries, and any other relevant persons; and, (d)
analyses, studies and testing of the anti-bribery compliance program of Baker Hughes and all its
affiliates and subsidiaries.

     15. The charge of the Monitor, as described above, is to review the controls, policies and
procedures of Baker Hughes and all its affiliates and subsidiaries related to compliance with the
FCPA, U.S. commercial bribery laws and foreign bribery laws. Should the Monitor during the course
of his or her engagement discover that questionable or corrupt payments or questionable or corrupt
transfers of

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property or interests may have been offered, promised, paid, or authorized by any Baker Hughes
entity or person, or any entity or person working directly or indirectly for Baker Hughes, or that
related false books and records have been maintained, the Monitor shall promptly report such
payments to Baker Hughes for further investigations, unless the Monitor believes, in the exercise
of his or her discretion, that such disclosure should be made directly to the Department. If the
Monitor refers the matter only to Baker Hughes, Baker Hughes shall promptly report the same to the
Department. If Baker Hughes fails to make such disclosure within ten (10) calendar days of the
report of such payments to Baker Hughes, the Monitor shall independently disclose his or her
findings to the Department at the address listed above in Paragraph 11. Further, in the event that
Baker Hughes, or any entity or person working directly or indirectly for Baker Hughes, refuses to
provide information necessary for the performance of the Monitor’s responsibilities, the Monitor
shall disclose that fact to the Department. Baker Hughes and its shareholders shall not take any
action to retaliate against the Monitor for any such disclosures or for any other reason. The
Monitor may report other criminal or regulatory violations discovered in the course of performing
its duties, in the same manner as described above.

     16. In consideration of the action of Baker Hughes in voluntarily disclosing and conducting an
investigation by outside legal counsel regarding the matter set out in the attached Statement of
Facts and other matters disclosed to the Department, and

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the cooperation of Baker Hughes with the investigation conducted by the Department; and the
willingness of Baker Hughes to: (a) acknowledge responsibility for its behavior and that of its
subsidiaries and affiliates; (b) continue its cooperation with the Department; (c) adopt and
maintain remedial measures and independently review and audit such measures; and (d) cause its
subsidiary, BHSI, to enter into a plea agreement and plead guilty to the charges set forth in a
separate criminal Information, the Department agrees that any prosecution of Baker Hughes for the
conduct set forth in the attached Statement of Facts, and for the conduct relating to information
Baker Hughes disclosed to the Department prior to the date of this Agreement concerning its
business affairs in Kazakhstan, Angola, Nigeria, Indonesia, Russia, Uzbekistan, Turkmenistan and
Azerbaijan, among other countries, be and hereby is deferred for a period of two (2) years from the
date of this Agreement.

     17. The Department further agrees that if Baker Hughes is in full compliance with all of its
obligations under this Agreement, including its obligation to adopt the recommendations of the
Monitor in accordance with the terms of Paragraph 12, the Department will not continue the criminal
prosecution against Baker Hughes described in Paragraph 1 and, after two (2) years, this Agreement
shall expire.

     18. If the Department determines, in its sole discretion, that Baker Hughes at any time during
the two-year term of this Agreement, has committed any federal

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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, Baker
Hughes shall, in the Department’s sole discretion, thereafter be subject to prosecution for any
federal criminal violation of which the Department has knowledge. Any such prosecutions may be
premised on information provided by Baker Hughes. Moreover, Baker Hughes agrees that any such
prosecution that is not time-barred by the applicable statute of limitations on the date of this
Agreement may be commenced against Baker Hughes in accordance with this Agreement, notwithstanding
the expiration of the statute of limitations between the signing of this Agreement and the
termination of this Agreement. By this Agreement, Baker Hughes expressly intends to and does waive
any rights in this respect.

     19. It is further agreed that in the event that the Department determines that Baker Hughes
has breached this Agreement: (a) all statements made by or on behalf of Baker Hughes to the
Department or to the Court, including the attached Statement of Facts, and any testimony given by
Baker Hughes before a grand jury or any tribunal, at any legislative hearings, or to the Securities
and Exchange Commission (“SEC”), whether prior or subsequent to this Agreement, or any leads
derived from such statements or testimony, shall be admissible in evidence in any and all criminal
proceedings brought by the Department against Baker Hughes; and (b) Baker Hughes shall not assert
any claim under the United States Constitution, Rule 11(f) of the

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Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence, or any other
federal rule, that statements made by or on behalf of Baker Hughes prior to or subsequent to this
Agreement, or any leads developed therefrom, should be suppressed. The decision whether conduct or
statements of any individual will be imputed to Baker Hughes for the purpose of determining whether
Baker Hughes has violated any provision of this Agreement shall be in the sole discretion of the
Department.

     20. Baker Hughes acknowledges that the Department has made no representations, assurances, or
promises concerning what sentence may be imposed by the Court if Baker Hughes breaches this
Agreement and this matter proceeds to judgment. Baker Hughes further acknowledges that any such
sentence is solely within the discretion of the Court and that nothing in this Agreement binds or
restricts the Court in the exercise of such discretion.

     21. Baker Hughes 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 is
structured as a stock or asset sale, merger, or transfer, they shall include in any contract for
sale, merger or transfer a provision binding the purchaser or any successor in interest thereto to
the obligations described in this Agreement.

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     22. Baker Hughes expressly agrees that it shall not, through present or future attorneys,
Boards of Directors, officers, or any other person authorized to speak for Baker Hughes, make any
public statement, in litigation or otherwise, contradicting the acceptance of responsibility by
Baker Hughes set forth above or the factual statements set forth in the attached Statement of
Facts. Any such contradictory statement shall, subject to cure rights below by Baker Hughes,
constitute a breach of this Agreement and Baker Hughes thereafter shall be subject to prosecution
as set forth in Paragraphs 18 and 19 of this Agreement. The decision, whether any public statement
by any such person contradicting a fact contained in the Statement of Facts will be imputed to
Baker Hughes for the purpose of determining whether they have breached this Agreement shall be at
the sole discretion of the Department. If the Department determines that a public statement by any
such person contradicts in whole or in part a statement contained in the Statement of Facts, the
Department shall so notify Baker Hughes and Baker Hughes may avoid a breach of this Agreement by
publicly repudiating such statement(s) within two (2) business days after notification. Consistent
with the obligations of Baker Hughes as set forth above, Baker Hughes shall be permitted to raise
defenses and to assert affirmative claims in civil and regulatory proceedings relating to the
matters set forth in the Statement of Facts. This Paragraph is not intended to apply to any
statement made by any employee of Baker

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Hughes in the course of any criminal, regulatory, or civil case initiated against such
individual, unless such individual is speaking on behalf of Baker Hughes.

     23. In connection with this Agreement, Baker Hughes shall only issue a press release if it
first determines that the text of the release is acceptable to the Department.

     24. It is understood that this Agreement is binding on Baker Hughes and the Department but
specifically does not bind any other federal agencies, or any state or local law enforcement or
regulatory agencies, although the Department will bring the cooperation of Baker Hughes and its
compliance with its other obligations under this Agreement to the attention of such agencies and
authorities if requested to do so by Baker Hughes.

     25. This Agreement sets forth all the terms of the Deferred Prosecution Agreement between
Baker Hughes and the Department. No modifications or additions to this Agreement shall be valid
unless they are in writing and signed by the Department, the attorneys for Baker Hughes, and a duly
authorized representative of Baker Hughes.

     26. Any notice to Baker Hughes under this Agreement shall be given by personal delivery,
overnight delivery by a recognized delivery service or registered or certified mail, in each case
addressed to the General Counsel, Baker Hughes

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Incorporated, 2929 Allen Parkway, Suite 2100, Houston, Texas 77019. Notice shall be effective
upon actual receipt by Baker Hughes.

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AGREED:

     FOR BAKER HUGHES INCORPORATED:

	 	 	 	 	 
	 

	 	     /s/ Reid M. Figel
 

REID M. FIGEL, ESQ.
	 	 
	 	 	Kellogg, Huber, Hansen, Todd, Evans
	 	 	     & Figel, P.L.L.C.
	 	 	Washington, D.C. 20036
	 	 	Counsel for Baker Hughes Incorporated
	 
	 	 	 	 
	 

	 	     /s/ Alan R. Crain, Jr.
 

ALAN R. CRAIN, JR.
	 	 
	 	 	Senior Vice-President and General Counsel
	 	 	Baker Hughes. Incorporated

     FOR THE DEPARTMENT OF JUSTICE:

	 	 	 	 	 	 	 
	 	 	STEVEN A. TYRRELL	 	 
	 	 	Chief, Fraud Section	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ Mark F. Mendelsohn
 

	 	 
	 	 	MARK F. MENDELSOHN	 	 
	 	 	Deputy Chief, Fraud Section	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ John A. Michelich
 

	 	 
	 	 	JOHN A. MICHELICH	 	 
	 	 	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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ATTACHMENT A

STATEMENT OF FACTS

     The following Statement of Facts is incorporated by this reference as part of the
Deferred Prosecution Agreement (the “Agreement”) between the United States Department of
Justice (the “Department”) and Baker Hughes Incorporated (“Baker Hughes”), and the parties
hereby agree and stipulate that the following information is true and accurate. As set
forth in Paragraph 2 of the Agreement, Baker Hughes accepts and acknowledges that it is
responsible for the acts of its officers and employees, and those of its wholly-owned
subsidiary, defendant Baker Hughes Services International, Inc. (“BHSI”), that are set
forth below. Should the Department initiate the prosecution that is deferred by this
Agreement, Baker Hughes agrees that it will neither contest the admissibility of, nor
contradict, this Statement of Facts in any such proceeding. 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, 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

1

 

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). BHSI was engaged in the business of providing comprehensive oil-field services and
products in the Republic of Kazakhstan and elsewhere and, during the relevant period,
maintained an office in Almaty, Kazakhstan.

2

 

     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-1(f)(1)(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.

     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

3

 

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 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 relating to the
Baker Hughes bid on the Karachaganak project. As such, Employee A

4

 

was an employee of a “domestic concern” within the meaning of the FCPA, 15 U.S.C. §
78dd-2.

     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.

5

 

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 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.

     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-1(f)(1)(A). Baker Hughes
understood that KPO’s approval of their bid for the contract depended heavily on a
favorable recommendation from Kazakhoil.

6

 

Kazakhoil Directs 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 for future business which “. . . keeps us clear of any criticism (sic) for this
KIO contract.” Further, Employee A stated, “. . . unless we do something we are not going
to get the Kazakhoil support . . .”

7

 

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, 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

8

 

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-letter, dated
September 1, 2000, stated that Consulting Firm A had been retained by Baker Hughes “ . . .
in recognition of 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.

9

 

Baker Hughes Wins 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

     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

10

 

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:

Commission Payments to

Consulting Firm A

	 	 	 	 	 
	Date	 	Amount in USD
	May 24, 2001
	 	$	32,540.00	 
	June 20, 2001
	 	$	97,116.00	 
	August 1, 2001
	 	$	117,336.00	 
	August 22, 2001
	 	$	108,680.00	 
	October 26, 2001
	 	$	278,999.00	 
	December 6, 2001
	 	$	323,399.00	 
	December 13, 2001
	 	$	34,123.00	 
	January 16, 2002
	 	$	147,211.02	 
	February 21, 2002
	 	$	125,367.00	 

11

 

	 	 	 	 	 
	Date	 	Amount in USD
	April 5, 2002
	 	$	281,741.00	 
	May 15, 2002
	 	$	170,950.00	 
	June 25, 2002
	 	$	143,107.00	 
	August 1, 2002
	 	$	380,682.47	 
	September 27, 2002
	 	$	400,488.58	 
	November 27, 2002
	 	$	139,819.00	 
	December 31, 2002
	 	$	118,843.00	 
	January 29, 2003
	 	$	122,146.93	 
	February 25, 2003
	 	$	121,810.62	 
	March 3, 2003
	 	$	123,737.08	 
	April 8, 2003
	 	$	111,760.42	 
	May 8, 2003
	 	$	96,535.78	 
	May 27, 2003
	 	$	126,761.96	 
	July 1, 2003
	 	$	103,600.98	 
	July 30, 2003
	 	$	111,362.50	 
	September 16, 2003
	 	$	105,170.33	 
	October 28, 2003
	 	$	83,052.94	 
	November 25, 2003
	 	$	93,821.11	 
	Total
	 	$	4,100,162.70	 

12

 

     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 its
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-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 in 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, Baker Hughes admits that it is an
“issuer” within the meaning of the Foreign Corrupt Practices Act, 15 U.S.C. § 78dd-1, et
seq., and 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 such 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 Baker Hughes failed to accurately reflect in its books and
records the payment of commissions to Consulting Firm A totaling $4,100,162.70.

AGREED:

     FOR BAKER HUGHES INCORPORATED:

	 	 	 	 	 
	 

	 	     /s/ Reid M. Figel
 

REID M. FIGEL, ESQ.
	 	 
	 	 	Kellogg, Huber, Hansen, Todd, Evans
	 	 	     & Figel, P.L.L.C.
	 	 	Washington, D.C. 20036
	 	 	Counsel for Baker Hughes Incorporated
	 
	 	 	 	 
	 

	 	     /s/ Alan R. Crain, Jr.
 

ALAN R. CRAIN, JR.
	 	 
	 	 	Senior Vice-President and General Counsel
	 	 	Baker Hughes Incorporated

 

 

     FOR THE DEPARTMENT OF JUSTICE:

	 	 	 	 	 	 	 
	 	 	STEVEN A. TYRRELL	 	 
	 	 	Chief, Fraud Section	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ Mark F. Mendelsohn
 

MARK F. MENDELSOHN
	 	 
	 

	 	 	 	Deputy Chief, Fraud Section	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	     /s/ John A. Michelich
 

JOHN A. MICHELICH
	 	 
	 

	 	 	 	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.exv10w5

 

Exhibit 10.5

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

2

 

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

3

 

     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

4

 

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.

5

 

          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)):
	 	 	10	 
	 
	 	 	 	 
	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	 

7

 

	 	 	 	 	 
	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

8

 

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.

9

 

     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

10

 

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:

11

 

          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.

12

 

AGREED:

     FOR DEFENDANT BHSI:

	 	 	 	 	 
	 	 	 
	 	                                                   /s/ Reid M. Figel
 	 
	 	REID M. FIGEL, ESQ. 	 
	 	Kellogg, Huber, Hansen, Todd, Evans

  & Figel, P.L.L.C.

Washington, D.C. 20036

Counsel for Defendant Baker Hughes

Services, International, Inc. and Baker

Hughes Incorporated 	 
	 

     FOR BAKER HUGHES INCORPORATED:

	 	 	 	 	 
	 	 	 
	 	                                                  /s/ Alan R. Crain, Jr.
 	 
	 	ALAN R. CRAIN, JR. 	 
	 	Senior Vice-President and General

Counsel

Baker Hughes Incorporated 	 
	 

     FOR THE DEPARTMENT OF JUSTICE:

	 	 	 	 	 
	 	

        STEVEN A. TYRRELL

        Chief, Fraud Section

 	 
	 	By:  	     /s/ Mark F. Mendelsohn
 	 
	 	 	MARK F. MENDELSOHN 	 
	 	 	Deputy Chief, Fraud Section 	 
	 
	 	 	 
	 	By:  	              /s/ John A. Michelich
 	 
	 	 	JOHN A. MICHELICH 	 
	 	 	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.

13

 

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.

3

 

     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.

4

 

     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

5

 

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-

6

 

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.

Baker Hughes Wins 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

7

 

     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:

Commission Payments to

Consulting Firm A

	 	 	 	 	 
	Date	 	Amount in USD
	May 24, 2001
	 	$	32,540.00	 
	June 20, 2001
	 	$	97,116.00	 
	August 1, 2001
	 	$	117,336.00	 
	August 22, 2001
	 	$	108,680.00	 
	October 26, 2001
	 	$	278,999.00	 
	December 6, 2001
	 	$	323,399.00	 
	December 13, 2001
	 	$	34,123.00	 

8

 

	 	 	 	 	 
	Date	 	Amount in USD
	January 16, 2002
	 	$	147,211.02	 
	February 21, 2002
	 	$	125,367.00	 
	April 5, 2002
	 	$	281,741.00	 
	May 15, 2002
	 	$	170,950.00	 
	June 25, 2002
	 	$	143,107.00	 
	August 1, 2002
	 	$	380,682.47	 
	September 27, 2002
	 	$	400,488.58	 
	November 27, 2002
	 	$	139,819.00	 
	December 31, 2002
	 	$	118,843.00	 
	January 29, 2003
	 	$	122,146.93	 
	February 25, 2003
	 	$	121,810.62	 
	March 3, 2003
	 	$	123,737.08	 
	April 8, 2003
	 	$	111,760.42	 
	May 8, 2003
	 	$	96,535.78	 
	May 27, 2003
	 	$	126,761.96	 
	July 1, 2003
	 	$	103,600.98	 
	July 30, 2003
	 	$	111,362.50	 
	September 16, 2003
	 	$	105,170.33	 
	October 28, 2003
	 	$	83,052.94	 
	November 25, 2003
	 	$	93,821.11	 
	Total
	 	$	4,100,162.70	 

     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.

10

 

AGREED:

     FOR DEFENDANT BHSI:

	 	 	 	 	 
	 	 	 
	 	               /s/ Reid M. Figel
 	 
	 	REID M. FIGEL, ESQ. 	 
	 	Kellogg, Huber, Hansen, Todd, Evans

  & Figel, P.L.L.C.

Washington, D.C. 20036

Counsel for Defendant Baker Hughes

Services, International, Inc. and Baker

Hughes Incorporated 	 
	 

     FOR BAKER HUGHES INCORPORATED:

	 	 	 	 	 
	 	 	 
	 	               /s/ Alan R. Crain, Jr.
 	 
	 	ALAN R. CRAIN, JR. 	 
	 	Senior Vice-President and General
Counsel

Baker Hughes Incorporated 	 
	 

     FOR THE DEPARTMENT OF JUSTICE:

	 	 	 	 	 
	 	

        STEVEN A. TYRRELL

        Chief, Fraud Section

 	 
	 	By:  	 	 
	 	 	MARK F. MENDELSOHN 	 
	 	 	Deputy Chief, Fraud Section 	 
	 
	 	 	 
	 	By:  	
 	 
	 	 	JOHN A. MICHELICH 	 
	 	 	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.

11

 

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.

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