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Acquiring a Deferred Prosecution Agreement

In November 2010, Pride International Inc. was one of several companies to resolve a coordinated FCPA enforcement action involving (at least in part) the use of Panalpina services.

As noted in this prior post, the Pride enforcement action included not only Nigeria – Panalpina related conduct, but also conduct relating to contract extensions in Venezuela, bribing an administrative law judge in India, customs duties in Mexico, as well as other improper conduct in other countries.

The enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $56.2 million ($32.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $23.5 million in disgorgement and prejudgment interest via a SEC settled complaint).

The three year DPA (here) imposed on Pride a host of compliance undertakings including reporting to the DOJ on an annual basis (during the term of the DPA) “on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures.”

On February 7th, Pride announced (here) a definitive merger agreement by which U.K. based Ensco (plc) will acquire Pride in a cash and stock transaction expected to close in the second quarter of 2011. The release states as follows. “The transaction will create the second largest offshore driller in the world with 74 rigs spanning all of the strategic, high-growth markets around the globe.”

So what will happen to Pride’s DPA obligations?

A common clause in DPA’s is a sale or merger clause.

In the Pride DPA, it states as follows.

Sale or Merger of Pride International

“Pride International 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 (including the sale, merger, or transfer of unincorporated branches), it 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.”

Sure enough, Section 5.15 of the “Agreement and Plan of Merger” (here) states as follows.

“Deferred Prosecution Agreement. Effective as of the Effective Time, Parent [Ensco] agrees to be bound, and the Surviving Entity shall continue to be bound, by the obligations of the Company [Pride] set forth in the Deferred Prosecution Agreement, dated November 4, 2010, between the Company and the U.S. Department of Justice, to the extent required thereby.”

Pride’s FCPA compliance obligations and undertakens may not be the only FCPA-related issues on Ensco’s plate.

Ensco has ADR’s traded on the U.S. market and “following disclosures by other offshore service companies announcing internal investigations involving the legality of amounts paid to and by customs brokers in connection with temporary importation of rigs and vessels into Nigeria, the Audit Committee of our Board of Directors and management commenced an internal investigation in July 2007.”

Ensco’s most recent quarterly filing (here) states as follows.

“Our internal investigation has essentially been concluded. Discussions were held with the authorities to review the results of the investigation and discuss associated matters during 2009 and the first half of 2010. On May 24, 2010, we received notification from the SEC Division of Enforcement advising that it does not intend to recommend any enforcement action. We expect to receive a determination by the United States Department of Justice in the near-term. Although we believe the United States Department of Justice will take into account our voluntary disclosure, our cooperation with the agency and the remediation and compliance enhancement activities that are underway, we are unable to predict the ultimate disposition of this matter, whether we will be charged with violation of the anti-bribery, recordkeeping or internal accounting control provisions of the FCPA or whether the scope of the investigation will be extended to other issues in Nigeria or to other countries. We also are unable to predict what potential corrective measures, fines, sanctions or other remedies, if any, the United States Department of Justice may seek against us or any of our employees.”

Troubling Trends and Problematic Patterns

That is the alternate title I’ve given to Shearman & Sterling’s “Recent Trends and Patterns in FCPA Enforcement” (here).

The periodic publication is always in my “must-read” category. The author group is first-rate and includes noted FCPA practitioners Philip Urofsky (former Assistant Chief of the DOJ Fraud Section responsible for FCPA enforcement) and Danforth Newcomb (a dean of the FCPA bar).

The Shearman & Sterling piece raises particularly pointed questions as to the Panalpina-related enforcement actions and the seemingly vanishing “obtain or retain business” element of an FCPA anti-bribery violation.

I have covered these issues extensively as well – see here for several posts on the Panalpina-related enforcement actions and here (pg. 971 “Just How Was that Business Obtained or Retained”) as to questions about the enforcement agencies’ “obtain or retain business” allegations or interpretations.

The Shearman & Sterling piece states that “some of the government’s cases appear to blur the lines or muddy the waters when it comes to the limits of the statute.” The authors state as follows:

“In several cases, such as Pride International, Panalpina, and Royal Dutch Shell, the theories used to hold parents accountable for the acts of subsidiaries and vice versa appear to be unclear. In others, such as Pride International and Tidewater, the connection of the alleged conduct to “obtaining or retaining business,” a critical element of the statute was not pleaded or, worse, was pled in a way that suggests that virtually any bribe that improves a company’s profitability is sufficient – a result that is not consistent with established precedent and the language of the statute.”

Under the heading “Enforcement Strategies” the authors state:

“As in years past, the enforcement actions brought in 2010 provide insight, albeit sometimes clouded, into the DOJ’s and the SEC’s views of the scope and meaning of certain aspects of the statute, as well as their enforcement priorities and strategies. In doing so they are at times helpful and at other times opaque or, even worse, disturbing. As always, however, it is important to remember that although these agreements may have been hotly negotiated, in the end each of the companies and individuals settled. Thus, none of the government’s interpretations, or its view of how the law applied to the facts, has been subjected to a searching judicial examination in the context of a contested adversary proceeding.”

Under the heading “The Business Nexus” the author state:

“The Panalpina cases and certain allegations in other cases are likely to reopen the debate as to the meaning of the “obtain or retain business” element. This element is recognized as a critical factor in narrowing the scope of the FCPA. How much it does so, however, has long been a matter of debate. In its 2004 decision in U.S. v. Kay, the Fifth Circuit appeared to have ended the debate, holding that the FCPA was not limited to bribes to obtain business from a foreign government or even to bribes that led “directly to the award or renewal of contracts.” Analyzing the indictment in that case, the court held that “bribes paid to foreign officials in consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the FCPA’s proscription.” (emphasis in original). The court warned, however, that the scope of the statute was not limitless, stating, “We hasten to add, however, that this conduct does not automatically constitute a violation of the FCPA: It still must be shown that the bribery was intended to produce an effect – here, through tax savings – that would ‘assist in obtaining or retaining business.’”

Although some of the bribes in the Panalpina cases were made to obtain contracts and other specific business advantages, most of the payments were made to customs or tax officials to reduce duties and taxes, to expedite customs clearances, or to evade import regulations. In the latter cases, the government made very little effort to link such payments to obtaining or retaining business. For example, in Pride International, the DOJ alleged a number of what it termed “bribery schemes,” including payments to a Mexican Customs Official “to avoid taxes and penalties for alleged violations of Mexican customs regulations relating to a vessel leased by Pride International.” Similarly, in GlobalSantaFe, the SEC alleged that through a number of “suspicious payments” the company “avoided costs and gained revenue.” Without more explanation, such barebones allegations create the impression that the government equates gaining revenue or reducing costs generally with “obtaining or retaining business.” That, however, is the very opposite of the holding in Kay […].”

“Reading between the lines of the pleadings, we can, in many cases, construct some theory of how certain of the payments might have fallen within the Kay rule, e.g., some payments appear to have allowed the importers to bring in equipment and rigs without which they could not perform new or existing contracts. It is even possible that, similar to the facts in Kay, the importers could not have competed for existing or new business had they paid the full duties or taxes or complied with other local requirements. The pleadings, however, for the most part only hint at such an underlying rationale, leaving us to wonder exactly what does the government think the business nexus means today?”

When an author group including a former DOJ official responsible for enforcing the FCPA (in a more measured and disciplined era) uses words such as “disturbing” and phrases such as “not consistent with established precedent and the language of the statute” – well, I think we all should take notice.

Pride – A Little Bit Of Nigeria, And A Whole Lot Else … Plus It Pays To Assist the DOJ!

Next up in the analysis of CustomsGate enforcement actions is Pride International.

As described below, the Pride enforcement action includes not only Nigeria – Panalpina related conduct, but also conduct relating to contract extensions in Venezuela, bribing an administrative law judge in India, customs duties in Mexico, as well as other improper conduct in other countries.

See here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.

The Pride enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $56.2 million ($32.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $23.5 million in disgorgement and prejudgment interest via a SEC settled complaint).

DOJ

The DOJ enforcement action involved a criminal information against Pride International Inc. (“Pride International”) resolved through a deferred prosecution agreement and a criminal information against Pride Forasol S.A.S. (“Pride Forasol”), a wholly-owned subsidiary of Pride International resolved through a plea agreement.

Pride International Inc. Criminal Information

Houston based issuer Pride International Inc. (here) is one of the world’s largest offshore drilling companies.

The criminal information (here) alleges bribery schemes in Venezuela, India and Mexico.

Venezuela

According to the information, “Pride International owned and operated numerous oil and gas drilling rigs throughout South America, including in Venezuela.” In Venezuela, Petroleos de Venezuela S.A. (“PDVSA”), “a Venezuelan state-owned oil company,” leased “the semi-submersible rig Pride Venezuela from Pride Foramer Venezula.” Pride Foramer is described as a branch of Pride Forasol’s wholly-owned subsidiary Prime Foramer operating in Venezuela. According to the information, PDVSA “also contracted with Pride Foramer Venezuela to operate two jackup rigs, the GP-19 and the GP-20.”

The information alleges that between February 2003 and July 2003 Country Manager 1 [a U.S. citizen who was the Country Manager in Venezuela], the Marketing Manager [a Venezuelan citizen working for Pride Foramer Venezuela in Venezuela], the Operations Manager [a French citizen working for Pride Foramer Venezuela in Venezuela], and others known and unknown agreed to pay $120,000 to the Venezuela Intermediary [a company that provided catering services to Pride Foramer Venezuela] with the intent that the money would be paid to the PDVSA Director [a Venezuelan citizen appointed by the President of Venezuela as a member of the PDVSA Board of Directors] to secure a contract extension for the Pride Venezuela.”

According to the information, “in order to conceal and to generate money to pay the bribes to the PDVSA Director” the above named individuals “agreed and instructed one of Pride Foramer Venezuela’s vendors, Vendor A, to inflate certain of its invoices for its services” that “Pride Foramer Venezuela then paid Vendor A for the undelivered services relating to the inflated invoices” and that “Vendor A delivered the excess money it received from Pride Foramer Venezuela to the Venezuela Intermediary with the intent that it would be provided to the PDVSA Director.”

According to the information, “on behalf of Pride International and Pride Foramer Venezuela, Vendor A wire transferred bribe payments of at least $120,000 to, or for the benefit of, the PDVSA Director to an account at a bank in Miami, Florida in the name of the Venezuelan Intermediary.” According to the information, “in exchange for the corrupt payments, the Pride Venezuela contract was extended for approximately three months” and “the profits Pride International derived from extending the contract were approximately $2.45 million.”

As to GP-19 and GP-20, the information alleges that between April 2004 and November 2004 “the Marketing Manager, the Operations Manager, and others known and unknown also agreed to pay at least $114,000 to the Venezuelan Intermediary with the intent that the money would be paid to the PDVSA Director to secure contract extensions for the GP-19 and GP-20.” The information describes a similar payment scheme and payments made to an account in Miami, Florida in the name of the Venezuela Intermediary. According to the information, “in exchange for the corrupt payments, the PDVSA Director caused PDVSA to extend the GP-20 contract from July 2004 through June 2005 and the GP-19 contract from February 2005 through June 2005.”

According to the information “the profits that Pride International derived from the contract extensions for the GP-20 were approximately $596,000” however, the “GP-19 extension was not profitable.” The information further alleges that Senior Executive A [a U.S citizen located in Houston] “concealed information relating to the bribe payments to the PDVSA Director from reports submitted to Pride International auditors.”

India

The information alleges that between January 2003 and July 2003, “Senior Executive B [a French citizen who served as the Director of International Finance for Pride International], the Legal Director [a French citizen who served as the Director of Legal Affairs for Pride Forasol], the Base Manager [a Canadian citizen working for Pride India], the Area Manager [a U.S. citizen with responsibility for the Asia Pacific region], the India Customs Consultant [an individual who provided customs consulting services to Pride India], and others known and unknown agreed to pay $500,000 into bank accounts in Dubai in the names of third party entities with the intent that it would be passed on to an Indian CEGAT [Customs, Excise, and Gold Appellate Tribunal – an Indian administrative judicial tribunal] judge to secure a favorable judicial decision for Pride India [a branch of Pride Forasol’s wholly-owned subsidiary Pride Foramer] relating to a litigation matter pending before the official involving the payment of customs duties and penalties owed for a rig, the Pride Pennsylvania.”

According to the information, “to pay the bribe, employees of Pride Forasol, including Senior Executive B and the Legal Director, caused false invoices for agent and consulting services to be created and submitted to Interdrill [a wholly-owned subsidiary of Pride International organized under the laws of the Bahamas] for payment.” The invoices were processed, the payment was made and on June 30, 2003″Pride India received a favorable ruling from CEGAT” resulting in an “estimate gain to Pride Forasol” of “at least $10 million.”

According to the information, “to conceal the bribe, the Finance Manager [a British citizen who was the Eastern Hemisphere Finance Manager for Pride International], who was located in Houston, Texas, with knowledge of the scheme to bribe the Indian CEGAT judge, sent an e-mail to the Assistant Controller [a U.S. citizen], who was located in Houston, Texas, authorizing the booking of the bribe payments by Pride International’s subsidiary, Interdrill, as a ‘regular fee’ in a newly created ‘miscellaneous fees’ account.”

Mexico

The information alleges that around December 2004, “Senior Executive A, the Logistics Coordinator [a U.S. citizen who was the Logistics Coordinator for Pride Mexico], Country Manager 2 [a U.S. citizen who was the Country Manager in Mexico], and others known and unknown agreed to pay approximately $10,000 to the Mexican Marketing Agent [an individual who provided marketing services to Pride Mexico] to avoid taxes and penalties for alleged violations of Mexican customs regulations relating to a vessel leased by Pride International.”

According to the information, “to conceal the payments, the Mexico Marketing Agent caused false invoices purportedly for electrical maintenance services to be submitted to Pride Mexico [collectively Mexico Drilling Limited LLC, Pride Central America LLC, and Pride Drilling LLC – wholly owned subsidiaries of Pride International] in support of the payment.”

The information then alleges that all of the above-described payments were falsely characterized in the books and records of various subsidiaries or branches that were consolidated into the books, records, and accounts of Pride International for purposes of financial reporting.

Under the heading “total corrupt payments paid and improper benefits received,” the information alleges that between January 2003 through December 2004 “certain Pride International subsidiaries and their branches paid at least $804,000 in bribes to foreign government officials in Venezuela, India, and Mexico to extend contracts, secure a favorable judicial decision, and avoid the payment of customs duties and penalties.”

According to the information, “the benefit that Pride International received as a result of these payments was at least $13 million.”

Based on the above allegations, the DOJ charged Pride International with one count of conspiracy to violate the FCPA’s anti-bribery provisions and to knowingly falsify books and records as to the Mexico payments; one count of violating the FCPA’s anti-bribery provisions as to the Venezuela payments; and one count of FCPA books and records violations as to the India payments.

Pride International Inc. DPA

The DOJ’s charges against Pride International were resolved via a deferred prosecution agreement (see here).

Pursuant to the DPA, Pride International admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.

The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement “based on the individual facts and circumstances” of the case and Pride International. Among the factors stated are the following.

(a) during a routine audit, Pride International discovered an allegation of bribery;

(b) Pride International voluntarily and timely disclosed to the Department and the SEC the misconduct;

(c) Pride International conducted a thorough internal investigation of that misconduct;

(d) Pride International voluntarily initiated a comprehensive anti-bribery compliance review of Pride International’s business operations in certain other high-risk countries [as to this broader compliance review, this Joint Motion to Waive Presentence Investigation notes that the review included a number of “high-risk countries including Angola, Brazil, Kazakhstan, Libya, Nigeria, the Republic of Congo, and Saudi Arabia” and that outside counsel with assistance from forensic accounting professionals were involved in the review of approximately 20 million pages of electronic and hard copy documents gathered from approximately 350 custodians, and that more than 200 interviews of employees and agents took place;

(e) Pride International regularly reported its findings to the Department;

(f) Pride International cooperated in the Department’s investigation of this matter, as well as the SEC’s investigation;

(g) Pride International undertook, of its own accord, remedial measures, including the enhancement of its FCPA compliance program, and agreed to maintain and enhance, as appropriate, its FCPA compliance program; and

(h) Pride International agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Pride International and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.

As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $72.5 million to $145 million. Pursuant to the DPA, Pride International agreed to pay a monetary penalty of $32.625 million – approximately 55% below the minimum guideline amount.

Pursuant to the DPA, Pride International agreed to a host of compliance undertakings and to report to the DOJ on an annual basis (during the term of the DPA) “on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures.”

As is standard in FCPA DPAs, Pride International agreed not to make any public statement “contradicting the acceptance of responsibility by Pride International as set forth” in the DPA and Pride International further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.

Pride Forasol Criminal Information

The Pride Forasol criminal information (here) alleges the same scheme to bribe an administrative judge in India as described in the Pride International information. The information charges one count of conspiracy to violate the FCPA’s anti-bribery provisions and to knowingly falsify books and records; one count of violating the FCPA’s anti-bribery provisions; and one count of aiding and abetting the creating of false books and records.

Pride Forasol Plea Agreement

The above described charges against Pride Forasol were resolved via a plea agreement (see here). Even though the Pride Forasol information is limited to India conduct, the sentencing guidelines range, $72.5 million to $145 million, is the same as set forth in the above described Pride International DPA.

The agreement sets forth factors motivating the DOJ to resolve the criminal charges in the manner in which they were resolved.

Such factors include: “Pride International’s and Pride Forasol’s substantial assistance with other related Department investigations regarding the bribery of foreign government officials in Venezuela and Mexico, including providing: (1) the names of individuals involved; and (2) contact information for the individuals” and “Pride International’s and Pride Forasol’s substantial assistance with other Department investigations regarding the bribery of foreign government officials in Nigeria and Saudi Arabia, including providing documentation and access to individuals.”

The above referenced Joint Motion to Waive Presentence Investigation states that Pride Forasol and Pride International “developed and timely provided detailed and significant information regarding third parties, including Panalpina Word Transport (Holding) Ltd. […] that was used to pay bribes to foreign government officials by numerous companies around the world.” The Joint Motion states that “the information provided by the Companies substantially assisted the Department because the extent of Panalpina’s conduct was unknown by the Department at the time of the Companies’ disclosure. It was only through the extensive, worldwide investigative efforts of the Companies that these complex criminal activities were uncovered and reported to the Department.”

SEC

The SEC’s civil complaint (here) alleges the same Venezuela, India, and Mexico payments described above.

As to Venezuela, the complaint alleges as follows:

“From approximately 2003 to 2005, Joe Summers, the country manager of the Venezuelan branch of a French subsidiary of Pride, and/or certain other managers authorized payments totaling approximately $384,000 to third-party companies believing that all or a portion of the funds would be given to an an official of Venezuela’s state-owned oil company in order to secure extensions of three drilling contracts. In addition, Summers authorized the payment of approximately $30,000 to a third party believing that all or a portion of the funds would be given to an employee of Venezuela’s state-owned oil company in order to secure an improper advantage in obtaining the payment of certain receivables.” (See this prior post for a summary of the Summers enforcement action).

“In or about 2003, a French subsidiary of Pride made three payments totaling approximately $500,000 to third-party companies, believing that all or a portion of the funds would be offered or given by the third-party companies to an administrative judge to favorably influence ongoing customs litigation relating to the importation of a rig into India. Pride’s U.S.-based Eastern Hemisphere finance manager had knowledge of the payments at the time they were made.”

“In or about late 2004, Bobby Benton, Pride’s Vice President, Western Hemisphere Operations, authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat.” (See here for a summary of the Benton enforcement action).

Based on these allegations, the SEC charged Pride International with FCPA anti-bribery violations. Based on these allegations, as well as the below allegations, the SEC charged Pride International with FCPA books and records and internal control violations.

The SEC’s complaint also describes certain other “transactions entered into by wholly or majority owned Pride subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya [that] were not correctly recorded in those subsidiaries’ books.”

As to Mexico, the complaint alleges that a $15,000 payment was made to a “Mexican customs official during the course of the export [of certain rigs] to ensure that the export of the rig would not be delayed due to claimed violations relating to non-conforming equipment on board the rig.”

As to Kazakhstan, the complaint alleges that the Kazakhstan affiliate of Panalpina informed a Pride Forasol logistics manager “that Kazakh customs officials had identified irregularities during a customs audit of Pride Forasol Kazakhstan, but that the issue could be resolved by making a cash payment of approximately $45,000 and paying substantially reduced monetary penalties.” According to the complaint, “certain Pride Forasol managers authorized the cash payment by [Panalpina] to resolve the customs irregularities.” The complaint further alleges that Pride Forasol Kazakhstan made “three payments totaling approximately $204,000” to a Kazakh Tax Consultant while “knowing facts that suggested a high probability that the Kazakh Tax Consultant would give all or a portion of the payments to Kazakh tax officials” who previously threatened to levy substantial taxes and penalties against Pride Forasol Kazakhstan.

As to Nigeria, the complaint alleges that “certain Pride Forasol Nigeria and Pride Forasol managers were aware of information suggesting a high probability that [Panalpina] would give all or a portion of the lump-sum payments charged in connection with obtaining or extending Pride Forasl Nigeria temporary importation (“TI”) permits to Nigerian customs officials in exchange for their cooperation in issuing the TI permits on favorable terms and/or without completing certain legally required steps.” The complaint further alleges that Pride Forasol Nigeria records were incompete and that Pride Forasol Nigeria “did not have adequate assurances” that certain tax payments were not paid directly to tax officials. In addition, the complaint alleges that Pride Forasol Nigeria “authorized the payment of $52,000 to a Nigeria Tax Agent while knowing facts that suggested a high likelihood that the Nigeria Tax Agent would give all or a portion of the money to a Nigerian tax official.”

As to Saudi Arabia, the complaint alleges that the Saudi Arabian affiliate of Panalpina informed a Pride Forasol Arabia manager that expedited customs clearance of a rig could be assured for a payment of $10,000. The complaint alleges that the manager “took $10,000 in cash from Pride Forasol Arabia’s petty cash fund, describing on the petty cash voucher the purpose of the payment as ‘freight forwarding services,’ and gave the money to a Saudi customs official.”

As to Congo, the complaint alleges as follows. “An inspection by the Congo Merchant Marine revealed that certain personnel abroad [a Pride Congo rig] lacked required maritime certification. A Merchant Marine official proposed that Pride Congo could resolve the paperwork defiiciency by making a payment for his personal benefit. A Pride Congo manager agreed to pay the Merchant Marine official $8,000 in lieu of an official penalty.” According to the complaint, the “payments were recorded as travel expenses in Pride Congo’s books and records.”

As to Libya, the complaint alleges that Pride Forasol managers authorized payments to a Libya Tax agent in connection with unpaid social security taxes and penalties against Pride Forasol Libya “without adequate assurances that the Libyan Tax Agent would not pass some or all of these fees to” officials of Libya’s social security agency.

According to the complaint, “Pride obtained improper benefits totaling approximately $19,341,870 from the conduct” described in the complaint. “Prejudgment interest on this amount is $4,187,848.”

Without admitting or denying the SEC’s allegations, Pride agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement and prejudgment interest of $23,529,718.

Pride’s press release (here) notes, among other things, as follows: “In addition to self-reporting in February 2006 and voluntarily cooperating with the government, we have greatly strengthened and enhanced our antibribery compliance program and policies. Our current management and board are strongly committed to conducting the company’s business ethically and legally, and we seek to instill in our employees the expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law.”

Martin Weinstein (here) and Jeffrey Clark (here) both former DOJ enforcement attorneys with Willkie Farr & Gallagher, as well as Samuel Cooper (here) of Baker Botts, represented the Pride entities.

Major Shipment – Customs Cases Bring In $236.5 Million

The pipeline that contains pending FCPA enforcement actions burst yesterday as the DOJ and SEC announced enforcement actions against 13 separate entities.

In enforcement actions that have long been anticipated, Panalpina entities, as well as several others, settled DOJ and SEC enforcement actions principally focused on customs and related payments in Nigeria, but also including alleged improper conduct in Angola, Brazil, Russia, Kazakhstan, Venezuela, India, Mexico, Saudi Arabia, the Republic of Congo, Libya, Azerbaijan, Turkmenistan, Gabon and Equatorial Guinea.

The combined DOJ/SEC settlement amounts total $236.5 million.

Your FCPA scorecard thus shows that since June 28th, the U.S. government has brought FCPA enforcement actions totaling approximately $1.1 billion. With numbers like these, aggressive FCPA enforcement based on, often times, dubious legal theories (more on that later) seems like the most profitable government program ever conceived.

Set forth below is a basic overview of the settlements. A more thorough review of the hundreds of pages of relevant documents will be forthcoming.

The DOJ resolution documents can be found here, the SEC resolution documents here.

Panalpina Entities

DOJ

Entities: Panalpina World Transport (Holding) Ltd. and Panalpina Inc.

Resolution Vehicles: Criminal information charging Panalpina World Transport(Holding) with conspiracy to violate and violating the FCPA’s anti-bribery provisions. Charges resolved through a deferred prosecution agreement. Criminal information charging Panalpina Inc. with conspiracy to violate the FCPA’s books and records provisions and aiding and abetting certain customers in violating the FCPA’s books and records provisions. Charges resolved through a plea agreement.

Countries: Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan

Penalty: Combined $70.56 million

SEC

Entity: Panalpina, Inc.

Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, aiding and abetting FCPA anti-bribery violations, and FCPA books and records and internal controls violations.

Countries: Nigeria, Angola, Brazil, Russia, and Kazakhstan

Disgorgement: $11,329,369

Pride Entities

DOJ

Entities: Pride International Inc. and Pride Forasol S.A.S.

Resolution Vehicle: Criminal information charging Pride International with conspiracy to violate the FCPA’s anti-bribery provisions and books and records provisions; violating the FCPA’s anti-bribery provisions; and violating the FCPA’s books and records provisions. Charges resolved through a deferred prosecution agreement. Criminal information charging Pride Forasol with conspiracy to violate the FCPA’s anti-bribery provisions; violating the FCPA’s anti-bribery provisions; and aidng and abetting violations of the FCPA’s books and records provisions. Charges resolved through a plea agreement.

Countries: Venezuela, India and Mexico

Penalty: $32.625 million (combined)

SEC

Entity: Pride International Inc.

Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations.

Countries: Venezuela, India, Mexico, Kazakhstan, Nigeria, Saudi Arabia, Republic of Congo, and Libya

Disgorgement and interest: $23,529,718

Tidewater Entities

DOJ

Entities: Tidewater Marine International Inc., Tidewater Inc.

Resolution Vehicle: Criminal information charging Tidewater Marine with conspiracy to violate the FCPA’s anti-bribery and books and records provisions and violating the FCPA’s books and records provisions. Charges resolved through a deferred prosecution agreement with Tidewater that requires, among other things, Tidewater Marine to pay a $7.35 million criminal penalty.

Countries: Azerbaijan and Nigeria

Penalty: $7.35 million

SEC

Entity: Tidewater Inc.

Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations

Countries: Nigeria, Azerbaijan

Disgorgement: $8,104,362

Civil Penalty: $217,000

Transocean Entities

DOJ

Entities: Transocean Inc. and Transocean Ltd.

Resolution Vehicle: Criminal information charging Transocean Inc. with conspiracy to violate the FCPA’s anti-bribery and books and records provision; violating the FCPA’s anti-bribery provisions; and aiding and abetting the FCPA’s books and records provisions. Charges resolved through a deferred prosecution agreement with Transocean Ltd. that requires, among other things, Transocean Inc. to pay a $13.44 million criminal penalty.

Countries: Nigeria

Penalty: $13.44 million

SEC

Entity: Transocean Inc.

Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations

Countries: Nigeria

Disgorgement and interest: $7,265,080

GlobalSantaFe Corp.

SEC

Entity: GlobalSantaFe Corp.

Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery provisions, FCPA books and records and internal controls violations

Countries: Nigeria, Gabon, Angola, Equatorial Guinea

Disgorgement: $3,758,165

Civil Penalty: $2.1 million

Noble Corporation

DOJ

Entity: Noble Corporation

Resolution Vehicle: Non-proseuction agreement in which Noble Corporation: (i) acknowledged that certain of its employees knew that payments would be passed on as bribes to Nigerian customs officials; and (ii) admitted that the company falsely recorded the bribe payments as legitimate business expenses.

Countries: Nigeria

Penalty: $2.59 million

SEC

Entity: Noble Corporation

Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations

Countries: Nigeria

Disgorgement and interest: $5,576,998

Royal Dutch Shell Entities

DOJ

Entities: Royal Dutch Shell plc and Shell Nigeria Exploration and Production Company Ltd. (“SNEPCO”)

Resolution Vehicle: Criminal information charging SNEPCO with conspiracy to violate the FCPA’s anti-bribery and books and records provisions and with aiding and abetting the FCPA’s books and records provisions resolved through a deferred prosecution agreement with Royal Dutch Shell Plc requiring, among other things, SNEPCO to pay a $30 million criminal penalty

Countries: Nigeria

Penalty: $30 million

SEC

Entity: Royal Dutch Shell plc and Shell International Exploration and Production Inc (“SIEP”).

Resolution Vehicle: Administrative cease and desist order finding FCPA books and records and internal control violations by Royal Dutch Shell and FCPA anti-bribery violations by SIEP

Countries: Nigeria

Disgorgement: $18,149,459

*****

According to the SEC release (here), Cheryl Scarboro, Chief of the SEC’s FCPA Unit stated: “This investigation was the culmination of proactive work by the SEC and DOJ after detecting widespread corruption in the oil services industry. The FCPA Unit will continue to focus on industry-wide sweeps, and no industry is immune from investigation.”

The SEC release further states: [t]his is the first sweep of a particular industrial sector in order to crack down on public companies and third parties who are paying bribes abroad.”

Paying to Secure Receivables Is Now Bribery?

Attention to companies (and employees) operating around the world.

If you are party to a contract, and a mid-level employee at the entity receiving services under the contract holds up payment of money the company is legitimately entitled to receive, but the mid-level employee requests payment in order to release the funds, and you make the requested payment, you are violating the Foreign Corrupt Practices Act.

That at least seems to be the message the SEC is sending in the Joe Summers enforcement action made public yesterday (see here and here)>

How such payments to receive what one is owed under a contract satisfies the FCPA’s “obtain or retain business” element is sure to be a question asked in light of this enforcement action.

According to the SEC complaint, Summers “was nominally employed by Pride International Personal Ltd. – a wholly owned subsidiary of Pride International Inc.” and “was responsible for managing the operations of Pride Foramer de Venezuela S.A.” The SEC complaint alleges however that Summer “functioned” as an employee or agent of Pride in that “Summers reported to, and was controlled by, Houston-based Pride officers” and further states that “Summers was responsible for, among other things, ensuring that Pride conducted its Venezuelan operations in compliance with the Foreign Corrupt Practices Act, that adequate controls were in place to prevent illegal payments, and that the company’s books and records were accurate.”

According to the SEC complaint:

“Following widespread strikes and civil unrest in Venezuela in late 2002, Pride […] and other companies performing work for PDVSA (PDVSA is the Venezuela state-owned oil company) had difficulty collecting outstanding receivables from PDVSA. By early 2003, Pride […] had significant unpaid receivables for services that it had provided to PDVSA. In or around March or April 2003, Pride […] received information that a mid-level PDVSA accounts payable employee was holding up the payment of funds owed to Pride […] and wanted a payment of approximately $30,000 in order to release the funds due. In or around March or April 2003, Summers authorized a payment of approximately $30,000 to a third party, believing that all or a portion of the funds would be offered or given by the third party to an employee of PDVSA for purposes of securing an improper advantage in receiving payment from PDVSA. Shortly thereafter, in or around April 2003, Pride […] received overdue payments from PDVSA for work that Pride […] had performed.”

The above paragraph from the SEC complaint, while the most noteworthy, is not the only reason the SEC charged Summers with violating the FCPA’s anti-bribery provisions, among other charges.

According to the SEC, Summers also authorized payments totaling approximately $120,000 through a vendor to a Miami bank account in the name of a Venezuela Intermediary who purported to represent a PDVSA official and who indicated he could assist Pride in obtaining an extension of a drilling contract.

Based on this core conduct, the SEC alleged that “Summers, by authorized or allowing his subordinates to execute the bribery scheme involving vendors, caused Pride […] to inaccurately record those payments as payments for goods and services received from the vendors.”

In addition to charging Summers with FCPA anti-bribery violations, the SEC also charged Summers with: (i) knowingly circumventing or knowingly failing to implement a system of internal accounting controls or knowingly falsifying books and records; (ii) aiding and abetting FCPA anti-bribery violations; and (iii) aiding and abetting violations of the FCPA’s books and records and internal control provisions.

According to the SEC release, without admitting or denying the SEC’s allegations, Summers consented to entry of a permanent injunction and agreed to pay a $25,000 civil penalty.

According to the SEC’s complaint, “when subpoenaed to testify by the Commission’s staff during its investigation, Summers asserted his Fifth Amendment privilege against self-incrimination.”

The enforcement action was prosecuted by the SEC’s Fort Worth, Texas branch office.

In December 2009, the SEC brought a related enforcement action against Bobby Benton (the former Vice President, Western Hemisphere Operations for Pride International, Inc.). See here.

For on Pride see here.

In its recent 10-Q filing, Pride had this to say regarding its FCPA exposure in connection with Venezuela and several other countries:

“We are engaged in discussions with the DOJ and the SEC regarding a potential negotiated resolution of these matters, which could be settled during 2010 and which, as described above, could involve a significant payment by us. We believe that it is likely that any settlement will include both criminal and civil sanctions. We have accrued $56.2 million in anticipation of a possible resolution with the DOJ and the SEC of potential liabilities under the FCPA.”

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