Top Menu

The Final Act In The BAE Circus?

Last week, the State Department announced (here) that “BAE Systems plc of the United Kingdom (BAES), including its businesses, units, subsidiaries, and operating divisions and their assignees and successors, except BAE Systems, Inc. and its subsidiaries, entered into a civil settlement with the Department of State for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).” The release states that “under the four-year term of the Consent Agreement, BAES will pay in fines and in remedial compliance measures an aggregate civil penalty of $79 million, the largest civil penalty in Department history.”

The State Department action follows the March 1, 2010 guilty plea of BAE Systems plc. (see here for the prior post). BAE pleaded guilty to “conspiring to defraud the United States by impairing and impeding its lawful functions, to make false statements about its FCPA compliance program, and to violate the Arms Export Control Act and International Traffic in Arms Regulations.” In that DOJ enforcement action, BAE Systems plc agreed to pay a $400 million criminal fine.

I previously called (here) the BAE “bribery, yet no bribery” enforcement action one that contributes to the “facade of FCPA enforcement” (see here) and was asked several questions about the enforcement action by former Senator Arlen Specter (see here).

Like the DOJ enforcement action, the State Department action specifically notes that BAE Systems, Inc. was not involved in the conduct giving rise to the enforcement actions. BAE Systems Inc. is “the U.S.-based segment of BAE Systems plc” and “is responsible for relationships with the U.S. Government…”. (See here).

The State Department action involved BAE Systems plc entering into a consent decree (see here for the relevant documents) “to settle 2,591 violations of the AECA and ITAR in connection with the unauthorized brokering of U.S. defense articles and services, failure to register as a broker, failure to file annual broker reports, causing unauthorized brokering, failure to report the payment of fees or commissions, and failure to maintain records involving ITAR-controlled transactions.”

Certain of the improper conduct identified in the State Department documents relate to the lease and lease/sale of Gripen aircraft to the Ministries of Defence in the Czech Republic and Hungary – conduct also at issue in the DOJ’s prosecution of BAE (see here for the criminal information).

The State Department documents also relate to BAE’s use of advisers for defense transactions and proposed defense transactions involving U.S. defense articles and services without obtaining authorization from the State Department.

One of the advisors identified is Alfons Mensdorff-Pouilly. As noted in this previous post, the U.K. Serious Fraud Office (“SFO”) originally charged Alfons Mensdorff-Pouilly with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.” Within days, the SFO dropped the charges. As noted in this previous post, the SFO explained that BAE would not agree to the SFO plea (watered down as it was) without the SFO agreeing to drop the charges against Count Mensdorff.

As to debarment, the State Department consent agreement states (at page 20) that the State “Department has determined to impose a statutory debarment of BAE Systems plc pursuant to section 127 of the ITAR [see here], based on the criminal charges [in the previous DOJ enforcement action].

Yet, the next sentence of the consent decree states as follows. “However, based on the foregoing and additional information provided by Respondent, and request for reinstatement by BAE Systems plc, the Assistant Secretary of State for Political-Military Affairs has determined under Section 38(g)(4) of the AECA [see here] that Respondent has taken appropriate steps to address the causes of the violations and to mitigate law enforcement concerns. Accordingly, BAE Systems plc shall be reinstated.”

The consent decree did however “place under a policy of denial” BAE Systems CS&S International, Red Diamond Trading Ltd. and Poseidon Trading Investments Ltd. Per the consent decree, this means that there will be “an initial presumption of denial during the case-by-case review of all licenses and other authorizations” involving these subsidiaries even though the consent decree states that “Transaction Exceptions” may be granted by the State Department. Furthermore, the consent decree states that all licenses, agreements, and other authorizations involving these subsidiaries previously issued “are not affected and are not revoked.”

The most recent annual report on BAE’s website states as follows regarding CS&S International. “The operating group’s CS&S International business predominantly acts as prime contractor for the UK government-to government defence agreement with Saudi Arabia and has a major in-country presence. Its main activities include operational capability support to both the Royal Saudi Air Force and Royal Saudi Naval Force and, more recently, the commencement of supply of 72 Typhoon aircraft.” Neither Red Diamond Trading Ltd. nor Poseidon Trading Investments Ltd. are mentioned in the 190 page annual report.

According to this U.K. Guardian article “BAE’s Secret Money Machine,” “in February 1998 Red Diamond Trading Ltd was anonymously incorporated in the British Virgin Islands and was used to channel payments all over the world, via Red Diamond accounts in London, Switzerland and New York.” As to Poseidon Trading, the same article states as follows. “BAE set up a second front company, purely to handle the Saudi commission payments for al-Yamamah. Poseidon Trading Investments Ltd was incorporated in the British Virgin Islands on June 25 1999.”

The DOJ’s criminal information contains various allegations regarding Saudi Arabia – without specifically mentioning the al-Yamamah contract. For more on the al-Yamamah contract see here -a PBS Frontline documentary titled Black Money.

The State Department’s recent $79 million enforcement action against BAE is in addition to the DOJ’s $400 million enforcement action against BAE from 2010. However, as Dru Stevenson (Professor of Law, South Texas College of Law) and Nick Wagoner (a law student at South Texas College of Law) explored in this recent post, in the 365 days that followed the 2010 DOJ enforcement action, BAE was awarded U.S. contracts in excess of $58 billion dollars.

*****

Speaking of debarment (or lack thereof) Senator Al Franken continues to lead on this issue. Earlier this month, during a Senate Judiciary Committee hearing, Franken questioned Attorney General Eric Holder why, over the past three years, hundreds of billions of dollars have been awarded to defense contractors who have previously been convicted of fraud. See here for the video. Senator Franken similarly questioned Assistant Attorney General Lanny Breuer during a January Senate Judiciary Committee hearing. See here for the video.

In connection with the Senate’s November 2010 hearing “Examining Enforcement of the Foreign Corrupt Practices Act” the DOJ was asked whether it favored “mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery.” See here for the prior post including the DOJ’s response.

Carson “Foreign Official” Challenge Fully Briefed

Yesterday various defendants in the U.S. v. Carson case pending in the Central District of California filed a reply brief (see here).

The brief begins as follows.

“In 1977, Congress could have enacted a general anti-bribery statute that made it a crime to pay a commercial bribe to any foreign national, but it did not. Rather, the FCPA criminalizes improper payments only to a “foreign official.” Thus, making an improper payment to a “foreign official” violates the FCPA; making that same payment to someone who is not a “foreign official” does not. This is undisputed.”

“The Government argues that “[s]tate-owned business enterprises [‘SOEs’] may, in appropriate circumstances, be considered instrumentalities of a foreign government and their officers and employees to be foreign officials.” But Congress (i) knew about SOEs when it enacted the FCPA, (ii) knew that some of the questionable payments in the pre-FCPA era may have been made to employees of SOEs, and (iii) knew how to include SOEs in the definition of “foreign official” if it had wanted to do so. Clearly, Congress did not do so, and contrary to the Government’s arguments, there is no evidence that Congress intended SOEs to be covered by this criminal statute, or intended the word “instrumentality” to encompass broadly anything through which a foreign government achieves an “end or purpose.” In fact, the plain language of the statute and its history illustrate that the FCPA was aimed at preventing improper payments to traditional government officials. If Congress had wanted SOEs to be included in the definition of “instrumentality,” it would have expressly said so – just as it did in 1976 when it enacted the Foreign Sovereign Immunities Act (“FSIA”).”

“Having no statutory authority for its sweeping position, the Government is thus unable to define the “appropriate circumstances” when an SOE allegedly falls within the FCPA. The Government states only that it is a “fact-based determination.” But facts in isolation are irrelevant unless analyzed in the context of a legal framework. And for over two hundred years it has been “emphatically the province and duty of the judicial department” – not the jury – “to say what the law is.” Marbury v Madison, 5 U.S. (1 Cranch) 137 (1803). Thus, while a jury may decide disputed issues of fact, this Court must first decide the law.”

“Defendants’ Motion squarely challenges the Government’s unsupported legal
interpretation of the FCPA by arguing that the term “instrumentality” simply does not include SOEs, and thus employees of SOEs are not, as a matter of law, “foreign officials.” The Government labels Defendants’ position as extreme, insisting that it “is not asking for a legal conclusion that all SOEs are instrumentalities,” only for a ruling that “the term instrumentality . . . can include SOEs.” But it is the Government’s position that is unreasonable, because the Government cannot articulate any principled test – and there is no test, other than one invented from whole cloth – for what would make one SOE, but not another, a government “instrumentality” under the FCPA. Accordingly, the Government’s concession, that some SOEs fall within and some outside the statute, coupled with the complete lack of any meaningful or discernable standards for deciding which is which, undermines the Government’s position and requires that it be rejected because it would render the FCPA unconstitutionally vague as applied.”

“Accordingly, the Court should hold that employees of SOEs are not “foreign
officials” under the FCPA and should dismiss Counts One through Ten of the
Indictment. Contrary to the Government’s overblown rhetoric, the sky will not fall upon such a ruling; rather, the issue will be returned to its proper forum: Congress. See Skilling v. United States, 561 U.S. ___, 130 S. Ct. 2896, 2933 (2010) (“If Congress desires to go further . . . it must speak more clearly than it has.”).”

This previous post links to the Defendants’ motion and my declaration filed in support. This previous post links to the DOJ’s opposition brief as well as supporting declarations from the State Department and the FBI.

The Carson defendants also moved (see here) to strike the State Department declaration or in the alternative for a court order requiring the State Department employee to appear for questioning at next week’s hearing). As noted in this prior post, the same State Department declaration was ordered stricken in the Lindsey “foreign official” challenge and is also being challenged in the O’Shea “foreign official” challenge – see here.

*****

In a related development, last week the DOJ announced (here) that “Flavio Ricotti, a former executive of [Control Components, Inc. – the same employer as the above referenced defendants challenging the DOJ’s “foreign official” interpretation] has pleaded guilty for his participation in a conspiracy to secure contracts by paying bribes to officials of foreign state-owned companies as well as officers and employees of foreign and domestic private companies.” See here for the plea agreement.

As noted in the DOJ release, “Ricotti pleaded guilty […] to a one-count superseding information [see here] charging him with conspiring to make corrupt payments to foreign government officials, and officers and employees of private companies in several countries, including Saudi Arabia and Qatar, in violation of the Foreign Corrupt Practices Act (FCPA) and the Travel Act.”

The DOJ release further states as follows. “In connection with his guilty plea, Ricotti admitted that he conspired with other CCI employees to offer a payment to an official of Saudi Aramco, a Saudi Arabian state-owned oil company, in connection with attempting to obtain a valve contract for CCI in 2003. Ricotti also admitted to conspiring with other CCI employees to make a payment to an employee of a private company so that the employee would assist in awarding to CCI a valve contract in Qatar.”

As further noted in the DOJ release:

“In related cases, two defendants previously pleaded guilty to conspiring to bribe officers and employees of foreign state-owned companies on behalf of CCI. On Jan. 8, 2009, Mario Covino, the former director of worldwide factory sales for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $1 million in bribes to officers and employees of several foreign state-owned companies. On Feb. 3, 2009, Richard Morlok, the former finance director for the valve company, pleaded guilty [see here] to one count of conspiracy to violate the FCPA and admitted to causing the payment of approximately $628,000 in bribes to officers and employees of several foreign state-owned companies. Covino and Morlok are scheduled to be sentenced in February 2012.”

See here for July 2009 enforcement action against Control Components, Inc.

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.

BAE – The Non-Bribery Bribery Allegations

Back in law school, a professor was fond of the phrase ““if it walks like a duck, quacks like a duck, looks like a duck, it must be a duck.”

Among other allegations, DOJ’s criminal information (here) against BAE alleges that BAE served as the “prime contractor to the U.K. government following the conclusion of a Formal Understanding between the U.K. and the Kingdom of Saudi Arabia (“KSA”)” in which BAE sold to the U.K. government, which then in turn sold to the Saudi government several Tornado and Hawk aircraft, “along with other military hardware, training and services.” The information refers to these frequent arrangements as the “KSA Fighter Deals.”

In connection these deals, the information alleges that “BAE provided substantial benefits to one KSA public official, who was in a position of influence regarding the KSA Fighter Deals (the “KSA Official”), and to the KSA Official’s associates.” The indictment alleges that BAE “provided these benefits through various payment mechanisms both in the territorial jurisdiction of the U.S. and elsewhere.”

WALKS LIKE A DUCK!

This allegation is important from an FCPA perspective because the FCPA only applies to a company like BAE (a foreign company with no shares listed on a U.S. exchange) if conduct in furtherance of a bribery scheme has a U.S. nexus. See 78dd-3. [BAE does have a wholly-owned U.S. subsidiary – a “domestic concern” under the FCPA – but the information states that this entity was not involved in the conduct alleged in the information].

In addition, the information contains additional allegations which clearly demonstrate that BAE’s bribery scheme had a U.S. nexus. For instance, the information alleges that BAE “provided support services to [the] KSA Official while in the territory of the U.S.” and that these benefits “included the purchase of travel and accommodations, security services, real estate, automobiles and personal items.” The information alleges that over $5 million in invoices for benefits provided to the KSA Official were submitted by just one BAE employee during a one year period.

QUACKS LIKE A DUCK!

The information also alleges that BAE “used intermediaries and shell entities to conceal payments to certain advisers who were assisting in the solicitation, promotion and otherwise endeavoring to secure the conclusion or maintenance of the KSA Fighter Deals.”

Specifically, the information alleges that “in connection with the KSA Fighter Deals, BAE agreed to transfer sums totaling more than £10,000,00 and more than $9,000,000 to a bank account in Switzerland controlled by an intermediary. BAE was aware that there was a high probability that the intermediary would transfer part of these payments to the KSA Official.”

Such “high probability” language is a direct quote from the FCPA’s so-called third party payment provisions which prohibit making improper payments to any person “while knowing that all or a portion” of the money will be given to a foreign official in order to obtain or retain business. The FCPA specifically provides that “[w]hen knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.”

In order words, the “high probability” language used in the BAE criminal information is no mere coincidence. In fact, that language (i.e. a company was aware that there was a high probability that the intermediary would transfer part of its payments to a foreign official) is frequently used by the DOJ in resolving FCPA antibribery actions.

For instance, in the InVision FCPA enforcement action, the “investigations by the DOJ and SEC revealed that InVision, through the conduct of certain employees, was aware of a high probability that its agents or distributors” in Thailand, China and the Philippines “had paid or offered to pay money to foreign officials or political parties in connection with transactions or proposed transactions for the sale by InVision of its airport security screening machines.” (See here). Specifically, the non-prosecution agreement (here) notes that: (i) InVision “was aware of a high probability that part of the source of funds” to an agent was to be used by the agent “to fund an offer to promise to make payments” to Thai officials; (ii) InVision authorized a payment to an agent “with awareness of a high probability” that the agent “intended to use part of that payment to influence” Chinese officials; and (iii) InVision sought authorization for a payment to an agent “with awareness of a high probability that” the agent “intended to use part of that payment to influence officials of the government of the Philippines” – all in an effort to obtain or retain business for InVision.

LOOKS LIKE A DUCK!

Yet, the DOJ’s criminal information merely charges one count of conspiracy and it lacks any FCPA antibribery charges. Moreover, the conspiracy charge relates only to “making certain false, inaccurate and incomplete statements to the U.S. government and failing to honor certain undertakings given to the U.S. government, thereby defrauding the United States” and “caus[ing] to be filed export license applications with [various U.S. government entities] that omitted a material fact” concerning fee and commission payments.” Among the false statements BAE is alleged to have made to the U.S. government is its commitment to not knowingly violate the FCPA.

This is the only mention of the FCPA in the information despite the above allegations concerning the KSA Fighter Deals – facts which clearly implicate the FCPA’s antibribery provisions.

In other words, NO DUCK!

For a prior post on BAE (see here).

Powered by WordPress. Designed by WooThemes