This prior post  highlighted the DOJ’s recent net $37.5 million Foreign Corrupt Practices Act enforcement action against Samsung Heavy Industries (a South Korea-based company with a branch office in Houston) focused on its relationship with Pride International (now part of Valaris plc) through which it sold a drillship to Petrobras.
This post highlights additional issues to consider from the enforcement action.
What About Pride?
The primary beneficiary, it would seem, of the conduct alleged in the SHI enforcement action is the “Chartering Company” described by the DOJ as an “offshore oil drilling company headquartered in Houston, Texas which provided contract drilling and related services to oil and gas companies.”
As stated by the DOJ, SHI “knowingly and willfully conspired” with others “to corruptly provide payments to, and for the benefit of, foreign officials to secure an improper advantage and to influence those foreign officials in order to obtain and retain business with Petrobras” in connection with the “sale of an offshore oil drillship to Chartering Company which would then be chartered to Petrobras.”
In this release , SHI identified the Chartering Company as Pride International (now part of Valaris plc).
So what is the status of any investigation into Valaris?
In its October 31st quarterly filing , Valaris stated:
“Pride FCPA Investigation
During 2010, Pride International LLC (“Pride”) and its subsidiaries resolved their previously disclosed investigations into potential violations of the Foreign Corrupt Practices Act of 1977 (the “FCPA”) with the DOJ and SEC. The settlement with the DOJ included a deferred prosecution agreement (the “DPA”) between Pride and the DOJ and a guilty plea by Pride Forasol S.A.S., one of Pride’s subsidiaries, to FCPA-related charges. During 2012, the DOJ moved to (1) dismiss the charges against Pride and end the DPA one year prior to its scheduled expiration; and (2) terminate the unsupervised probation of Pride Forasol S.A.S. The Court granted the motions.
Pride has received preliminary inquiries from governmental authorities of certain countries referenced in its settlements with the DOJ and SEC. We could face additional fines, sanctions and other penalties from authorities in these and other relevant jurisdictions, including prohibition of our participating in or curtailment of business operations in certain jurisdictions and the seizure of rigs or other assets. At this stage of such inquiries, we are unable to determine what, if any, legal liability may result. Our customers in certain jurisdictions could seek to impose penalties or take other actions adverse to our business. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, stockholders, debt holders or other stakeholders. In addition, disclosure of the subject matter of the investigations and settlements could adversely affect our reputation and our ability to obtain new business or retain existing business, to attract and retain employees and to access the capital markets.
We cannot currently predict what, if any, actions may be taken by any other applicable government or other authorities or our customers or other third parties or the effect any such actions may have on our financial position, operating results and cash flows.”
Incidentally, Ensco (like Pride) is also a 100% owned subsidiary of Valaris and as highlighted in this prior 2015 post  Ensco disclosed:
“Pride International, Inc. (“Pride”), a company we acquired in 2011, commenced drilling operations in Brazil during 2001 and, in 2008, entered into a drilling contract with Petrobras for DS-5, a rig Pride had ordered from a shipyard in South Korea. Beginning in 2006, Pride conducted periodic compliance reviews of its business with Petrobras, and, after the acquisition, Ensco conducted similar compliance reviews, the most recent of which commenced in early 2015 after media reports were released regarding ongoing investigations of various kickback and bribery schemes in Brazil involving Petrobras. While conducting our compliance review, we became aware of an internal audit report by Petrobras alleging irregularities in relation to DS-5 – specifically, that Petrobras overpaid under the drilling contract. We believe this allegation is inaccurate, as publicly available data show that the contract’s compensation terms were in line with other contracts signed by Petrobras and other customers with our competitors during the same timeframe (late 2007 and early 2008). We provided this information to Petrobras in June 2015. We continue to operate DS-5 under its existing contract. In addition, all our other rigs contracted to Petrobras – ENSCO 6001, 6002, 6003 and 6004 – continue to work under their contracts. Upon learning of the Petrobras internal audit report, our Audit Committee appointed independent counsel to lead an investigation into the alleged irregularities. Subsequently, the internal audit report and the alleged irregularities were referenced in Brazilian court documents connected to the prosecution of former Petrobras directors and employees as well as certain other third parties, including a former marketing consultant who provided services to Pride in connection with DS-5. The former marketing consultant entered into a plea agreement with the Brazil authorities. This plea agreement was referenced in a Brazilian court proceeding relating to a project for a competitor having no connection to us. This court proceeding document states that another court action would be made public in due course with respect to DS-5; to date no further proceedings relating to DS-5 have been released. Independent counsel, under the direction of our Audit Committee, has substantially completed the investigation of these allegations by reviewing and analyzing available documents and correspondence and interviewing current and former employees involved in the contracting of DS-5 as well as the former marketing consultant. To date, our Audit Committee has found no evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing, and our Audit Committee has found no evidence linking Ensco or Pride to any illegal acts committed by our former marketing consultant. Although the investigation is substantially complete, we cannot predict whether any new or additional allegations will be made and what impact those allegations will have on the timing or conclusions of the investigation. Our Audit Committee will examine any new or additional allegations and the facts and circumstances surrounding them. To date, we have not been contacted by Brazil authorities, and no authority has alleged wrongdoing by Pride or Ensco or any of their current or former employees. In June and July 2015, we voluntarily contacted the SEC and the U.S. Department of Justice (“DOJ”), respectively, to advise them of this matter and our Audit Committee’s independent investigation, and we provided them an update on the investigation in September 2015. We cannot predict whether any governmental authority will seek to investigate this matter, or if a proceeding were opened, the scope or ultimate outcome of any such investigation. If the SEC or DOJ determines that violations of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) have occurred, or if any governmental authority determines that we have violated applicable anti-bribery laws, they could seek civil and criminal sanctions, including monetary penalties, against us, as well as changes to our business practices and compliance programs, any of which could have a material adverse effect on our business and financial condition.”
In August 2018, Ensco disclosed:
“On August 29, 2018, Ensco plc received a letter from the Division of Enforcement of the U.S. Securities and Exchange Commission (the “SEC”) informing Ensco that the Division has concluded its investigation into alleged irregularities related to a drilling services contract for ENSCO DS-5 and does not intend to recommend any enforcement action against the Company. On August 31, 2018, Ensco received a letter from the U.S. Department of Justice (the “DOJ”) stating that the DOJ had closed its inquiry into the matter and acknowledging Ensco’s full cooperation in the investigation. Ensco previously disclosed an internal investigation of alleged irregularities related to a drilling services agreement between an acquired subsidiary, Pride International LLC (“Pride”), and Petrobras for ENSCO DS-5 that was executed in 2008. After becoming aware of the alleged irregularities in 2015, Ensco voluntarily contacted the SEC and the DOJ to advise them of the investigation and continued to update and cooperate with both agencies over the course of the investigation. The Company’s investigation did not identify any evidence that Pride or Ensco or any of their current or former employees were aware of or involved in any wrongdoing.”
The SHI action was against a South Korean company, with a branch office in Houston, and alleged certain conduct in Texas, as well as certain financial transactions through “correspondent bank accounts in the United States.”
Given these allegations, it is interesting to note that the enforcement action was brought in the Eastern District of Virginia.
Can vs Should
In many cases in which the U.S. exercises its legal muscle against a foreign company, the policy question of can vs. should can be asked.
In other words, under the so-called dd-3 prong of the FCPA invoked in the SHI enforcement action, the U.S. can bring an FCPA enforcement against a foreign non-issuer company if “while in the territory of the United States” there is “corrupt[…] use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of” a bribery scheme.
Given the various jurisdictional allegations in the SHI action, the can question – “can the U.S. bring an FCPA enforcement action against SHI” is reasonably answered “yes.”
But just because the U.S. can bring an FCPA enforcement action against SHI, does that mean that it should have?
After all, the conduct at issue involved a South Korean company (South Korea is a party to the OECD Anti-Bribery Convention) utilizing Brazilian agents to bribe Brazilian officials (Brazil is also a party to the OECD Anti-Bribery Convention).
Yes, the U.S. did offset 50% of the total FCPA criminal penalty on account of a parallel Brazil enforcement action. Nevertheless, was this another example of the U.S. “piling on” in a situation in which the U.S. should not have brought an enforcement action? (See here  and here  among other prior posts).
After all, Article 4 of OECD Convention states that “when more than one Party has jurisdiction over an alleged offence described in this Convention, the Parties involved shall, at the request of one of them, consult with a view to determining the most appropriate jurisdiction for prosecution.” (emphasis added).
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