Angola is probably not a country that tops most people’s list of the location of Foreign Corrupt Practices Act enforcement actions.
Yet, Angola is the second largest oil producing country in Africa. This means that oil and gas and related service companies are doing business in Angola. Add in the fact that control of the oil industry is overseen by Sonangol (a state-owned / state-controlled enterprise) and throw in some trade barriers and distortions, such as local content requirements, and you have the right conditions for FCPA issues to arise.
And arise they have. As highlighted in this post, the recent FCPA enforcement action against Halliburton was the 11th FCPA enforcement action involving, in whole or in part, conduct in Angola. (10 of the 11 actions have occurred since 2007).
Most of these enforcement actions have been against companies in the oil and gas industry (for an interesting article about Houston’s relationship with Angola see here), most of these enforcement actions have involved relationships with Sonangol employees, and many of these enforcement actions have, as a root cause, Angola’s local content requirement which requires foreign companies to partner with Angolan companies. Indeed, as highlighted in this prior post, Angola’s local content requirements were a primary reason why Hercules Offshore abandoned a $92 million contract in Angola.
Mentioning foreign trade barriers and distortions as a root cause of many FCPA enforcement actions is not meant to excuse the conduct at issue, only to understand better why the conduct occurred in the first place. As highlighted numerous times on these pages, the root cause of many FCPA enforcement actions are foreign trade barriers and distortions. The narrative is rather simple.
- Trade barriers and distortions create bureaucracy.
- Bureaucracy creates points of contact with foreign officials.
- Points of contact with foreign officials create discretion.
- Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.
For instance, in the Halliburton matter we learn:
“In early 2008, Sonangol officials told Halliburton management that Sonangol was considering vetoing further subcontract work for Halliburton in Angola because Halliburton had insufficient local content and was not compliant with Angola’s local content regulations governing foreign companies operating in Angola. Sonangol officials made it clear that Halliburton needed to partner with more local Angolan-owned businesses in order to satisfy local content requirements.”
If Angola did not have local content regulations governing foreign companies operating in Angola, the FCPA enforcement action likely would not have occurred.
In short, the way to reduce bribery is not just to bring more corporate enforcement actions. Rather, it is to address the root causes of bribery by seeking a reduction in trade barriers and distortions.
Other FCPA enforcement actions involving, in whole or in part, conduct in Angola include the following with the relevant allegations or findings highlighted.
“In Angola, Rolls-Royce, RRESI, Executive, Employee 1 and others, engaged Intermediary 2 [a Madeira-incorporated, Angola-based, oil and gas services intermediary that was created as a joint venture between Intermediary 1 and another company], knowing that Intermediary’s 2’s commission payments would be used to bribe foreign officials at Sonangol [an Angolan state-owned and state-controlled oil company]. From in or around 2008 through in or around 2012, RRESI made approximately $1.2 million in corrupt commission payments to Intermediary 2, knowing that Intermediary 2’s commission payments would be used to bribe foreign officials at Sonangol in order to obtain confidential information and win contracts for Rolls-Royce and RRESI. Ultimately, three Sonangol projects were awarded to Rolls-Royce and RRESI, resulting in approximately $30 million in profits in Angola.”
“General Cable conducted business in Angola through General Cable Celcat [an indirect subsidiary headquartered in Portugal whose financial statements were consolidated with the financial statements of General Cable] and General Cable Condel [an indirect subsidiary headquartered in Angola whose financial statements were consolidated with the financial statements of General Cable] . The majority of the company’s sales in Angola were made to state-owned customers, including Angolan State-Owned Enterprise 1, Angolan State-Owned Enterprise 2, and Angolan State-Owned Enterprise 3.
Between 2003 and 2013, General Cable Celcat and General Cable Condel made corrupt payments, i.e. bribes, to employees of Angolan State-Owned Enterprise 1, Angolan StateOwned Enterprise 2, and Angolan State-Owned Enterprise 3, and other state-owned customers to obtain and retain business in Angola. Specifically: (i) between 2003 and 2009, General Cable Celcat and General Cable Condel paid more than $450,000 directly to officials at Angolan StateOwned Enterprise 1, Angolan State-Owned Enterprise 2, and Angolan State-Owned Enterprise 3; (ii) between 2009 and 2013, General Cable Condel paid more than $8 7 million to a sales agent in Angola with knowledge that the sales agent would, and did, pass a portion of those payments to officials at Angolan State-Owned Enterprise 1, Angolan State-Owned Enterprise 2, and Angolan State-Owned Enterprise 3; and (iii) General Cable Condel paid more than $150,000 to another agent with knowledge that the payments would be passed on, in part., to two officials of a state-owned customer.
General Cable, General Cable Celcat and General Cable Condel, acting through their employees or agents, communicated about the scheme via e-mail, among other means of communication. For example, on or about October 22, 2002, a General Cable Condel senior executive wrote an e-mail to a General Cable Celcat employee stating: “I agreed with [an Angolan State-Owned Enterprise 1 employee] on a commission of 2% on orders placed, which at this stage will be through General Cable Condel; I propose to work through objectives, on an identical basis with [Angolan State-Owned Enterprise 2].”
Similarly, on or about September 12, 2005, a General Cable Condel employee wrote an e-mail to a General Cable Celcat employee stating: “Everyone knew that [an Angolan StateOwned Enterprise 2 official] was being paid (if not there would be no need for the bills that come from there); when the contract was signed, this was what was agreed had to be paid.”
Beginning in or around May 2009, General Cable Celcat and General Cable Condel concealed the payments to the Angolan officials through the use of a third-party sales agent. General Cable Condel contracted with the sales agent to provide commercial assistance services in Angola, but General Cable Celcat and General Cable Condel in fact used the sales agent as an inteunediary to funnel corrupt payments to Angolan officials.
On or about December 19, 2012, General Cable executives received an internal audit report from General Cable’s internal audit department. The audit report summarized the findings of the audit, which included, among other things, identifying that: (i) payments made to the third-party sales agent far exceeded the amounts required under the contract with the agent, and (ii) the contract with the third-party sales agent did not include anti-corruption language. In addition, the audit report recommended that General Cable establish a global policy regarding the use of agents and sales representatives. Thereafter, the Company failed to establish adequate internal accounting controls and General Cable Conde’ continued to make corrupt payments to the agent in excess of the contractually required amounts.
For example, on September 5, 2013, General Cable Condel paid the sales agent in Angola approximately $223,433. General Cable Condel employees knew that the sales agent would. give at least part of that payment to government officials in Angola, including an Angolan State-Owned Enterprise 2 official and an Angolan State-Owned Enterprise 3 director.
General Cable Celcat and General Cable Condel falsely recorded the payments made directly to the foreign officials as payments for third-party consulting services, and falsely recorded the payments to the sales agent as offsets against sales.”
As to Angola, the criminal information alleges payments to government officials (including a high-level official of an Angolan state-owned and state-controlled company) to secure public works projects.
“Trentyre was incorporated in 2007, and is a wholly-owned subsidiary of Goodyear. Trentyre is primarily engaged in selling new tires for mining equipment. During the relevant time period, Trentyre had annual revenues between $6 million and $20 million.
From 2007 through 2011, Trentyre paid over $1.6 million in bribes to employees of government-owned or affiliated entities, and private companies, to obtain tire sales. Trentyre paid approximately $1.4 million of these bribes to employees of government-owned or affiliated entities in Angola, including the Catoca Diamond Mine, UNICARGAS, Engevia Construction and Public Works, the Electric Company of Luanda, National Service of Alfadega, and Sonangol. A majority of these improper payments were paid to employees of Trentyre’s largest customer at the time, the Catoca Diamond Mine, which is owned by a consortium of mining interests, including Endiama E.P., Angola’s national mining company, and ALROSA, a Russian mining company. During the same time period, Trentyre also made approximately $64,713 in improper payments to local government officials in Angola, including police and tax authorities.
The bribery scheme was put in place by Trentyre’s former general manager. To hide the scheme and generate funds for the improper payments, Trentyre falsely marked-up the costs of its tires by adding to its invoice price phony freight and customs clearing costs. On a monthly basis, as tires were sold, the phony freight and clearing costs were reclassified to a balance sheet account. Trentyre made improper payments to employees of customers both in cash and through wire transfers. As bribes were paid, the amounts were debited from the balance sheet account, and falsely recorded as payments to vendors for freight and clearing costs.
Goodyear did not prevent or detect these improper payments because it failed to implement adequate FCPA compliance training and controls at this subsidiary.”
Per the DOJ’s allegations, if the company wanted a well screens business in Angola, it needed to have a local sponsor. That trade distortion and barrier funneled Weatherford into a situation in which alleged “foreign officials” were given the ability to suggest the local partner(s) … and the rest is history as they say.
Per the DOJ’s other Angola allegations, even if Weatherford wanted to do business with non-governmental customers in Angola, an alleged “foreign official” was given the ability under Angolan law to approve the business arrangement. The alleged “foreign official” demanded a bribe … and the rest is history as they say.
The conduct at issue involved “two schemes to bribe Sonangol officials to obtain or retain business.”
“Sonangol was the sole concessionaire for exploration of oil and gas in Angola, and was solely responsible for the exploration, production, manufacturing, transportation, and marketing of hydrocarbons in Angola. Sonangol was run by a board of directors established by governmental decree in 1999. Each member of the board was also appointed or renewed in their position by governmental decree. Because Sonangol was wholly owned, controlled, and managed by the Angolan government, it was an ‘agency’ and ‘instrumentality’ of a foreign government and its employees were ‘foreign officials’” under the FCPA.
According to the information, the first bribery scheme “centered around a joint venture which WSL and other Weatherford employees established with two local Angolan entities.” The information alleges that “Angolan Officials 1, 2, and 3 (described as “high-level, senior officials of Sonangol” with influence over contracts) controlled and represented one of the entities” and that a “relative of Angolan Official 4 (described as a “high-level, senior official of Angola’s Ministry of Petroleum” with influence over contracts entered into by the Angolan government) controlled and represented the other.”
The information alleges that the “joint venture began because WSL sought a way to increase its share of the well screens market in Angola” and states that “WSL learned that Sonangol was encouraging oil services companies to establish a well screens manufacturing operations in Angola with a local partner.” Thereafter, “a high-level Weatherford executive sent Angolan Official 1 a letter expressing Weatherford’s intent to form a well screens manufacturing operation in Angola with a local partner and requesting Sonangol’s participation in the process.”
The information next alleges that “Angolan Official 1 advised WSL that Sonangol had selected local partners for WSL and that Sonangol would support the joint venture.” According to the information:
“… the parties agreed that two local Angolan entities (“Angolan Company A” and Angolan Company B”) would be WSL’s joint venture partners. Angolan Officials 1, 2 and 3 conducted all business with WSL on behalf of Angolan Company A. Angolan Company B was owned in part by the daughter of Angolan Official 4.”
According to the information, “certain WSL and Weatherford employees knew from the outset of discussions regarding the joint venture that the members of Angolan Company A included a Sonangol employee and Angolan Official 3’s wife, while Angolan Company B’s members included Angolan Official 4’s daughter and son-in-law.”
According to the information, “prior to entering into the joint venture, neither Weatherford nor WSL conducted any meaningful due diligence of either joint venture partner.” The information specifically alleges that Weatherford Legal Counsel A (a citizen of the U.S. and a Senior Corporate Counsel at Weatherford from 2004 to 2008) reached out to a law firm “to discuss whether partnering with the Angolan companies raised issues under the FCPA,” but that Weatherford Legal Counsel A “did not follow the advice” that had been provided to him. In addition, the information alleges that Weatherford Legal Counsel A “falsely told [another] outside counsel that the joint venture had been vetted and approved by another outside counsel, when, in fact, no outside law firm ever conducted such vetting or gave such approval.”
The information alleges that WSL signed the final joint venture agreement with Angolan Company A and Angolan Company B in 2005, but that “neither Angolan Company A nor Angolan Company B provided any personnel or expertise to the joint venture, nor did they make any capital contributions.”
According to the information:
“In 2008, Angolan Company A and Angolan Company B received joint venture dividends for 2005 and 2006, including on revenues received in 2005 [before the joint venture agreement was executed]. […] In total, the joint venture paid Angolan Company A $689,995 and paid Angolan Company B $136,901.”
The information alleges that “prior to the distribution of joint venture dividends, WSL executives knew that Angolan officials were directing the distribution of those dividends.”
According to the information, “WSL benefitted from the joint venture arrangement” in the following ways: “Sonangol began taking well screens business away from WSL’s competitors, even when a competitor was supplying non-governmental companies, and awarding it to WSL” and “WSL received awards of business for which its bids were, by its own admission, not price competitive.”
The second bribery scheme alleged in the information relates to the “Cabinda Region Contract Renewal” in which WSL allegedly “bribed Angolan Official 5 (described as “a Sonangol official with decision-making authority in Angola’s Cabinda region”) so that he would approve the renewal of a contract under which WSL provided oil services to a non-governmental oil company in the Cabinda region of Angola.” The information alleges that even though the contract was between WSL and a non-governmental company, Angolan law required “that it be approved by Sonangol before being finalized” and that “Angolan Official 5 was the Sonangol official responsible for approving or denying the renewal contract.”
The information alleges that Angolan Official 5 solicited the bribe and that “WSL executives agreed to pay the bribe Angolan Official 5 had demanded” even though a prior WSL Manager had refused to pay it. According to the information, WSL made the payments to Angolan Official 5 through the Freight Forwarding Agent (described as a Swiss Company who provided freight forwarding and logistics services in Angola) who had previously paid bribes on behalf of WSL.”
As to the Freight Forwarding Agent, the information alleges that WSL retained the agent via a consultancy agreement in which the agent rejected a specific FCPA clause, but that “WSL and Weatherford acquiesced by removing the FCPA clause and inserting a clause requiring the Freight Forwarding Agent to ‘comply with all applicable laws, rules, and regulations issued by any governmental entity in the countries of business involved.” According to the information, “WSL generated sham purchase orders for consulting services the Freight Forwarding Agent never performed, and the Freight Forwarding Agent, in turn, generated sham invoices for those non-existent services.” The information alleges that the Freight Forwarding Agent passed money on to Angolan Official 5.
The information charges that between 2002 and 2008 “Panalpina Angola paid approximately $4.5 million in bribes to Angolan government officials.” Two types of payments are described: “Customs and Immigration Payments” and “Payments to Secure Contracts.”
Customs and Immigration Payments
According to the information, the payments were made to “Angolan government officials responsible for customs and immigration matters” and the purpose of the payments was to “cause such officials to: overlook incomplete or inaccurate documentation; avoid levying proper customs duties; or avoid imposition of fines relating to the failure of Panalpina Angola, or its customer, to comply with legal requirements.” According to the information, Panalpina Angola paid “hundreds of bribes” ranging from “de minimus amounts to $25,000 per transaction.”
Payments to Secure Contracts
The information charges that between December 2006 and March 2008, “Panalpina Angola paid over $300,000 to two Angolan government officials responsible for Angolan oil and gas operations to secure two separate logistics contracts.” According to the information, the officials “had the authority to approve or disapprove the retention of logistics companies to provide services for projects that Panalpina sought to secure.” According to the information, in connection with certain of these payments, Panalpina Angola “invoiced an Angolan government-controlled entity for a non-existent employee (referred to as the ‘ghost employee’) who was allegedly dedicated to the Angolan entity to work on the logistics for the particular project.”
The SEC alleges that “GSF, through its customs brokers, also made a number of other payments […] totaling approximately $300,000 to government officials in Gabon, Angola, and Equatorial Guinea.”
These “other suspicious payments” in Nigeria and the Gabon, Angola, and Equatorial Guinea payments were not accurately reflected in GSF’s books and records and GSF failed to devise and maintain an effective system of internal controls to prevent or detect them, thus giving rise to FCPA books and records and internal charges. (These other payments were not included in the FCPA anti-bribery charges).
“The substantive portion of the information ends with a section titled “Other Consultancy Agreements Entered Into Without Proper Due Diligence.” The allegations concern consultants in Angola, the Ivory Coast, Burkina Faso, Uganda, and Mali. The customers associated with the consultants were either allegedly state-owned or private companies.”
“In Angola, from 1998 to 2003, Baker Hughes paid an agent more than $10.3 million in commissions under circumstances in which the company failed to adequately assure itself that such payments were not being passed on to employees of Sonangol, Angola’s state-owned oil company, to obtain or retain business in Angola.”
“At all relevant times, ABB conducted business in Angola through its Vetco Gray U.S. and UK subsidiaries. That business was comprised of oil and gas-related contracts that ABB entered into with the Angolan government that were administered by Sonangol, the Angolan state-owned oil company. After ABB became a public reporting company in April 2001, the financial results of ABB’s Angolan operations were a component of the consolidated financial statements included in ABB’s filings with the Commission.
Just as it had done in Nigeria, ABB’s subsidiaries made corrupt payments to Angolan government officials during a period beginning before, and continuing after, ABB became a reporting company in the United States. The payments were made to Sonangol engineers who had responsibility for the technical evaluation of bids submitted to Sonangol, and were issued in the context of three separate training trips sponsored by ABB from 2000 to 2002: twice to the United States and Brazil, and once to Norway and the United Kingdom. In each instance, ABB’s Vetco Gray US. and UK subsidiaries paid all the travel, meals, lodging and entertainment expenses of the Sonangol engineers, and also provided them with cash spending money of $120 to $200 per day, at a time when Angola’s gross annual per capita income was just $710.”
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