Transocean – More TIPs and Express Courier Services
Next up in the analysis of CustomsGate enforcement actions is Transocean. This enforcement action involves more Nigerian TIPs and express courier services (yes, you read that right, an FCPA anti-bribery enforcement action involving express courier services).
See 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 Transocean enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $20.7 million ($13.4 million criminal fine via a DOJ deferred prosecution agreement; $7.2 million in disgorgement and interest via a SEC complaint).
DOJ
The DOJ enforcement action included a criminal information (here) filed against Transocean Inc. (“Transocean”) which “was a Cayman Islands corporation with its principal executive offices in the Cayman Islands and in Houston, Texas.” Transocean’s securities were traded on the New York Stock Exchange. As set forth in the information, “in December 2008, Transocean completed a merger among Transocean Ltd., Transocean Inc., which was the former parent holding company, and Transocean Cayman Ltd. As a result of the merger, Transocean became a wholly-owned subsidiary of Transocean Ltd., a Swiss corporation with principal executive offices in Vernier, Switzerland.” (See here).
The criminal charges against Transocean were resolved via a deferred prosecution agreement (here) between the DOJ and Transocean and Transocean Ltd. “on behalf of its wholly-owned subsidiary Transocean.”
Criminal Information
Once again, the criminal information concerns Nigeria’s rules and regulations relating to temporarily importing vessels and the “temporary importation permit” (“TIP”). For more on the TIP process see here.
Relevant Transocean entities include Sedco Forex Nigeria Limited (“SFNL”), a Nigerian entity 60% owned by Transocean, and Transocean Support Services Nigeria Ltd. (“TSSNL”), a wholly-owned Nigerian subsidiary of Transocean.
According to the information, between February 2002 and January 2003, “on three occasions when a TIP (and related TIP extensions) expired for a rig Nigeria, Customs Agent 1 [a Nigerian entity that provided freight forwarding, customs clearing, haulage and general logistics services to companies doing business in Nigeria and SFNL’s customs agent in Nigeria between 2002 – July 2007] and Customs Agent 2 [a Nigerian entity that provided, among other things, customs clearing and freight forwarding and support services to oil and gas services companies operating in Nigeria and one of SFNL and TSSNL’s customs agents in Nigeria], with the knowledge of SFNL, engaged in a process of obtaining false paperwork on SFNL’s behalf to avoid the time, cost, and risks associated with exporting the rig and re-importing it into Nigerian waters.” The information alleges that “Customs Agent 1 and Customs Agent 2, with the knowledge of SFNL, obtained false documents that reflected that the rig had been physically exported and re-imported, when, in fact, the rig had remained in Nigeria.”
In addition, the information alleges that between May 2007 and June 2007, “Customs Agent 2, with the knowledge of TSSNL, engaged in a process of obtaining false paperwork on behalf of TSSNL for another rig.” According to the information, “Customs Agent 2, with the knowledge of TSSNL, obtained documents that reflected that the rig had been physically exported and re-imported, when, in fact, the rig had remained in Nigeria.”
The information alleges, that “SFNL and TSSNL’s employees knew or were aware of a high probability that certain bribe payments were made by Customs Agent 1 and Customs Agent 2 to Nigerian Customs Service (“NCS”) officials to resolve these issues.” The information alleges that “to secure reimbursement for the payments made on behalf of SFNL and TSSNL, these Custom Agents provided invoices to SFNL and TSSNL without supporting documentation” and that “Transocean Nigeria, in turn, reimbursed these Customs Agents for the expenses.”
According to the information, payments to Customs Agent 1 and Customs Agent 2 were mischaracterized as “freight and shipping/courier charges” or “crewboat, workboat, tug Hire” (in the case of Agent 1) and “miscellaneous operating expenses” (in the case of Customs Agent 2) in Transocean Nigeria’s books and records which then were incorporated into Transocean’s year-end financial statements filed with the SEC.
According to the information, “by corruptly circumventing the TIP requirements in 2002 and 2007, Transocean, through Transocean Nigeria, was able to continue its drilling operations using [certain rigs] that otherwise should have been temporarily removed from Nigerian waters.” The information states, “as a consequence, Transocean was able to corruptly gain a net profit of approximately $2,129,839 on its rig operations that […] otherwise would have been suspended because of the failure to comply with Nigerian TIP requirements.”
As to express courier services, the information states that “one of the services provided by [Panalpina] was an express door-to-door courier service that expedited the importation of goods and equipment into Nigeria.” According to the information, “the express service involved the payment of bribes by [Panalpina] to NCS officials to avoid the normal customs clearance process and the payment of official duties and taxes.”
The information alleges that various Transocean Nigeria employees were aware that the express courier service in Nigeria was not compliant with local law, but that despite this, “SFNL and TSSNL used the express courier service eleven times between August 2005 and September 23, 2005 when they knew or were aware of a high probability that the express courier service would make bribe payments to Nigerian officials to avoid applicable customs duties.” According to the information, “as a consequence, SFNL and TSSNL corruptly avoided paying $37,781.73 in applicable customs duties for these element shipments.” The information charges that SFNL and TSSNL “falsely recorded the payments to the express courier service as ‘air freight’ in their books and records” and that these transactions were then incorporated into Transocean’s SEC filings.
Based on the above conduct, the DOJ charged Transocean with conspiracy to violate the FCPA’s anti-bribery and books and records provisions, FCPA anti-bribery violations, and knowingly violating the FCPA’s books and records provisions.
According to the criminal information, “Transocean Nigeria employees knew or were aware of a high probability that the [Panalpina] was making bribe payments to Nigerian Customs Service officials on behalf of SFNL and TSSNL to cause such officials to disregard certain customs regulatory requirements relating to importing goods and materials into Nigeria for use on Transocean’s rigs in Nigeria, and sought reimbursement from SFNL and TSSNL for these payments.”
According to the information, certain unnamed co-conspirators committed various overt acts in furtherance of the conspiracy including Employee C [manager of Transocean’s operations in Nigeria from August 2001 to January 2004 and an agent of an “issuer”], Executive B [a French citizen who was responsible for Transocean’s Africa Region, including offshore drilling operations in Nigeria, and an agent of an “issuer”], Senior Executive A [a permanent resident of the U.S. from 2005 until July 2007 and a “domestic concern” as well as agent of an “issuer”].
Deferred Prosecution Agreement
Pursuant to the DPA, Transocean 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 Transocean. Among the factors stated are the following.
“Transocean and Transocean personnel in Nigeria promptly commenced an internal investigation into dealings between Transocean’s Nigeria operations and [Panalpina] after becoming aware of information indicating potential issues with [Panalpina]
“Transocean expanded its internal investigation to numerous operations and areas of the world outside Nigeria where no misconduct had been reported or suspected, and reported all relevant findings to thc Dcpartment;”
“A subsidiary of Transocean Ltd., Transocean Offshore Deepwater
Drilling Inc., hired a new chief compliance officer with substantial experience in corporate ethics and anti-corrption compliance policies. The compliance officer, who is an officer of Transocean Ltd., is responsible for the oversight of compliance for Transocean Ltd. and all of its subsidiaries and affiliates, including Transocean;”
“Transocean Ltd. established a specific internal audit team of well-trained auditors to focus on fraud, FCPA compliance, and anti-bribery issues at Transocean Ltd.’s worldwide operations;”
“Transocean Ltd. issued a revised FCPA compliance policy and revised its code of conduct, instituted a worldwide FCP A training program for its companies’ employees, and implemented a well-defined due diligence process for retaining third party service providers and business partners that interact with government officials;”
“Transocean and Transocean Ltd. cooperated with the Department’s investigation, including sharing all relevant investigation findings and making available numerous current and former employees;”
“Transocean and Transocean Ltd. agreed to undertake further remedial
measures;”
“Transocean and Transocean Ltd. agreed to provide a written report to the Department on their progress and experience in maintaining and, as necessary and appropriate, enhancing their compliance policies and procedures;”
“Transocean and Transocean Ltd. agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Transocean and its directors, employees, agents, consultants, contractors, subcontractors, subsidiaries, and any affliates it controls 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 $16.8 million to $33.6 million. Pursuant to the DPA, Transocean and Transocean agreed that Transocean shall pay a monetary penalty of $13.44 million – 20% below the minimum guideline amount.
As is standard in FCPA DPAs, Transocean and Transocean Ltd. agreed not to make any public statement “contradicting the acceptance of responsibility by Transocean and Transocean Ltd. as set forth” in the DPA and Transocean and Transocean Ltd. further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
SEC
The SEC’s complaint (here) concerns the same core set of facts as set forth in the DOJ’s DPA, plus a few additional allegations.
In summary fashion, the SEC alleged “from at least 2002 through 2007, Transocean made illicit payments through its customs agents to Nigerian government officials to extend the temporary importation status of its drilling rigs, to obtain false paperwork associated with its drilling rigs, and obtain inward clearance authorizations for its rigs and a bond registration.”
The SEC further alleged as follows. “Transocean made illicit payments through Panalpina World Transport Holding Ltd.’s Pancourier express courier service to Nigerian government officials to expedite the import of various goods, equipment and materials into Nigeria. In most instances, customs duties for these items were not paid by either Panalpina or Transocean. In addition, Transocean made illicit payments through Panalpina to Nigerian government officials to expedite the delivery of medicine and other materials into Nigeria. Transocean’s total gains from the conduct were approximately $5,981,693.”
According to the complaint, Pancourier, is “an express door to door courier service operated by Panalpina” and the complaint alleges that Transocean used Panalpina and Pancourier “to expedite the delivery of goods and to import goods into Nigeria without always paying applicable duties to the Nigerian government.”
As to the TIPs and movement of rigs, the complaint allegess that Transocean’s illicit payments through its customs agents to Nigerian government officials avoided “moving costs of approximately $1,088,985 and gain profits of approximately $3,172,378.”
The SEC complaint also alleges that “Transocean made illicit payments totaling $207,170 to Customs Agent 2 for what were described on invoices as “customs intervention” charges related to six rigs.” According to the complaint, the payments ensured that “Transocean could operate its rigs in Nigerian waters without proper paperwork and without compliance with local law requirements.”
As to Panalpina and Pancourier, the SEC complaint states that “from January 2002 to September 2005, Transocean used Pancourier 404 times to import various goods and materials into Nigeria without paying any customs duties to the Nigerian government.” According to the complaint, “the total customs duties that Transocean avoided through its use of Pancourier for the 404 shipments to Nigeria were approximately $1,480,419.”
Finally, the SEC complaint alleges that “aside from its use of Pancourier, Transocean also used Panalpina to expedite delivery of medicine and other goods into Nigeria.” The complaint states that “Transocean made illict payments through Panalpina to Nigerian government officials for the importation of these goods totaling $32,741.”
Based on the above conduct, the SEC charged Tidewater with violating the FCPA’s anti-bribery and books and records and internal control provisions.
As to the company’s internal controls, the SEC complaint simply states as follows. “… [A]s evidenced by the extent and duration of the improper payments to Nigerian officials, the improper recording of these payments in Transocean’s books and records, the failure of Transocean’s management to detect these irregularities, and the actual involvement of certain members of senior management, Transocean failed to devise and maintain an effective system ofinternal controls to prevent or detect these violations.”
Without admitting or denying the SEC’s allegations, Transocean agreed to pay disgorgement and prejudgment interest of $7,265,080. .
Former DOJ fraud section attorney Richard Smith (here) (Fulbright & Jaworski LLP) represented Transocean.
Azeri Tax Officials and More On Nigeria TIPs
Next up in the analysis of CustomsGate enforcement actions is Tidewater.
See here for the prior post on the Noble Corporation enforcement action and here for the prior post on the GlobalSantaFe enforcement action.
The Tidewater enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $15.7 million ($7.35 million criminal fine via a DOJ deferred prosecution agreement; $8.3 million in disgorgement and a civil penalty via a SEC complaint).
DOJ
The DOJ enforcement action included a criminal information (here) filed against Tidewater Marine International Inc. (“TMII), a wholly-owned subsidiary of Tidewater Inc. (“TDW”) and the primary international operating entity for TDW.
TDW (see here) operates offshore service and supply vessels designed to support all phases of offshore energy exploration, development and production throughout the world. TDW is headquartered in New Orleans and has publicly traded shares on the New York Stock Exchange.
The criminal charges against TMII were resolved via a deferred prosecution agreement (here) between the DOJ and TMII and TDW “on behalf of its wholly-owned subsidiary TMII.”
Criminal Information
According to the criminal information, TMII “had managerial and administrative operations in the United States, and it exercised contractual rights and control over Tidewater’s vessel operations in Nigeria and Azerbaijan, among other areas.”
The criminal information concerns: (1) “bribes paid to Azeri tax inspectors”, and (2) “payment of bribes to Nigerian customs officials through the freight fowarding agent [Panalpina].”
Azerbaijan
According to the information, “in 2001, 2003, and 2005, the Azeri Tax Authority [a government entity responsible for administering and collecting tax assessments and duties for the Republic of Azerbaijan] initiated tax audits of TMII’s business operations in Azerbaijan.”
The information states that TMII employed the “Consulting Firm” [a U.S. consulting company incorporated in Texas and headquartered in Baku, Azerbaijan to provide a broad range of services including accounting services and tax advice and assistance] including the “Azerbaijan Agent” [the Managing Director of the Consulting Firm] to assit with the audits.
The information charges that “in 2001, 2003, and 2005, TMII, through its employees and agents, paid bribes to Azeri tax inspectors to improperly secure favorable tax assessments.”
According to the information, TMII “caused approximately $160,000 to be paid to the Dubai Entity [an entity associated with the Consulting Firm], while knowing that some or all of the money would be paid, with the assistance of the Azerbaijan Agent to Azeri tax inspectors.”
The information states that “the benefit received and the potential tax liability avoided by TMII as a result of the payment of the bribes was approximately $820,000.”
Nigeria
According to the information, between January 2002 through March 2007, Tidex Nigeria Limited (“Tidex”) [a Nigerian company 60% majority owned by Tidewater Marine” that “provided agency and operational support, at the direction of TMII, for all vessels that Tidewater operated in Nigeria during the relevant period”], through its employees, affiliates, and agents, authorized the payment of approximately $1.6 million to [Panalpina] as reimbursements for bribes paid by [Panalpina], made on Tidex’s behalf, to Nigeria Customs Service (“NCS”) employees to induce the officials to disregard certain regulatory requirements in Nigeria relating to the temporary importation of Tidewater vessles into Nigerian waters.” The information charges that by August 2004, “TMII managers and employees were aware of and condoned the payments.”
The regulatory requirements set forth in the information concern Nigeria’s rules and regulations relating to temporarily importing vessels and the “temporary importation permit” (“TIP”). For more on the TIP process see here.
According to the information, between August 2004 and 2007, TMII employees and other Tidewater employees authorized the payment of approximately $1,089,000 to [Panalpina], on Tidex’s behalf, knowing that some or all of the monies had been paid by [Panalpina] to NCS officials to induce them to disregard Nigerian regulations, to not impose fines and penalties, and to allow Tidewater vessels to operate in Nigerian waters without a valid TIP.”
The information states that the “total benefit in avoided costs, duties, and penalties received by TMII in exchange for these payments was approximately $5,800,000.”
Based on the above information, the information charges TMII with conspiracy to violate the FCPA’s anti-bribery provisions and to knowingly falsify books and records (in connection with both the Azeri and Nigeria payments) and knowing falsification of books, records, and accounts in connection with “129 payments totaling approximately $1,089,00, as [Panalpina] costs when, in fact, the payments were, in whole or in part, paid to NCS officials.”
According to the information, the following individuals “authorized the payment of bribes” or “know, or were aware of a high probability” that bribes were being paid:
Director of Tax [a U.S. citizen located in New Orleans], the Dubai Area Controller[a U.S. citizen], the Regional Finance Director [a British citizen, but described as a “employee and agent of a domestic concern], the Azerbaijan General Manager A [a U.S. citizen] and the Azerbaijan General Manager B [a U.S. citizen] (as to Azeri payments); and
the Vice President of Operations [an Australian citizen who supervised, at various times, both Azerbaijan and Nigerian operations and described as an employee an agent of a domestic concern] and the Nigeria Area Manager [a British citizen] (as to Nigeria payments).
In addition, the information charges that certain money in furtherance of the bribe payments were wired from accounts located in the U.S.
Deferred Prosecution Agreement
Pursuant to the DPA, TMII 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 TMII. Among the factors stated are the following.
“TMII and TDW promptly commenced an internal investigation into its dealings with [Panalpina] after becoming aware of information indicating potential issues with [Panalpina];”
“promptly after commencing its internal investigation, TMII and TDW voluntarily disclosed the conduct described in the Information to the Deparment;”
“TMII and TDW voluntarily expanded their internal investigation to numerous operations and areas of the world outside Nigeria where no misconduct had been reported or suspected, and reported all relevant findings to the Department;”
“TMII and TDW hired a General Counsel with substantial international compliance experience, appointed him the Chief Compliance Offcer, and established a Corporate Compliance Committee;”
“TMII and TDW issued an enhanced, stand-alone FCPA compliance policy, substantially revised its Code of Conduct, as well as additional relevant policies and procedures, including a vetting and approval process for third part service providers and business parners upon implementation of that policy, and instituted a worldwide training program for employees;”
“TMII and TDW expanded their internal investigation to cover additional countries and business activities;”
“TMII and TDW cooperated with the Department’s investigation, including sharing all relevant investigation findings and making available numerous current and former employees;”
“TMII and TDW exhibited leadership in the oil and gas industry by leading an oil and gas industry initiative, both in the United States and abroad, to address the [Nigeria TIPs conduct];”
“TMII and TDW implemented an enhanced compliance program and have agreed to undertake further remedial measures as contemplated by this Agreement …;”
“TDW, on behalf of TMII, agreed to provide a written report to the Deparment on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures …;” and
“TMII and TDW agreed to continue to cooperate with the Deparment in any ongoing investigation of the conduct of TMI and its directors, employees, agents, consultants, contractors, subcontractors, subsidiaries, affiliates,
and others 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 $10.5 million – $21 million. Pursuant to the DPA, TMII and TDW agreed that TMII shall pay a monetary penalty of $7.35 million – 30% below the minimum guideline amount.
As is standard in FCPA DPAs, TMII and TDW agreed not to make any public statement “contradicting the acceptance of responsibility by TMII as set forth” in the DPA and TMII and TDW further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
SEC
The SEC’s complaint (here) concerns the same core set of facts as set forth in the DOJ’s DPA.
In summary fashion, the SEC alleges as to Azerbaijan conduct that “between August 2001 and November 2005, Tidewater Inc. […] directly or through its subsidiaries, affiliates, employees and agents, violated [the FCPA’s anti-bribery and books and records and internal control provisions] by paying $160,000 in bribes to foreign government officials in Azerbaijan through a third party disguised as legitimate services to influence acts and decisions by these officials to resolve local Azeri tax audits in a Company subsidiary’s favor.”
According to the SEC, “these improper payments were authorized by senior employees at Tidewater and its subsidiaries while knowing, or ignoring red flags which indicated a high probability, such payments would be passed to government officials, inaccurately recorded in the Company’s or its affiliates’ books and records, and Tidewater failed to maintain sufficient internal controls to prevent such payments.”
The SEC complaint alleges that the payments included: (i) “on or about August 14, 2001, Tidewater authorized and paid $50,000 to a third party that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan; (ii) “in July 2003, Tidewater authorized and paid $40,000 to a third party in two installments that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan; and (iii) “on or about November 11, 2005, a Tidewater subsidiary authorized and paid $70,000 to a third party that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan.”
The SEC’s complaint provides additional detail regarding the Azeri tax audits than the DOJ’s criminal information. The SEC’s allegations seem to suggest that the payments to the Azeri tax officials were the result of extortionate demands communicated to Tidewater entities through the Azerbaijan Agent. For instance, in connection with the 2001 tax audit, the complaint states that “Executive A [Tidewater’s CFO during the relevant period] believed that the 2001 Audit was sort of a ‘shakedown’ that the Azerbaijan Agent created in order to collect a fee.” As to this audit, the complaint further alleges that “Executive A and [another company employee] learned that the Azeri tax auditors threatened to use an accounting method that would result in a higher tax assessment because the tax auditors did not feel ‘respected.'” In connection with the 2002 tax audit, the complaint alleges that the Azerbaijan Agent informed Tidewater personnel “that the Azeri tax auditors had verbally identified a potential figure of up to $600,000 to resolve the 2003 audit” but that this “amount bore no relation to any actual tax assessment or penalty.”
As to Nigeria conduct, the SEC complaint alleges, in summary fashion, that “from in or about January 2002 through March 2007, Tidewater, through its subsidiaries and agents, also authorized the reimbursement of approximately $1.6 million to its customs broker in Nigeria used, in whole or in part, to make improper payments to Nigerian Customs Services (“NCS”) employees to induce them to disregard certain regulatory requirements in Nigeria relating to the temporary importation of the Company’s vessels into Nigerian waters.”
According to the SEC, both the Azeri and Nigerian payments:
“[W]ere improperly recorded as legitimate expenses in the Company’s books and records and all of them, with the exception of the 2003 Azerbaijan payments, were consolidated into Tidewater’s financial statements. Tidewater’s internal controls, including at least two internal audits, failed to detect numerous red flags which should have alerted its management that the Azerbaijan agent and Nigerian customs broker were likely using funds provided by Tidewater, in whole or in part, to make improper payments to government officials.”
Based on the above conduct, the SEC charged Tidewater with violating the FCPA’s anti-bribery and books and records and internal control provisions.
As to the company’s internal controls, the SEC specifically alleged as follows.
“Tidewater’s controls over the engagement and activities of agents operating in high-risk jurisdictions outside of the marketing and sales area were inadequate. For example, the Company’s compliance program, including training provided to its employees, did not adequately address the applicability of the FCPA to customs, tax, and similar regulatory issues in its foreign subsidiary operations until March 2007. Moreover, employees in Azerbaijan easily circumvented the Company’s internal controls by setting up small cash reserves for contingencies, dividing the improper payments into increments below their discretional financial authority and processing a payment through a Company affiliate. Some of the payments for invoices that the Nigerian Agent submitted to Tidex were authorized, processed and funded without the work order or supporting documentation necessary to verify that the service was requested and rendered. Tidewater also conducted internal audits in 2001 and 2003 of its Nigerian operations that failed to detect the improper payments even though weaknesses with invoices from, and payments to, agents and consultants were identified.”
Without admitting or denying the SEC’s allegations, Tidewater agreed to an injunction and the payment of $8,104,362 in disgorgement and a $217,000 penalty.
Lucinda Low (here) (Steptoe & Johnson) represented Tidewater.
“The Payments … Would Not Constitute Facilitation Payments for Routine Governmental Actions Within the Meaning of the FCPA”
The above words are from the DOJ’s non-prosecution agreement with Noble Corporation (“Noble”). The DOJ used this phrase twice in the NPA and one can reasonably conclude that if the DOJ felt the need to express such a statement twice, that the FCPA’s facilitating payment exception is probably on the minds of many in connection with the CustomsGate enforcement actions.
Next up in the analysis of CustomsGate enforcement actions is Noble Corporation (see here). See this prior post for analysis of the GlobalSantaFe enforcement action.
The Noble enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $8.2 million ($2.6 million criminal fine via a non-prosecution agreement; $5.6 million in disgorgement and interest via a SEC complaint).
During the time period relevant to the enforcement action, Noble was a Cayman Islands company. In March 2009, a new Swiss parent company, also called Noble Corporation, was created and Noble Corporation, the Cayman Islands company, became a wholly-owned subsidiary of the Swiss parent company.
DOJ
As set forth in the NPA (see here), the DOJ agreed “not to criminally prosecute Noble […] or any of subsidiaries […] related to the making of improper payments by employees and agents of Noble and/or its subsidiaries to officials of the Nigerian Customs Service in connection with Noble’s and/or its subsidiaries’ import and export of goods and items relating to its operations in Nigeria from January 2003 to July 2007, and the accounting and record-keeping associated with these improper payments.”
According to the Statement of Facts in the NPA, a “Nigerian Customs Agent” provided a variety of logistics and customs services for Noble Drilling (Nigeria) Ltd. (“Noble Nigeria”) a wholly-owned subsidiary of Noble and the primary Noble operating company in Nigeria. The Nigerian Customs Agent submitted false documents to Nigerian customs officials on behalf of Noble Nigeria “relating to the temporary importation of rigs owned or operated by Noble Nigeria into Nigerian waters” and the Nigerian Customs Agent invoiced Noble Nigeria and was paid for its services.
The Statement of Facts describes “The Nigerian Temporary Import Process.” As described, if Noble were to “permanently import a rig into Nigerian waters” the customs duties were significant, between 10-20% of the total value of the rig. Alternatively, Noble could import rigs and other items on a temporary basis in which case no customs duties would be assessed. However, as described in the Statement of Facts, “a rig, or other item, could be imported on a temporary basis only if the item: (a) was considered a high valued piece of special equipment, (b) was not available for sale in Nigeria, and (c) was being imported temporarily and was intended to be exported.” If these requirements were met, “a company, through a local customs agent, could apply for a temporary import permit.” (“TIP”).
According to the Statement of Facts, “items imported under a TIP (and TIP extension) could not remain in Nigeria longer than the period allowed for by the TIP and/or TIP extensions. When the TIP (or TIP extension) expired, the owner “could either choose to permanently import the rig … or export the rig and re-import it and obtain a new initial TIP.” According to the Statement of Facts, “the failure to export the rig after the TIP expired could result in the assessment of Nigerian penalties of up to six times its cost.”
The Statement of Facts indicate that Noble Nigeria chose to temporarily import rigs into Nigeria and that Noble Nigeria employed the Nigeria Customs Agent to apply for and secure its TIPs and TIP extension.
According to the Statement of Facts, “whenever a TIP (and related TIP extensions) expired for a rig in Nigeria, the Nigerian Customs Agent, with the knowledge of Noble Nigeria, engaged in a process of submitting false paperwork on Noble Nigeria’s behalf to avoid the time, cost, and risk associated with exporting the rig and reimporting it into Nigerian waters” – the so called “paper process” or a “paper move.” The Statement of Facts further assert that the “Nigeria Customs Agent, with the knowledge of Noble Nigeria, created and caused to be presented to the [Nigeria Customs Service] NCS documents that reflected that the rig had been physically exported and reimported, when, in fact, the rig had remained in Nigeria.”
According to the Statement of Facts, the Nigeria Customs Agent included a line item in its invoices for “special handling charges” and “Noble Nigeria personnel were informed by the Nigerian Customs Agent that all or part of the ‘special handling charges’ would be paid by the Nigeria Customs Agents to NCS officials.” Further, the Statement of Facts assert that “Noble Nigeria personnel approved the payments to the Nigerian Customs Agent with the knowledge that some or all of the payments would be paid to NCS officials.”
The Statement of Facts assert that “certain Noble and Noble Nigeria managers and employees authorized paper moves on five occasions.” In a separate section of the NPA titled, “Corporate Knowledge of the TIP Paper Process” the following statements are made.
“Manager A” (a U.S. citizen and a former manager in Noble’s Internal Audit Department) “interviewed several Noble-Nigeria employees who explained that false paperwork had been created and submitted to NCS officials through the Nigeria Customs Agent in connection with the process of securing TIPs” and that Manager A “also learned that the Nigeria Customs Agent in the past had charged a fee of approximately $75,000 per TIP to secure the TIPS.”
Manager A provided a written summary to Executive A (a U.S. citizen, an officer of Noble, and Head of Internal Audit).
Executive A discussed Manager A’s findings with Executive B (a U.S. citizen, an officer of Noble, and the Vice President-Eastern Hemisphere with management responsibility for Nigerian operations). Executive A then informed the Senior Executive (a U.S. citizen, an officer of Noble, and the former Chief Financial Officer).
The Audit Committee was advised of the “paper process” as was “members of Noble’s senior management.”
Executive B was tasked with “ensuring the Company’s compliance with all applicable rules and regulations related to the importation and exportation of assets in Nigeria…”.
Corrective action was contemplated, such as permanently importing rigs or moving them to a free trade zone, but Manager A and Executive B “decided that due to the time, cost, and risk of permanently importing or moving the rigs, the paper process would be used for three rigs for which TIPs had expired.”
“The Audit Committee was not advised of the decision to resume the paper process.”
Without any elaboration, the Statement of Facts states that the above described payments “would not constitute facilitation payments for routine governmental actions within the meaning of the FCPA.”
The Statement of Facts continue – between May 2005 and March 2006 “a total of five (5) TIPs were obtained through the submission of false documents via the paper process, and each included the payment of ‘special handling fees’ to the Nigeria Customs Agent. The ‘special handling fees’ ranged from approximately $13,800 to $17,000.”
According to the Statement of Facts:
“By their approval of the payments and the process, the Senior Executive, and Executive B caused Noble to inaccurately record in its books, records, and accounts the five (5) “special handling fee” payments paid to the Nigeria Customs Agent in a “facilitation payments” account totaling approximately $74,000, when the Senior Executive, Executive A, and Executive B knew that some or all of these payments would be passed on to NCS officials to obtain TIPs. Thus, such payments could not be facilitation payments for the performance of a “routine governmental action” within the meaning of the FCPA.”
The remainder of the Statement of Facts describes how Executive A failed to advise the Audit Committee and/or concealed from the Audit Committee that the paper process had resumed.
According to the Statement of Facts, “the total benefit received by Noble Nigeria for these payments in avoided costs, duties, and penalties was approximately $2,973,000.”
As noted in the NPA, the DOJ agreed to enter into the NPA based, in part, on the following factors:
“The Department enters into this Non-Prosecution Agreement based, in part, on the following factors: (a) Noble’s discovery of the violations through its own internal investigation; (b) Noble’s timely, voluntary, and complete disclosure of the facts described in [the Statement of Facts]; (c) Noble’s extensive, thorough, real-time cooperation with the Department and the SEC …; (d) Noble’s voluntary investigation of the Company’s business operations throughout the world; (e) the existence of Noble’s pre-existing compliance program and steps taken by Noble’s Audit Committee to detect and prevent improper conduct from occurring; (f) Noble’s remedial efforts to enhance its compliance program and oversight that have already been undertaken; (g) Noble’s agreement to continue to implement enhanced compliance measures …; and (h) Noble’s agreement to provide annual, written reports to the Department on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures …”.
As is standard process in an NPA, Noble admitted, accepted, and acknowledged its responsibility for the conduct of its employees, agents, and subsidiaries as set forth in a Statement of Facts, and further agreed “not to make any public statement contradicting” the Statement of Facts.
SEC
The SEC’s complaint (here) concerns the same core set of facts as set forth in the DOJ’s NPA.
In summary fashion, the SEC alleges that “through the TIPs obtained using the paper process, Noble obtained profits from continued operations of rigs in Nigeria and avoided the costs of moving rigs out of and back into Nigerian waters.” According to the SEC, “Noble’s total gains from this conduct were at least $4,294,933.”
The SEC charged Noble with violating the FCPA’s anti-bribery provisions, as well as the FCPA’s books and records and internal control provisions.
As to the FCPA’s books and records charge, the SEC alleges that “Noble Nigeria recorded the portion of the payments it made to its customs agent that certain Noble personnel believed were being passed on to Nigerian government officials in Noble’s ‘facilitating payment’ account and in some cases to other operating expense accounts…” However, without elaborating the SEC states, “because these payments were not qualifying facilitating payments under the FCPA or otherwise legitimate expenses, Noble created false books and records by recording the payments as such.”
As to the internal controls charges, the SEC alleges that “although Noble had an FCPA policy in place, Noble lacked sufficient FCPA procedures, training, and internal controls to prevent the use of the paper process and making of payments to Nigerian government officials to obtain TIPs and TIP extensions.”
Without admitting or denying the SEC’s allegations, Noble agreed to agreed to an injunction and will pay disgorgement and prejudgment interest of $5,576,998.
Neither the DOJ nor the SEC resolution require the company to engage a compliance monitor.
Both the DOJ’s NPA and the SEC’s complaint specifically mention that Noble conducted a worldwide review of its operations. That no other conduct was mentioned in either the DOJ’s NPA or the SEC’s complaint, suggests that Noble’s Nigerian import/export issues were an isolated incident, not indicative of systemic issues throughout the company’s other operations.
In a press release (here) Noble’s CEO stated that “ethical business conduct and strict compliance with the law remain central to Noble’s operating philosophy,” that the company “is pleased that these investigations have been concluded and a resolution has been reached,” and that the company “is moving forward with a continuing commitment to ethical business practices and a dedication to compliance, ideas that are reflected in our core values, our policies, our training and our expectations for ethical behavior.” The release notes as follows: “In May 2007, the Company self-reported to the DOJ and the SEC possible improper payments by a customs agent in connection with securing temporary import permits and extensions for the operations of Noble’s rigs in Nigeria. An internal investigation was promptly conducted by independent outside counsel, and the Company has cooperated thoroughly with the independent investigator’s review and the government’s investigation.”
In a 10-K filing yesterday, Noble stated as follows:
“We are currently operating three jackup rigs offshore Nigeria. The temporary import permits covering two of these rigs expired in November 2008 and we have pending applications to renew these permits. We have received notice that we will be allowed to obtain a new temporary import permit for one of the two rigs and are in the process of clarifying this approval. However, as of October 31, 2010, the Nigerian customs office had not acted on our application for the second unpermitted rig, but we are discussing undertaking the same process as for the first rig. We did obtain a new temporary import permit for the third rig in 2009 that had previously been operating with an expired temporary import permit, while the application was pending, by exporting and re−importing the rig. We continue to seek to avoid material disruption to our Nigerian operations; however, there can be no assurance that we will be able to obtain new permits or further extensions of permits necessary to continue the operation of our rigs in Nigeria. If we cannot obtain a new permit or an extension necessary to continue operations of any rig, we may need to cease operations under the drilling contract for such rig and relocate such rig from Nigerian waters. In any case, we also could be subject to actions by Nigerian customs for import duties and fines for these two rigs, as well as other drilling rigs that operated in Nigeria in the past. We cannot predict what impact these events may have on any such contract or our business in Nigeria. Furthermore, we cannot predict what changes, if any, relating to temporary import permit policies and procedures may be established or implemented in Nigeria in the future, or how any such changes may impact our business there.
Mary Spearing, a former DOJ attorney (here), represented Noble.
Failure to Move Rigs Costs GlobalStantaFe
When an FCPA enforcement action involving 13 separate entities, comprising both DOJ and SEC components, is announced on the same day, there is a natural tendency to look at the forest, without spending much time on the trees.
Today’s post, and those that will follow in the near future, will focus on the separate enforcement actions (see here) announced by the DOJ/SEC on November 4th, in what I’ll call “CustomsGate.”
First up, GlobalSantaFe Corp. (“GSF”), the only enforcement action without a DOJ component.
GSF provided offshore oil and gas drilling services for oil and gas exploration companies. (GSF is a former issuer that completed a merger with a subsidiary of Transocean Inc. and became known as Transocean Worldwide, Inc. which is a subsidary of Transocean Ltd., an issuer).
In order to import equipment necessary to do such work in Nigeria, GSF needed to obtain a temporary importation permit (“TIP”) from the Nigerian government through the Nigerian Customs Service (“NCS”). Obtaining a TIP required mounds of paperwork. TIPS were initially issued for one year and were allowed to be extended twice for a period of six months each. Rarely, and only in the discretion of NCS officials, could a third six-month extension be granted.
Prior to or after a TIP expired, GSF was required to move its rigs out of Nigerian waters and to begin again the paper heavy TIP application process. Failure to export a rig after the expiration of a TIP, and all permissible extensions, would render a rig subject to potential forfeiture or seizure.
Moving a rig is no small task, it requires tug boats and money.
So begins the SEC’s complaint (here) against GSF.
According to the SEC, “instead of moving its oil drilling rigs out of Nigerian waters when GSF’s permit to temporarily import the rigs into Nigeria had expired, GSF, through its customs brokers, made payments to NCS officials in order to obtain documentation reflecting that the rigs had moved out of Nigerian waters, when in fact, the rigs had not moved at all.”
According to the SEC, there were four such instances.
The Adriatic VIII should have left Nigerian waters on or before October 15, 2004. However, in September 2004, the SEC alleges that “GSF, through its customs broker, took steps to obtain false documentation from NCS reflecting that the Adriatic VIII left Nigeria on September 29, 2004.” According to the SEC, “GSF paid its customs broker $87,500 (wired through a bank account in the name of GSF located in the U.S.) to obtain the new TIP, including a payment of $3,500 identified on the customs broker’s invoice as ‘additional charges for export.” According to the SEC, GSF managers in Nigeria “knew that the Adriatic VIII had never actually left Nigerian waters and knew, or knew that there was a high probability, that the explanation on the invoice as ‘additional charges for export’ was for purposes of disguising a bribe.” According to the SEC, a fews years later, GSF, through its customs-broker, again obtained false documentation from NCS reflecting that the Adriatic VIII had left Nigerian waters when, in fact, it had not.”
The Adriatic I should have left Nigerian waters on or before January 31, 2004. However, before this date, the SEC alleges that “GSF, through its customs broker, obtained documentation from NCS, reflecting that the Adriatic I left Nigeria on January 31, 2004 when, in fact, it had not.”
The Baltic I should have left Nigerian waters on or before June 3, 2004. However, before this date, the SEC alleges that “GSF, through its customs broker, took steps to obtain documentation from NCS, reflecting that the Baltic I left Nigeria on June 25, 2004. According to the SEC, the GSF managers “authorized and submitted for payment invoices containing charges described as ‘additional charges for export’ when the same GSF managers knew that the GSF rig had not been exported from Nigeria.” Thus, the SEC alleges, the “GSF managers either knew that the ‘additional charges for export’ were bribes, or knew that there was a high probability that they were bribes.
By engaging in the above referenced conduct, the SEC alleged that GSF: (1) avoided costs of approximately $1.5 million from not physicially moving the rigs; and (2) gained revenues of approximately $619,000 from not interrupting operations to move the rigs.”
The SEC charged GSF, on the above facts, with violating the FCPA’s anti-bribery provisions.
Because none of the above-described payments were “accurately reflected in GSF’s books and records,” the SEC also charged GSF with violating the FCPA’s books and records and internal control provisions in connection with the above payments.
There is more to the SEC’s complaint.
It is common for an enforcement agency (whether DOJ or SEC) to ask the “where else question.” In other words, if the company was making the above-described payments in country x, where else was the company also making similar payments?
This frequent question causes the company to do a worldwide review of its operations and report back the results to the enforcement agency.
This is why an SEC complaint or DOJ resolution vehicle often contains a laundry list of related allegations towards the end of the resolution vehicle.
Case in point, the SEC’s complaint against GSF.
The SEC alleges that “GSF, through its customs brokers, made a number of additional payments to government officials in Nigeria totaling approximately $82,000.” The complaint gives sparse detail as to these alleged “other suspicious payments.”
Further, 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).
Based on the entire above-described conduct, and without admitting or denying the SEC’s allegations, GSF agreed to pay $5.85 million (approximately 3.75 million in disgorgement and a 2.1 million penalty).
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.”