A Canadian Corruption Scandal?
A coalition of NGOs recently requested that Blackfire Exploration, a privately owned Canadian exploration and mining company headquartered in Calgary (here), be investigated for potential violations of Canada’s Corruption of Foreign Public Officials Act (CFPOA) based on alleged improper payments made to the Mayor of Chicomueselo in the State of Chiapas, Mexico.
For more on the NGOs claims, including its letter to the Royal Canadian Mounted Police and documents the NGOs claim support its allegations, see here.
Among other things, the NGOs state in the letter that Blackfire “provided the mayor with […] benefits including airline tickets for himself, his family and his associates. These payments and other benefits were apparently made in response to the Mayor’s demands for ‘favours'”. According to this report in The Calgary Herald, Blackfire “decided to stop the ‘ridiculous propositions’ after the mayor asked for Blackfire to set up a sexual affair with a Playboy model.”
For more about the CFPOA, see here for a prior post.
Lack of Pride (And That CITGO Sign Too)
If the SEC were to put titles on its complaints, the above may be fitting for the complaint released (see here) earlier this week against Bobby Benton (the former Vice President, Western Hemisphere Operations for Pride International, Inc.).
In its complaint (see here), the SEC alleges that “Benton was responsible for, among other things, ensuring that Pride conducted its Western Hemisphere operations in compliance with the FCPA, that adequate controls were in place to prevent illegal payments, and that the company’s books and records were accurate.”
Despite this position, the SEC alleges that: (i) “Benton 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; (ii) “Benton learned that a customs agent engaged by Pride’s Mexican subsidiaries paid approximately $15,000 to a Mexican customs official to ensure that the export of a rig would not be delayed due to customs violations; and (iii) Benton concealed the bribe payments made by the manager of the Venezuelan branch of a French subsidiary of Pride from Pride’s internal and external auditors by “redact[ing] references to the Venezuelan payments in an action plan responding to an internal audit report.”
The SEC further alleges that “[d]espite his knowledge, and in one instance authorization, of the Venezuelan and Mexican bribes, Benton signed two false certifications in connection with audits and reviews of Pride’s financial statements denying any knowledge of bribery.” The financial results of the Mexican and Venezuelan entities were consolidated with Pride’s for purposes of financial reporting.
The “foreign officials” involved are Mexican customs officials / customs agents and an official of Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
Based on the above conduct, the SEC charged Benton with violating the FCPA’s antibribery provisions, aiding and abetting FCPA violations, and aiding and abetting violations of the FCPA’s books and records and internal control provisions.
Most SEC FCPA enforcement actions (whether against a company or an individual) are settled on the same day the civil complaint is filed. Not so in this case and the SEC complaint notes that Benton asserted his 5th amendment privilege against self-incrimination when subpoenaed to testify by the SEC. Will the SEC actually be put to its burden of proof in an FCPA case?
Pride International’s most recent disclosure on this issue is in its 10-Q filed on November 2, 2009 (see here – pgs. 17-18). As noted in the disclosure, what began as an inquiry into Latin America operations has spawned into a substantial worldwide review of the company’s operations.
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The Benton complaint mentions Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
The DOJ/SEC’s interpretation of the “foreign official” element of an FCPA anti-bribery violation is well known by now – all employees of state-owned or state-controlled entities (SOEs), such as PDVSA, are “foreign officials” regardless of title or position.
Further, all employees of SOE wholly-owned subsidiaries are considered “foreign officials” under this interpretation. In fact, a business entity does not even need to be majority owned by a SOE for its employees to be considered “foreign officials” by DOJ/SEC (see the KBR/Halliburton enforcement action (see here paras 13-14) where officers and employees of Nigeria LNG Limited (NLNG) are deemed “foreign officials” despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies (see here).
Applying DOJ/SEC’s untested and unchallenged interpretation to PDVSA can, well, let’s just say it can lead to some rather weird results.
Why?
One of PDVSA’s wholly-owned subsidiaries is Citgo Petroleum Corporation (“CITGO”) (see here).
Thus, under DOJ/SEC’s view, all CITGO employees are “foreign officials” under the FCPA regardless of title or position.
This despite the fact that CITGO is a Delaware corporation based in Houston.
In other words, CITGO is both subject to the FCPA and all of its employees (under the DOJ/SEC interpretation) are “foreign officials.” How’s that for a little mental gymnastics.
At the very least, this gives readers something to think about the next time they attend a ball game at Fenway Park (see here).
A Bribery Scheme Hatched at the “Eggs Benedict Place”
The DOJ announced today (see here) that John Joseph O’Shea was recently arrested for his alleged role in a conspiracy to bribe Mexican foreign officials to secure contracts with the Comision Federal de Electridad (“CFE”), an apparent Mexican state-owned utility company (see here). In addition to charging conspiracy to violate the FCPA, the indictment contains twelve substantive FCPA charges (among other charges).
According to the unsealed indictment (see here), O’Shea was the General Manager of Texas Business A, a business that provides products and services to electrical utilities in a number of foreign markets. According to the indictment, one of O’Shea’s responsibilities was approving payments to sales representatives.
According to the indictment, Texas Business A is a business unit of Subsidiary A (a company with its principal place of business in Sugar Land, Texas) and Subsidiary A, in turn, is a subsidiary of Corporation A (a company headquartered and incorporated in Switzerland with publicly-traded American Depositary Shares on the NYSE).
In other words, both Subsidiary A and Corporation A are subject to the FCPA and may be the focus of a forthcoming enforcement action. Also of note is that Mexican Company X, Intermediary Company O (a company incorporated in and headquartered in Mexico) and Intermediary Company S (a company incorporated in Panama and headquartered in Mexico) are all alleged to be “an agent of a domestic concern” under 78dd-2(h)(1). DOJ recently noted (see here) that it is willing to go after agents and intermediaries which facilitate bribe payments and the “agent of a domestic concern” designation would seem to be setting the table for a possible enforcement action against such companies as well.
According to the indictment, one customer Texas Business A did business with is CFE and officials N,J,C and G at CFE had influence over decisions concerning Texas Business A’s contracts with CFE
(Sorry for the alphabet soup, but this is how the indictment reads).
According to the indictment, Texas Business A obtained multiple contracts with CFE while using Mexican Company X (including its principal, Fernando Maya Basurto) as its sales representative under several commission-based agreements.
The indictment alleges that O’Shea conspired and agreed with Basurto, Subsidiary A, Texas Business A, and the intermediary companies and others to make improper payments to Mexican “foreign officials” to obtain or retain business for Subsidiary A and Texas Business A in violation of the FCPA and that O’Shea did indeed offer, authorize, or make the improper payments indirectly through others to the CFE officials in violation of the FCPA.
According to the indictment, the payments assisted Texas Business A secure two contracts with CFE worth approximately $81 million in revenue.
According to the indictment, the improper payments were concealed through a series of financial transactions, first to U.S. bank accounts in the name of Basurto and certain of his family members, then through false invoices received from Basurto in the names of the intermediary companies, and then to the “foreign officials.”
According to the indictment, after O’Shea was terminated from Texas Business A, he, Basurto, and others tried to cover up their conduct after learning that Corporation A had disclosed the suspected payments to the DOJ, SEC and Mexican authorities.
In describing O’Shea’s cover up, the indictment states, “On or about April 27, 2005, O’Shea sent Basurto an e-mail that read, in part, “It seems my lawyer thinks it is OK to use a private e-mail such as yahoo, as it would seem much more difficult for anyone to get the exchanges – if it is a company email it belongs to them. I believe [sic] we should alter opur [sic] normal routine; meaning not meet at the ‘eggs benedict’ place.”
Consistent with DOJ’s recent statements on this issue, the indictment seeks from O’Shea forfeiture of approximately $3 million in proceeds derived from his improper conduct.
As noted in the DOJ’s release, Basurto recently pleaded guilty to a one-count criminal information (see here) charging him with conspiracy to violate the FCPA. The DOJ news release also notes that a Mexican citizen had pleaded guilty for his role in the bribery scheme.