All About Panalpina
Last but certainly not least in the analysis of CustomsGate enforcement actions is Panalpina.
See here for the prior post on the Pride International enforcement action, here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.
The Panalpina enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $81.9 million ($70.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $11.3 million in disgorgement via a SEC settled complaint).
This is a long post, but the enforcement action takes up 230 pages.
What you will find in these pages is that Panalpina paid millions of dollars of alleged bribes on behalf of certain of its customers (and in some instances for its own benefit as well), that a majority of the improper payments relate to Nigeria, and that a majority of Nigerian payments relate to temporary importation permits in connection with importing rigs and other vessels into Nigerian waters.
As to a U.S. nexus of these payments (a nexus necessary to find Panalpina, a foreign based non-issuer company, liable under the FCPA) you will find that the information alleges one e-mail and one conference call in which a certain Nigerian payment was discussed.
You will find that Panalpina also engaged in alleged improper conduct in numerous other countries besides Nigeria, but because of how the deferred prosecution agreement is structured, Panalpina ended up paying $0 for this non-Nigeria improper conduct.
You will find how Panalpina, despite an alleged corporate culture of bribery, including at the most senior levels of the company, was offered a deferred prosecution agreement even though it did not disclose the conduct at issue, even though it did not cooperate at all times in the DOJ’s investigation, and even though certain improper payments continued while the company was engaged in discussions with the DOJ.
You will also find how the SEC asserted a rather unique jurisdictional basis against Panalpina. That is Panalpina acted as an agent for certain of its issuer-customers and violated the FCPA by masking the true nature of bribe payments in invoices submitted to its issuer customers that allowed the customers to then violate the FCPA.
DOJ
The DOJ enforcement action involved a criminal information against Panalpina World Transport (Holdings) Ltd. (“PWT”) resolved through a deferred prosecution agreement and a criminal information against Panalpina Inc. resolved through a plea agreement.
PWT Criminal Information
Basel, Switzerland based PWT (here) “is one of the world’s leading suppliers of forwarding and logistics services, specializing in global supply chain management solutions and intercontinental air freight and ocean freight shipments and associated supply chain management solutions.” It operates “a close-knit network with some 500 branches in over 80 countries,” does business in a further 80 countries with partner companies, and employs approximately 15,000 individuals.
The criminal information (here) focuses on a “network of local subsidiaries … each of which was responsible for providing the freight forwarding and logistics services to customers and for coordinating with other Panalpina-affiliated companies with respect to the transportation and shipment of cargo from abroad.” In addition, PWT and its subsidiaries “provided customers with importation, customs clearance and ground shipment services once the shipped goods reached their destination jurisdiction.”
The subsidiaries are:
Panalpina Inc. (“Panalpina U.S”), a wholly-owned subsidiary and agent of PWT located in New Jersey with 38 branches in the U.S. ,including Houston – the office that had the “primary relationship for [Panalpina’s] oil and gas industry customers”;
Panalpina World Transports (Nigeria) Limited (“Panalpina Nigeria), a majority-owned subsidiary and agent of PWT until 2008 located in Lagos, Nigeria that was an “affiliate of Panalpina U.S. and provided a wide variety of services for Panalpina U.S.’s customers”;
Panalpina Transportes Mundiasis, Navegacao e Transitos, SARL (“Panalpina Angola”), a wholly-owned subsidiary and agent of PWT located in Luanda, Angola;
Panalpina Limitada (“Panalpina Brazil”), a wholly-owned subsidiary and agent of PWT located in Sao Paulo, Brazil;
Panalpina Azerbaijan LLC (“Panalpina Azerbaijan”), a wholly-owned subsidiary and agent of PWT located in Baku, Azerbaijan;
Panalpina Kazakhstan LLP (“Panalpina Kazakhstan”), a wholly-owned subsidiary and agent of PWT located in Almaty, Kazakhstan;
Panalpina World Transport Limited (Russia) (“Panalpina Russia”), a wholly-owned subsidiary and agent of PWT located in Moscow, Russia; and
Panalpina World Transport Limited (Turkmenistan) (“Panalpina Turkmenistan”), a wholly-owned subsidiary and agent of PWT located in Turkmenbashi, Turkmenistan.
The information refers to PWT and the above subsidiaries collectively as “Panalpina.”
The criminal information begins with a heading titled “Panalpina’s Culture of Corruption.” This section states as follows.
“Prior to 2007, dozens of employees throughout the Panalpina organization were involved in paying bribes to foreign offcials. Panalpina generally made payments on behalf of customers in order to circumvent the customs process for imports and exports of goods and items. Panalpina paid these bribes for various reasons, such as to cause officials to overlook insufficient, incorrect, or false documentation and to circumvent the local laws and inspections so as to allow the shipment of contraband (mainly unauthorized food and clothing). Panalpina also on occasion paid bribes to secure foreign government contracts for itself or to obtain favorable tax treatment by foreign governments.”
According to the information, “the highest levels of PWT’s leadership, including a former member of PWT’s Board of Directors (“Board Member A”), knew of and tolerated Panalpina’s payments of bribes.”
The information states as follows:
“Panalpina’s longstanding practice of making bribe payments in violation of the FCPA resulted from a variety of factors, including: (1) pressure from Panalpina’s customers to have services performed as quickly as possible, or to receive preferential treatment in obtaining services; (2) an inadequate compliance structure; (3) a corporate culture that tolerated and/or encouraged bribery prior to 2007 as customary and necessary in various markets; (4) the involvement of management in PWT’s Swiss headquarters that tolerated the improper payments prior to 2007; and (5) the involvement of Panalpina management in the U.S. and in other countries that encouraged the improper payments prior to 2007.”
According to the information, between 2002 and 2007 “Panalpina paid bribes to foreign officials valued at approximately $49 million” and “payments paid on behalf of Panalpina’s U.S. customers and their foreign subsidiaries accounted for approximately $27 million of these bribes payments.”
The criminal information (here) alleges bribery schemes in Nigeria, Angola, Brazil, Azerbaijan, Russia, Kazakhstan, and Turkenistan.
Nigeria
According to the information:
“Panalpina had a substantial number of oil and gas customers that shipped items into Nigeria, including customers in the United States. The goods shipped by Panalpina into Nigeria could only be imported into the jurisdiction if they satisfied the local statutory and regulatory requirements, which required product inspection, submission of satisfactory paperwork, and payment of customs duties and other taxes. Furthermore, once the items had been imported, they remained subject to local laws or regulations. Some of Panalpina’s customers, including its U.S. customers, sought to avoid local customs and import laws and processes by seeking to import goods without sufficient documentation, without being inspected, or without paying the required taxes, duties or fees. Panalpina used a portion of the revenue earned from its customers to make bribe payments to local customs officials in exchange for their cooperation in assisting Panalpina in circumventing these local legal or regulatory requirements on behalf of Panalpina’s customers. Panalpina sought reimbursement for these bribe payments through invoices that used false terms to characterize the bribe payments.”
According to the information, Panalpina used “approximately 160 different terms [internally and externally to invoice customers] to falsely describe the bribes it paid in Nigeria relating to the customs process.”
The information alleges that “the bribes paid by Panalpina relating to the customs process were paid to officials in the Nigerian Customer Service (“NCS”), a Nigerian government agency” responsible for “assessing and collecting duties and tariffs on goods imported into Nigeria.”
According to the information, between 2002 and 2007, “Panalpina paid over $30 million in bribes to Nigerian government officials” and “payments made on behalf of Panalpina’s U.S. customers and their foreign subsidiaries accounted for at least $19 million of these bribe payments.”
The information describes four types of “bribery payments” in Nigeria – (1) Pancourier; (2) Temporary Import Permits payments; (3) “special” and other bribe payments; and (4) “recurring payments to government officials.” According to the DPA statement of facts “the overall largest category of payments, accounting for the largest amount of bribes, related to securing Temporary Importation Permits on behalf of its customers” and “those bribes ranged in value from $5,000 to over $75,000 per transaction.”
Pancourier
“Pancourier” was Panalpina’s “express courier service” that certain Panalpina customers used instead of “the normal shipping process” to “import goods or contraband into Nigeria without complying with Nigerian customs law.” According to the information, “Panalpina charged its customers a premium for this service and explained that no government receipt or paperwork would be available from NCS for the goods that were imported.” The information alleges that “Panalpina typically billed its customers for two separate charges” (1) a charge based on the weight of the shipment; and (2) a “special fee” that was a “bribe paid to the NCS officials for the purpose of securing an improper advantage for the customer.”
According to the information, between 2002 and 2007 “Panalpina, through Panalpina Nigeria, paid hundreds of bribes to NCS officials in relation to the Pancourier service.”
Special and Other Improper Payments
The information states as follows:
“In addition to the Pancourier service, Panalpina also offered standard freight forwarding and shipping services. For standard Panalpina freight forwarding and shipping, once the goods arrived at their destination, a Panalpina Nigeria employee would ensure that the goods cleared customs. The clearance process typically required the submission of documents, an inspection of the product being shipped, and the payment of any customs and other fees associated with the importation of that product. The goods shipped by Panalpina frequently encountered delays in clearng customs for various reasons, including insufficient or missing documentation or delays due to the legally-required inspection process. Panalpina customers often sought to avoid local customs and import laws and processes to expedite their shipments into Nigeria. Panalpina made cash bribe payments, through Panalpina Nigeria, to local government officials, including NCS employees, to expedite customs clearance, avoid the required cargo inspections, avoid fines, duty payments, and tax payments, and to circumvent permit requirements and other legal requirements.”
According to the information, between 2002 and 2007, “Panalpina, through Panalpina, Nigeria, paid thousands of bribes on behalf of its customers to Nigerian government officials to resolve these types of customs and immigration matters.”
Temporary Import Permits Payments
The information states as follows:
“Another service offered by Panalpina involved obtaining Temporary Import Permits (“TIPs”) required under Nigerian law to import high-value special equipment, such as rigs and other large vessels, into Nigerian water. A TIP could be extended through two six-month extensions (known as “TIP extensions”). Vessels imported under a TIP (and TIP extensions) could not remain in Nigeria longer than the period allowed for by the TIP and/or TIP extensions. Upon expiration, the vessel was required to be exported from Nigeria and, if appropriate, the customer could re-apply for a new TIP. Panalpina, through Panalpina Nigeria, made improper payments to Nigerian government officials to assist some of its customers to circumvent TIP regulations. Specifically, Panalpina Nigeria made payments to NCS officials, on behalf of customers, to extend TIPs without complying with Nigerian TIP regulations. As a result, the customers avoided the time and cost of removing vessels upon the expiration of the TIP, as was otherwise required by Nigerian law.”
According to the information, between 2002 and 2007, “Panalpina, through Panalpina Nigeria, paid over a hundred bribes to Nigerian government officials on behalf of Panalpina’s customers to improperly secure TIPs and TIP extensions.”
Payment of Bribes to Secure a Contract
The information alleges that between November 2003 and August 2005, “Panalpina promised to pay $50,000 to a National Petroleum Investment Management Services official (the “NAPIMS Official) in exchange for the official’s assistance in securing the award by NAPIMS of a logistics contract to Panalpina.” According to the information, “Panalpina was awarded a global framework logistics contract in or around November 2003” and “in or around November 2005, PWT directed the $50,000 bribe payment to be made to the NAPIMS Official in cash.”
The information states that NAPIMS supervised and managed Nigeria’s investment in the oil and gas industry and NAPIMS officials had the authority to approve or disapprove logistics contracts awarded for certain projects.
Recurring Payments to Government Officials
Although referenced in the information, the information does not contain any detail about such payments.
However, the DPA’s statement of facts states as follows.
“Panalpina Nigeria made improper payments to a wide variety of Nigerian officials, including, but not limited to, NCS offcials, Port Authority offcials, Maritime Authority officials, Police officials, Deparment of Petroleum officials, Immigration Authority officials, and National Authority for Food and Drug Control officials. Most of these improper payments were tied to specific transactions, however, Panalpina Nigeria also provided certain officials weekly or monthly allowances to ensure the officials would provide preferential treatment to Panalpina and its customers. Between in or around 2002 and in or around 2007, Panalpina made hundreds of improper weekly and monthly payments to Nigerian government officials.”
Angola
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.”
Azerbaijan
The information states as follows.
“Between in or around 2002 and in or around 2007, Panalpina Azerbaijan paid approximately $900,000 in bribes to Azeri government officials responsible for assessing and collecting duties and tariffs on imported goods. […] The purpose of many of the bribes paid to the Azeri government officials was to cause these officials to overlook incomplete or inaccurate documentation; avoid levying proper customs duties; or avoid imposition of fines relating to the failure of Panalpina, or its customer, to comply with legal requirements. In addition, Panalpina also made bribe payments to Azeri tax officials to secure preferential treatment for Panalpina Azerbaijan.”
Brazil
The information states as follows.
“Between in or around 2002 and in or around 2007, Panalpina Brazil paid over $1 millon in bribes to Brazilian govermnent officials responsible for assessing and collecting duties and tariffs on imported goods on behalf of its customers. […] The purpose of many of these bribes was to expedite the customs clearance process; to avoid the imposition of fines and penalties; to circumvent Brazilian law requirements for customs declaration of courier shipments; to permit shipments to be imported in Brazil without an import license; and to allow exports from Brazil of goods originally imported without accurate and complete documentation. Many of the bribe payments made by Panalpina Brazil on behalf of its customers were in connection with shipments to Brazil originating with Panalpina U.S. from the United States.”
Kazakhstan
The information states as follows.
“Between in or around 2002 and in or around 2007, Panalpina Kazakhstan paid over $4 milion in bribes to Kazakh governent officials, including, for example, payments to Kazakh government officials responsible for assessing and collecting duties and tariffs on imported goods and officials responsible for administering and enforcing Kazakhstan tax policy. […] The purpose of many of the bribes paid to the Kazakh government officials was to cause officials to overlook incomplete or inaccurate documentation; avoid levying proper customs duties; and avoid imposition of fines relating to the failure of Panalpina, or its customer, to comply with legal requirements.”
According to the information, the payments “ranged from several hundred dollars to $50,000 per transaction.”
The information further states that “Panalpina Kazakhstan paid bribes to Kazakhstan officials responsible for administering Kazkhstan tax policy in conjunction with its annual tax audits to minimize the duration and depth of the audits as well as to reduce proposed fines.”
Russia
The information states as follows.
“Between in or around 2002 and in or around 2007, Panalpina Russia paid over $7 milion in bribes to Russian government officials responsible for assessing and collecting duties on imported goods. […] The purpose of many of the bribes paid to the Russian government officials was to avoid delays, administrative fines, and other legal action as a result of missing, incomplete or erroneous documentation; to avoid problems arising out of the improper use of a TIP; and to bypass the customs process in total.”
Turkmenistan
The information states as follows.
“Between in or around 2002 and in or around 2009, Panalpina Turkmenistan paid over $500,000 in cash bribes to: (i) Turkmen government officials responsible for assessing and collecting duties and tariffs on imported goods in order to expedite the release of shipments and undocumented shipments and to circumvent the official Turkmen customs and immigration regulations; (ii) Turkmen government officials responsible for auditing, assessing, and collecting taxes on economic activity in Turkmenistan to minimize the duration of audits and investigations and to reduce proposed fines; and (iii) Turkmen govermnent officials responsible for enforcing Turkmenistan labor, health, and safcty laws, including through the use of audits and inspections, to minimize the duration of audits and investigations and to reduce the proposed fines.”
Based on all of the above conduct, the information charges conspiracy to violate the FCPA’s anti-bribery provisions. In addition, as to the Nigeria conduct, the information charges FCPA anti-bribery violations.
As to a U.S. nexus (a requirement for an entity such as PWT to be in violation of the FCPA’s anti-bribery provisions under 78dd-3), the information merely alleges that in November 2003 “a Panalpina U.S. employee located in Houston, Texas, sent an e-mail to a Panalpina employee based in Switzerland advising that the NAPIMS Official would award a logistics contract with the Nigerian government to Panalpina in exchange for a bribe of $50,000” and that in November 2003 “Panalpina employees based in Switzerland, Panalpina U.S. employees located in Houston, Texas, and others participated in a conference call to discuss the $50,000 payment to the NAPIMS Official.”
PWT DPA
The DOJ’s charges against PWT were resolved via a deferred prosecution agreement (see here).
Pursuant to the DPA, PWT admitted, accepted and acknowledged that it was responsible for the acts of its directors, officers, employees, subsidiaries, agents and consultants as set forth above.
The DPA’s statement of facts contains a separate section titled “Panalpina U.S.’s Assistance to its Issuer-Customers in Circumventing Books and Records Controls.” This section states that between 2002 and 2007 “Panalpina U.S. provided services to over 40 customers that were issuers” and that “in total, Panalpina paid approximately $27 million in bribes to foreign officials on behalf of these issuer-customers.”
In pertinent part, the statement of facts state as follows.
“Many of Panalpina U.S.’s issuer-customers knew, or were aware of facts indicating a high probability, that Panalpina was paying bribes on their behalf. Further, those issuer-customers with knowledge of the bribe payments failed to properly record the payments in their books and records.”
“Many of Panalpina’s issuer-customers were aware of the bribes paid by Panalpina. Importantly, those issuer-customers with strong compliance programs or rigorous audit standards were either not offered services such as Pancourier, which included improper payments to governent officials, or Panalpina paid bribes on the issuer-customer’s behalf but would not invoice the issuer-customer for the payment.”
“Panalpina US., through the local Panalpina affiiates, knowingly and substantially assisted the issuer-customers in violating the FCPA’s books and records provisions by masking the true nature of the bribe payments in the invoices submitted to the issuer-customers. By providing an invoice to the issuer-customer for what appeared to be a legitimate payment, the customer could use that invoice as support for recording a particular charge as a legitimate service in its corporate books and records when, in fact, the invoice was for a bribe.”
The statement of facts then describe how Panalpina Nigeria specifically assisted Customer A (Shell) and Customer B (Tidwater) in making bribe payments for Pancourier services and TIP payments.
The DPA’s statement of facts provides further information about “Panalpina’s Corporate Culture and Senior Management Knowledge.” According to the statement of facts: “Prior to 2007 a culture of corruption within Panalpina emanated from senior level management in Switzerland who tolerated bribery as business as usual in various markets. This trickled down to other Panalpina employees who accepted bribery as a part of Panalpina’s standard business practice.” According to the statement of facts: “Many employees openly used the terms ‘apples,’ ‘interventions,’ ‘special handling,’ and ‘evacuations’ on a daily basis in conversations, written correspondence, and e-mail exchanges” even though “most employees understood that these terms referred to cash payments provided to government officials in exchange for preferential treatment.”
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 PWT. Among the factors stated are the following.
(a) PWT conducted comprehensive anti-bribery compliance investigations of operations of PWT’s subsidiaries in seven countries, as well as separate investigations related to U.S. and Swiss operations;
(b) PWT conducted a review of certain transactions and operations conducted by its subsidiaries or agents in another 36 countries;
(c) PWT promptly and voluntarily reported its findings from all investigations to the Department, including arranging to provide information from foreign jurisdictions which significantly facilitated the Department’s access to such information;
(d) PWT mandated employee cooperation from the top down and ensured the availabilty of more than 300 employees and former employees for interviews during and following the investigations;
(e) PWT instituted a limited employee amnesty program to encourage employee cooperation with the investigations;
(f) PWT expanded the scope of the investigations where necessary to ensure thorough and effective review of potentially improper practices, and promptly and voluntarily reported any improper payments identified after internal and Department investigations had begun;
(g) After initially not cooperating with the investigation for several months, PWT fully cooperated with the Department’s investigation of this matter, as well as the SEC’s investigation, and on the whole exhibited exemplary
cooperation with the Departent’s investigation;
(h) PWT provided substantial assistance to the Department and the SEC in its investigation of its directors, officers, employees, agents, lawyers, consultants, contractors, subcontractors, subsidiaries and customers relating to violations of the FCPA;
(i) PWT undertook substantial remedial measures [the DPA then lists 10 such measures including “of its own initiative and at a substantial cost, PWT closed down its operations and withdrew from Nigeria to avoid potential ongoing improper conduct”]; and
(j) PWT agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of PWT and its directors, officers, employees, agents, lawyers, consultants, subcontractors, subsidiaries, and customers relating to violations of the FCPA.
As stated in the DPA, the fine range for the above described conduct under the U.S. Sentencing Guidelines was $72.8 million to $145.6. Pursuant to the DPA, PWT agreed to pay a monetary penalty of $70.56 million. However, the DOJ and PWT agreed “that any criminal penalty that is imposed by the Court and paid by Panalpina U.S., in connection with its guilty plea and plea agreement entered into simultaneously herewith will be deducted from the $70,560,000 criminal penalty required by this Agreement.” Because the Panalpina Inc. plea agreement (which relates only to Nigeria conduct) contemplates a payment of $70,560,000, the effect of the above clause is that PWT will end up paying $0 for the non-Nigeria conduct described in the DPA.
Also of note, even though the DPA states that PWT did not initially cooperate with the DOJ’s investigation for several months, PWT nevertheless received sentencing credit for “fully cooperating” in the DOJ’s investigation.
Pursuant to the DPA, PWT agreed to a host of compliance undertakings and to report to the DOJ (during the term of the DPA) “on its progress and experience in implementing and, as appropriate, enhancing its compliance policies and procedures.”
The DPA references three tolling agreements agreed to between January 2008 and October 2010.
As is standard in FCPA DPAs, PWT agreed not to make any public statement “contradicting the acceptance of responsibility by PWT as set forth” in the DPA and PWT further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
Panalpina U.S. Criminal Information
The criminal information (here) describes “Panalpina U.S.’s Actions to Conceal Bribes on Behalf of Its Issuer-Customers in Nigeria.” Separate sections concern “Pancourier Express Courier Payments” and “Temporary Importation Payments.”
Count One of the information charges Panalpina U.S., a non-issuer, with conspiring and agreeing with Customer A [Shell] and Customer B [Tidewater] “to knowingly falsify and cause to be falsified books, records, and accounts which were required, in reasonable detail, to accurately and fairly reflect the transactions and dispositions of the assets of Customer A, Customer B, and other issuers” in violation of the FCPA’s books and records provisions.
Count Two of the information charges Panalpina U.S. with aiding and abetting FCPA books and records violations by aiding, abetting, and assisting Customer A [Shell] “in mischaracterizing payments for freight forwarding costs as ‘administration/transport charges’ in Customer A’s books and records when, in truth and in fact, Customer A knew that these payments were bribes, paid through Panalpina Nigeria, intended to be transferred to NCS officials.”
Panalpina U.S. Plea Agreement
The above criminal charges against Panalpina U.S. were resolved via a plea agreement (see here).
As stated in the plea agreement, the fine range for Panalpina U.S.’s conduct under the U.S. Sentencing Guidelines was $72.8 million to $145.6. Pursuant to the plea agreement, Panalpina U.S. agreed to pay a monetary penalty of $70.56 million.
In an “Agreed Motion to Waive the Presentence Report” (here) the DOJ states as follows.
“…Panalpina’s cooperation and remediation in this matter has been exemplary. Panalpina provided substantial assistance to the Deparment in its investigations relating to these matters. In addition, where Panalpina encountered evidence of new violations in the course of its internal investigation, it expanded the scope of the investigation accordingly and reported the new findings to the Department. Panalpina acknowledged and accepted responsibility for misconduct, investigated and identified the nature and extent of the misconduct, and undertook comprehensive global remediation and training during the course of the investigation. Panalpina’s remediation was global and included a dramatic change in its busincss model, paricularly in higher risk countries.”
As to how the DOJ’s investigation of PWT and its related entities began, the Report states as follows. “In approximately 2006, the Department opened an investigation into Panalpina’s business practices based on evidence obtained through several Panalpina customers indicating Panalpina had paid bribes to foreign government officials on behalf of its customers.”
The Report continues as follows. “In total, between in or around 2002 and in or around 2007, Panalpina paid bribes to offcials in at least seven countries, including Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan. Approximately $27,000,000 of that total related directly to, and was paid on behalf of, customers that were US. issuers or “domestic concerns” within the meaning of the FCPA.
The Report contains a footnote that states “a small number of improper payments continued into 2008 and 2009.” As to these payments, the Report notes elsewhere as follows. “Despite PWT’s and Panalpina U.S.’s extensive efforts to transform its compliance program, during the course of the investigation, PWT uncovered a few instances in which employees were continuing to pay bribes to foreign officials. This improper conduct, although limited, continued to occur into 2008 and early 2009. Upon discovery, PWT took swift action to stop the payments, to disclose the conduct to the Department, to terminate and/or reprimand the employees implicated in the conduct, and to retrain employees in the relevant countries regarding the importance of adhering to PWT’s compliance rules and regulations.”
As to Panalpina’s “Cooperation and Assistance” the Report states as follows.
“The Department initiated its investigation of Panalpina in or around mid-2006 based on conduct disclosed by Panalpina customers. Panalpina learned of the
investigation in or around late-2006 from its customers. Despite knowledge of the investigation, Panalpina did not voluntarily disclose the conduct to the Department and did not stop the illegal payment of bribes that was occurring on multiple continents. In or about early-2007, the Department requested documents and information from Panalpina; however, at that time, Panalpina exhibited a reluctance to cooperate with the investigation. Thereafter, Panalpina engaged and instructed its legal counsel (“Counsel”) to conduct a comprehensive internal investigation, and ultimately authorized Counsel to report the findings to the Department and SEC. Thereafter, Panalpina exhibited exemplary cooperation with the Department and SEC, and conducted a comprehensive internal investigation that fully supported and paralleled the Department’s investigation. Specifically, Panalpina engaged Counsel to lead investigations encompassing 46 jurisdictions and hired an outside audit firm to perform forensic analysis and other support tasks. Panalpina’s internal investigation included a comprehensive review of operations in nine countries – the United States, Switzerland, Nigeria, Brazil, Angola, Russia, Kazakhstan, Turkmenistan, and Azerbaijan – and a detailed review of 102 additional issues in another 36 countries. Panalpina expanded the scope of its internal investigation where necessary, and promptly and voluntarly reported its findings from all investigations to the Department and SEC in over 60 meetings and calls. When potential issues were identified in countries not subject to a full investigation, Panalpina thoroughly investigated and remediated those issues. Panalpina voluntarily supplied to the Department and the SEC information from interviews and documentary evidence regarding potential violations by Panalpina customers and third parties used as conduits for improper payments and for facilitating improper transactions. Panalpina provided substantial assistance to the Department and SEC in the investigation of its own directors, officers, and employees, mandated employee cooperation from the top down, and made over 300 current and former employees available for interviews to Counsel, the Department, and the SEC during and after the internal investigation. Panalpina also adopted a limited employee amnesty program to encourage employee cooperation with the internal investigation.”
The Report further notes as follows. “On September 30, 2010, in an unelated matter, PWT was charged in a three-count criminal information with fixing prices on surcharges added to air cargo shipments in certain trade lanes, in violation of Title 15, United States Code, Section 1. See United States v. Panalpina World Transport (Holding) Ltd., 10270-RJ (D.D.C.). The Company has agreed to plead guilty and to pay a fine of $11,947,845. No date has yet been set for entry of
the plea or sentencing.”
SEC
The SEC’s civil complaint (here) alleges, in summary, as follows.
“Between 2002 and continuing until 2007, Panalpina, Inc. engaged in a series of transactions whereby it directed business to affiliated companies within the Panalpina Group, which then used part of the revenues generated from this business to pay a significant number of bribes to government officials in countries including Nigeria, Angola, Brazil, Russia, and Kazakhstan. These bribes were paid by the Panalpina Group companies in order to assist Panalpina, Inc.’ s issuer customers in obtaining preferential customs, duties, and import treatment in connection with international freight shipments. The practice of Panalpina Group companies making these payments was known to certain Panalpina, Inc. employees, including some
members of Panalpina, Inc.’s management. Although the reasons for the bribes, and the payment schemes themselves, differed from jurisdiction to jurisdiction and transaction by transaction, most shared several similarities. The issuer customers often used Panalpina, Inc. or other Panalpina Group companies to ship goods from the United States, or elsewhere, to another jurisdiction or sought Panalpina, Inc.’s assistance in obtaining customs or logistics services in the country to which the goods were shipped. However, for various reasons including delayed departures, insufficient or incorrect documentation, the nature of the goods being shipped and imported, or the refusal of local government officials to provide services without unofficial payments, Panalpina, Inc.’ s issuer customers sometimes faced delays in importing the goods. In other cases, Panalpina, Inc.’s issuer customers sought to avoid local customs duties or inspection requirements or otherwise sought to import goods in circumvention of local law. In order to secure the importation of goods under these circumstances, Panalpina, Inc.’ s issuer customers often authorized Panalpina, Inc. and the local affiliated Panalpina Group companies (e.g., Panalpina Nigeria) to bribe local government offcials. These cash payments to government officials were typically made by employees of the local affiliated Panalpina Group companies. The affiliated Panalpina Group companies generally invoiced the issuer customers for the bribes, along with other legitimate fees, either directly or through an affiliated billing entity (“Affiliated Billing Entity”). These invoices, which contained both legitimate and illegitimate costs incurred by the Panalpina Group companies, inaccurately referred to the payments as ‘local processing,’ ‘special intervention,’ ‘special handling,’ and other seemingly legitimate fees. In reality, these payments were bribes to local government officials in order to secure improper benefits for the issuer customers.”
By engaging in this conduct, the SEC alleged that Panalpina, “while acting as an agent of its issuer customers” violated the FCPA’s anti-bribery provisions and aided and abetted its issuer customers’ violations of the FCPA’s anti-bribery provisions and books and records and internal control provisions. The SEC complaint specifically states that “neither Panalpina, Inc. nor PWT is an issuer for purposes of the FCPA.”
As to Pancourier payments, the complaint alleges that in order to assist its issuer customers avoid certain Nigerian legal requirements, “Panalpina Inc. would ship the product to Nigeria wrapped in a distinctive manner so that customs officials would recognize it as a Pancourier shipment and not inspect it, require a Form M, or otherwise subject it to normal customs procedures. In order to secure its preferential treatement, Panalpina Nigeria made regular improper cash payments to Nigerian customs officials.”
The SEC complaint also describes “additional bribes paid on behalf of issuer customers in Nigeria, Angola, and Brazil” including temporary importation payments described as “the largest category of customs-related payments made by Panalpina Nigeria on behalf of the issuer customers.” The complaint also describes “pre-release, intervention, evacuation, and special payments” made by Panalpina Nigeria to “Nigerian government officials on behalf of the issuer customers to secure the release of goods from customs prior to the completion of the inspection process” and to “secure improper benefits for the issuer customers.”
The Angola payments related to immigration matters “in order to obtain visas for the issuer customers on an emergency basis, often requesting that the visa be issued same-day, in contravention of Angolan law;” and customs matters “in order to assist the issuer customers to import goods into Angola without complying with Angolan law.” The complaint also describes “other payments” in Angola including “unofficial payments to Angolan military officials on behalf of the issuer customers in order to permit them to use military cargo aircraft to transport their commercial goods.”
The Brazil payments related to “improper payments to Brazilian government officials on behalf of its issuer customers in order to expedite the customs clearance process, and where necessary, to resolve customs and import-related issues.”
The complaint also alleges that between 2002 and 2007 “Panalpina Kazakhstan and Panalpina Russia made or authorized the making of several types of improper payments on behalf of issuer customers to government officials in Russia, Kazakhstan, and other parts of Central Asia, in order to assist the issuer customers improperly import goods into these jurisdictions or to obtain other types of improper benefits.”
According to the SEC, “Panalpina Inc. obtained improper benefits totatling at least $11,329,369 from the illegal conduct” described in the complaint.
Without admitting or denying the SEC’s allegations, Panalpina agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement of $11,329,369.
In a press release (here), Panalpina CEO, Monika Ribar stated as follows. “The settlement of these claims marks the closing of an extremely burdensome chapter in Panalpina’s history and the end of a very demanding three-year effort to address and eliminate serious concerns. Now it is time for us to look to the future and to build on the strong and sustainable compliance culture we have put in place. We are also looking forward to strengthened relationships with our customers who have ceased or reduced business activities with Panalpina due to the investigation. Based on new leadership and significant enhancements of our compliance systems we are a much stronger company today.”
Richard Dean (here) and Douglas Tween (here) both of Baker & McKenzie represented the Panalpina entities.
Pride – A Little Bit Of Nigeria, And A Whole Lot Else … Plus It Pays To Assist the DOJ!
Next up in the analysis of CustomsGate enforcement actions is Pride International.
As described below, the Pride enforcement action includes not only Nigeria – Panalpina related conduct, but also conduct relating to contract extensions in Venezuela, bribing an administrative law judge in India, customs duties in Mexico, as well as other improper conduct in other countries.
See here for the prior post on the Shell enforcement action, here for the prior post on the Transocean enforcement action, here for the prior post on the Tidewater enforcement action here for the prior post on the Noble enforcement action and here for the prior post on the GlobalSantaFe enforcement action.
The Pride enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $56.2 million ($32.6 million criminal fine via a DOJ plea agreement and deferred prosecution agreement; $23.5 million in disgorgement and prejudgment interest via a SEC settled complaint).
DOJ
The DOJ enforcement action involved a criminal information against Pride International Inc. (“Pride International”) resolved through a deferred prosecution agreement and a criminal information against Pride Forasol S.A.S. (“Pride Forasol”), a wholly-owned subsidiary of Pride International resolved through a plea agreement.
Pride International Inc. Criminal Information
Houston based issuer Pride International Inc. (here) is one of the world’s largest offshore drilling companies.
The criminal information (here) alleges bribery schemes in Venezuela, India and Mexico.
Venezuela
According to the information, “Pride International owned and operated numerous oil and gas drilling rigs throughout South America, including in Venezuela.” In Venezuela, Petroleos de Venezuela S.A. (“PDVSA”), “a Venezuelan state-owned oil company,” leased “the semi-submersible rig Pride Venezuela from Pride Foramer Venezula.” Pride Foramer is described as a branch of Pride Forasol’s wholly-owned subsidiary Prime Foramer operating in Venezuela. According to the information, PDVSA “also contracted with Pride Foramer Venezuela to operate two jackup rigs, the GP-19 and the GP-20.”
The information alleges that between February 2003 and July 2003 Country Manager 1 [a U.S. citizen who was the Country Manager in Venezuela], the Marketing Manager [a Venezuelan citizen working for Pride Foramer Venezuela in Venezuela], the Operations Manager [a French citizen working for Pride Foramer Venezuela in Venezuela], and others known and unknown agreed to pay $120,000 to the Venezuela Intermediary [a company that provided catering services to Pride Foramer Venezuela] with the intent that the money would be paid to the PDVSA Director [a Venezuelan citizen appointed by the President of Venezuela as a member of the PDVSA Board of Directors] to secure a contract extension for the Pride Venezuela.”
According to the information, “in order to conceal and to generate money to pay the bribes to the PDVSA Director” the above named individuals “agreed and instructed one of Pride Foramer Venezuela’s vendors, Vendor A, to inflate certain of its invoices for its services” that “Pride Foramer Venezuela then paid Vendor A for the undelivered services relating to the inflated invoices” and that “Vendor A delivered the excess money it received from Pride Foramer Venezuela to the Venezuela Intermediary with the intent that it would be provided to the PDVSA Director.”
According to the information, “on behalf of Pride International and Pride Foramer Venezuela, Vendor A wire transferred bribe payments of at least $120,000 to, or for the benefit of, the PDVSA Director to an account at a bank in Miami, Florida in the name of the Venezuelan Intermediary.” According to the information, “in exchange for the corrupt payments, the Pride Venezuela contract was extended for approximately three months” and “the profits Pride International derived from extending the contract were approximately $2.45 million.”
As to GP-19 and GP-20, the information alleges that between April 2004 and November 2004 “the Marketing Manager, the Operations Manager, and others known and unknown also agreed to pay at least $114,000 to the Venezuelan Intermediary with the intent that the money would be paid to the PDVSA Director to secure contract extensions for the GP-19 and GP-20.” The information describes a similar payment scheme and payments made to an account in Miami, Florida in the name of the Venezuela Intermediary. According to the information, “in exchange for the corrupt payments, the PDVSA Director caused PDVSA to extend the GP-20 contract from July 2004 through June 2005 and the GP-19 contract from February 2005 through June 2005.”
According to the information “the profits that Pride International derived from the contract extensions for the GP-20 were approximately $596,000” however, the “GP-19 extension was not profitable.” The information further alleges that Senior Executive A [a U.S citizen located in Houston] “concealed information relating to the bribe payments to the PDVSA Director from reports submitted to Pride International auditors.”
India
The information alleges that between January 2003 and July 2003, “Senior Executive B [a French citizen who served as the Director of International Finance for Pride International], the Legal Director [a French citizen who served as the Director of Legal Affairs for Pride Forasol], the Base Manager [a Canadian citizen working for Pride India], the Area Manager [a U.S. citizen with responsibility for the Asia Pacific region], the India Customs Consultant [an individual who provided customs consulting services to Pride India], and others known and unknown agreed to pay $500,000 into bank accounts in Dubai in the names of third party entities with the intent that it would be passed on to an Indian CEGAT [Customs, Excise, and Gold Appellate Tribunal – an Indian administrative judicial tribunal] judge to secure a favorable judicial decision for Pride India [a branch of Pride Forasol’s wholly-owned subsidiary Pride Foramer] relating to a litigation matter pending before the official involving the payment of customs duties and penalties owed for a rig, the Pride Pennsylvania.”
According to the information, “to pay the bribe, employees of Pride Forasol, including Senior Executive B and the Legal Director, caused false invoices for agent and consulting services to be created and submitted to Interdrill [a wholly-owned subsidiary of Pride International organized under the laws of the Bahamas] for payment.” The invoices were processed, the payment was made and on June 30, 2003″Pride India received a favorable ruling from CEGAT” resulting in an “estimate gain to Pride Forasol” of “at least $10 million.”
According to the information, “to conceal the bribe, the Finance Manager [a British citizen who was the Eastern Hemisphere Finance Manager for Pride International], who was located in Houston, Texas, with knowledge of the scheme to bribe the Indian CEGAT judge, sent an e-mail to the Assistant Controller [a U.S. citizen], who was located in Houston, Texas, authorizing the booking of the bribe payments by Pride International’s subsidiary, Interdrill, as a ‘regular fee’ in a newly created ‘miscellaneous fees’ account.”
Mexico
The information alleges that around December 2004, “Senior Executive A, the Logistics Coordinator [a U.S. citizen who was the Logistics Coordinator for Pride Mexico], Country Manager 2 [a U.S. citizen who was the Country Manager in Mexico], and others known and unknown agreed to pay approximately $10,000 to the Mexican Marketing Agent [an individual who provided marketing services to Pride Mexico] to avoid taxes and penalties for alleged violations of Mexican customs regulations relating to a vessel leased by Pride International.”
According to the information, “to conceal the payments, the Mexico Marketing Agent caused false invoices purportedly for electrical maintenance services to be submitted to Pride Mexico [collectively Mexico Drilling Limited LLC, Pride Central America LLC, and Pride Drilling LLC – wholly owned subsidiaries of Pride International] in support of the payment.”
The information then alleges that all of the above-described payments were falsely characterized in the books and records of various subsidiaries or branches that were consolidated into the books, records, and accounts of Pride International for purposes of financial reporting.
Under the heading “total corrupt payments paid and improper benefits received,” the information alleges that between January 2003 through December 2004 “certain Pride International subsidiaries and their branches paid at least $804,000 in bribes to foreign government officials in Venezuela, India, and Mexico to extend contracts, secure a favorable judicial decision, and avoid the payment of customs duties and penalties.”
According to the information, “the benefit that Pride International received as a result of these payments was at least $13 million.”
Based on the above allegations, the DOJ charged Pride International with one count of conspiracy to violate the FCPA’s anti-bribery provisions and to knowingly falsify books and records as to the Mexico payments; one count of violating the FCPA’s anti-bribery provisions as to the Venezuela payments; and one count of FCPA books and records violations as to the India payments.
Pride International Inc. DPA
The DOJ’s charges against Pride International were resolved via a deferred prosecution agreement (see here).
Pursuant to the DPA, Pride International admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.
The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement “based on the individual facts and circumstances” of the case and Pride International. Among the factors stated are the following.
(a) during a routine audit, Pride International discovered an allegation of bribery;
(b) Pride International voluntarily and timely disclosed to the Department and the SEC the misconduct;
(c) Pride International conducted a thorough internal investigation of that misconduct;
(d) Pride International voluntarily initiated a comprehensive anti-bribery compliance review of Pride International’s business operations in certain other high-risk countries [as to this broader compliance review, this Joint Motion to Waive Presentence Investigation notes that the review included a number of “high-risk countries including Angola, Brazil, Kazakhstan, Libya, Nigeria, the Republic of Congo, and Saudi Arabia” and that outside counsel with assistance from forensic accounting professionals were involved in the review of approximately 20 million pages of electronic and hard copy documents gathered from approximately 350 custodians, and that more than 200 interviews of employees and agents took place;
(e) Pride International regularly reported its findings to the Department;
(f) Pride International cooperated in the Department’s investigation of this matter, as well as the SEC’s investigation;
(g) Pride International undertook, of its own accord, remedial measures, including the enhancement of its FCPA compliance program, and agreed to maintain and enhance, as appropriate, its FCPA compliance program; and
(h) Pride International agreed to continue to cooperate with the Department in any ongoing investigation of the conduct of Pride International and its employees, agents, consultants, contractors, subcontractors, and subsidiaries relating to violations of the FCPA.
As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $72.5 million to $145 million. Pursuant to the DPA, Pride International agreed to pay a monetary penalty of $32.625 million – approximately 55% below the minimum guideline amount.
Pursuant to the DPA, Pride International agreed to a host of compliance undertakings and to report to the DOJ on an annual basis (during the term of the DPA) “on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures.”
As is standard in FCPA DPAs, Pride International agreed not to make any public statement “contradicting the acceptance of responsibility by Pride International as set forth” in the DPA and Pride International further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
Pride Forasol Criminal Information
The Pride Forasol criminal information (here) alleges the same scheme to bribe an administrative judge in India as described in the Pride International information. The information charges one count of conspiracy to violate the FCPA’s anti-bribery provisions and to knowingly falsify books and records; one count of violating the FCPA’s anti-bribery provisions; and one count of aiding and abetting the creating of false books and records.
Pride Forasol Plea Agreement
The above described charges against Pride Forasol were resolved via a plea agreement (see here). Even though the Pride Forasol information is limited to India conduct, the sentencing guidelines range, $72.5 million to $145 million, is the same as set forth in the above described Pride International DPA.
The agreement sets forth factors motivating the DOJ to resolve the criminal charges in the manner in which they were resolved.
Such factors include: “Pride International’s and Pride Forasol’s substantial assistance with other related Department investigations regarding the bribery of foreign government officials in Venezuela and Mexico, including providing: (1) the names of individuals involved; and (2) contact information for the individuals” and “Pride International’s and Pride Forasol’s substantial assistance with other Department investigations regarding the bribery of foreign government officials in Nigeria and Saudi Arabia, including providing documentation and access to individuals.”
The above referenced Joint Motion to Waive Presentence Investigation states that Pride Forasol and Pride International “developed and timely provided detailed and significant information regarding third parties, including Panalpina Word Transport (Holding) Ltd. […] that was used to pay bribes to foreign government officials by numerous companies around the world.” The Joint Motion states that “the information provided by the Companies substantially assisted the Department because the extent of Panalpina’s conduct was unknown by the Department at the time of the Companies’ disclosure. It was only through the extensive, worldwide investigative efforts of the Companies that these complex criminal activities were uncovered and reported to the Department.”
SEC
The SEC’s civil complaint (here) alleges the same Venezuela, India, and Mexico payments described above.
As to Venezuela, the complaint alleges as follows:
“From approximately 2003 to 2005, Joe Summers, the country manager of the Venezuelan branch of a French subsidiary of Pride, and/or certain other managers authorized payments totaling approximately $384,000 to third-party companies believing that all or a portion of the funds would be given to an an official of Venezuela’s state-owned oil company in order to secure extensions of three drilling contracts. In addition, Summers authorized the payment of approximately $30,000 to a third party believing that all or a portion of the funds would be given to an employee of Venezuela’s state-owned oil company in order to secure an improper advantage in obtaining the payment of certain receivables.” (See this prior post for a summary of the Summers enforcement action).
“In or about 2003, a French subsidiary of Pride made three payments totaling approximately $500,000 to third-party companies, believing that all or a portion of the funds would be offered or given by the third-party companies to an administrative judge to favorably influence ongoing customs litigation relating to the importation of a rig into India. Pride’s U.S.-based Eastern Hemisphere finance manager had knowledge of the payments at the time they were made.”
“In or about late 2004, Bobby Benton, Pride’s Vice President, Western Hemisphere Operations, authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat.” (See here for a summary of the Benton enforcement action).
Based on these allegations, the SEC charged Pride International with FCPA anti-bribery violations. Based on these allegations, as well as the below allegations, the SEC charged Pride International with FCPA books and records and internal control violations.
The SEC’s complaint also describes certain other “transactions entered into by wholly or majority owned Pride subsidiaries operating in Mexico, Kazakhstan, Nigeria, Saudi Arabia, the Republic of Congo, and Libya [that] were not correctly recorded in those subsidiaries’ books.”
As to Mexico, the complaint alleges that a $15,000 payment was made to a “Mexican customs official during the course of the export [of certain rigs] to ensure that the export of the rig would not be delayed due to claimed violations relating to non-conforming equipment on board the rig.”
As to Kazakhstan, the complaint alleges that the Kazakhstan affiliate of Panalpina informed a Pride Forasol logistics manager “that Kazakh customs officials had identified irregularities during a customs audit of Pride Forasol Kazakhstan, but that the issue could be resolved by making a cash payment of approximately $45,000 and paying substantially reduced monetary penalties.” According to the complaint, “certain Pride Forasol managers authorized the cash payment by [Panalpina] to resolve the customs irregularities.” The complaint further alleges that Pride Forasol Kazakhstan made “three payments totaling approximately $204,000” to a Kazakh Tax Consultant while “knowing facts that suggested a high probability that the Kazakh Tax Consultant would give all or a portion of the payments to Kazakh tax officials” who previously threatened to levy substantial taxes and penalties against Pride Forasol Kazakhstan.
As to Nigeria, the complaint alleges that “certain Pride Forasol Nigeria and Pride Forasol managers were aware of information suggesting a high probability that [Panalpina] would give all or a portion of the lump-sum payments charged in connection with obtaining or extending Pride Forasl Nigeria temporary importation (“TI”) permits to Nigerian customs officials in exchange for their cooperation in issuing the TI permits on favorable terms and/or without completing certain legally required steps.” The complaint further alleges that Pride Forasol Nigeria records were incompete and that Pride Forasol Nigeria “did not have adequate assurances” that certain tax payments were not paid directly to tax officials. In addition, the complaint alleges that Pride Forasol Nigeria “authorized the payment of $52,000 to a Nigeria Tax Agent while knowing facts that suggested a high likelihood that the Nigeria Tax Agent would give all or a portion of the money to a Nigerian tax official.”
As to Saudi Arabia, the complaint alleges that the Saudi Arabian affiliate of Panalpina informed a Pride Forasol Arabia manager that expedited customs clearance of a rig could be assured for a payment of $10,000. The complaint alleges that the manager “took $10,000 in cash from Pride Forasol Arabia’s petty cash fund, describing on the petty cash voucher the purpose of the payment as ‘freight forwarding services,’ and gave the money to a Saudi customs official.”
As to Congo, the complaint alleges as follows. “An inspection by the Congo Merchant Marine revealed that certain personnel abroad [a Pride Congo rig] lacked required maritime certification. A Merchant Marine official proposed that Pride Congo could resolve the paperwork defiiciency by making a payment for his personal benefit. A Pride Congo manager agreed to pay the Merchant Marine official $8,000 in lieu of an official penalty.” According to the complaint, the “payments were recorded as travel expenses in Pride Congo’s books and records.”
As to Libya, the complaint alleges that Pride Forasol managers authorized payments to a Libya Tax agent in connection with unpaid social security taxes and penalties against Pride Forasol Libya “without adequate assurances that the Libyan Tax Agent would not pass some or all of these fees to” officials of Libya’s social security agency.
According to the complaint, “Pride obtained improper benefits totaling approximately $19,341,870 from the conduct” described in the complaint. “Prejudgment interest on this amount is $4,187,848.”
Without admitting or denying the SEC’s allegations, Pride agreed to an injunction prohibiting future FCPA violations and agreed to pay disgorgement and prejudgment interest of $23,529,718.
Pride’s press release (here) notes, among other things, as follows: “In addition to self-reporting in February 2006 and voluntarily cooperating with the government, we have greatly strengthened and enhanced our antibribery compliance program and policies. Our current management and board are strongly committed to conducting the company’s business ethically and legally, and we seek to instill in our employees the expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law.”
Martin Weinstein (here) and Jeffrey Clark (here) both former DOJ enforcement attorneys with Willkie Farr & Gallagher, as well as Samuel Cooper (here) of Baker Botts, represented the Pride entities.
Friday Roundup
Save the date, Halliburton speaks on Nigeria, and the SEC’s first non-prosecution agreement … it’s all here in the Friday roundup.
Save the Date
FCPA enforcement 2010 is coming to a close. The three most significant events from 2010? The three most interesting events from 2010? And a bold prediction?
That is my task on December 29th when I participate in Securities Docket’s annual “Year in Review” webcast slated for 1 p.m. EST. The webcast is free and you can sign up here.
Other participants who address the same questions as to their area of expertise include Compliance Week editor Matt Kelly, Francine McKenna (re: The Auditors), Francis Pileggi (Delaware corporate law guru), Kevin LaCroix (The D&O Diary), Tracy Coenen (The Fraud Files), Lyle Roberts (The 10b-5 Daily) and Securities Docket’s Bruce Carton.
Halliburton Statement on Nigeria Charges
In last week’s Friday roundup, it was noted that Nigeria dropped charges against Dick Cheney after his former employer, Halliburton, reportedly agreed to pay a $250 million fine. According to various media reports, the sum consisted of $120 million in penalties and the repatriation of $130 million.
A Halliburton spokesman was quoted as saying “we have no comment to make on this.”
Halliburton has now spoken and its statement (here) contradicts the widely reported $250 million figure. The statement reads, in full, as follows:
“Halliburton announced today the resolution of the previously disclosed investigation by the Federal Government of Nigeria (FGN) arising out of allegations of improper payments to government officials in Nigeria in connection with the construction and subsequent expansion by a joint venture known as TSKJ of a natural gas liquefaction project on Bonny Island, Nigeria, in which Halliburton’s former subsidiary KBR, Inc. had an approximate 25 percent interest. Pursuant to this agreement, all lawsuits and charges against KBR and Halliburton corporate entities and associated persons have been withdrawn, the FGN agreed not to bring any further criminal charges or civil claims against those entities or persons, and Halliburton agreed to pay US$32.5 million to the FGN and to pay an additional US$2.5 million for FGN’s attorneys’ fees and other expenses. Among other provisions, Halliburton agreed to provide reasonable assistance in the FGN’s effort to recover amounts frozen in a Swiss bank account of a former TSKJ agent and affirmed a continuing commitment with regard to corporate governance. Any charges related to this settlement will be reflected in discontinued operations.”
SEC’s First Non-Prosecution Agreement
In January 2010, the SEC announced a series of measures (see here) “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions.”
“New cooperation tools” not previously available to the SEC, include, among other things:
* “Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.”
* “Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.”
and
* “Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.”
The SEC release noted that “similar cooperation tools have been regularly and successfully used by the Justice Department in its criminal investigations and prosecutions.”
Earlier this week, the SEC announced (here) its first non-prosecution agreement against Carter’s Inc. related to enforcement action against its former Executive Vice President (Joseph M. Elles) for engaging in financial fraud and insider trading.
The SEC’s announcement states as follows:
“The SEC also announced that it has entered a non-prosecution agreement with Carter’s under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles’s unlawful conduct. The non-prosecution agreement reflects the relatively isolated nature of the unlawful conduct, Carter’s prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter’s extensive and substantial remedial actions. This marks the first non-prosecution agreement entered by the SEC since the announcement of the SEC’s new cooperation initiative earlier this year.”
The NPA (here) is similar to DOJ NPAs and DPAs in the FCPA context. Carter’s agreed to cooperate in the investigation of its former employee and any other related enforcement action and Carter’s is prohibited from making any public statement contrary to the factual basis of the agreement (notwithstanding that the NPA does not contain a factual basis or a statement of facts). The NPA specifically states that the agreement should not “be deemed exoneration of [Carter’s] or be construed as a finding by the Commission that no violation of the federal securities laws have occurred.”
Although the Carter NPA is not in an FCPA enforcement action, it is likely that NPAs (and DPAs) will be frequently used by the SEC (as they are by the DOJ) in the FCPA context.
As I note in the “Facade of FCPA Enforcement” (here), DOJ NPAs and DPAs have exploded in recent years and the “lions share” of these agreements are used to resolve FCPA enforcement actions. Many observers believe that NPAs and DPAs have taken the place of declinations and that companies are pressured to enter into such agreements prematurely even before each element of the relevant charge is established.
With the SEC now using such alternative resolution vehicles, the end result will be even less judicial scrutiny (not that there is much judicial scrutiny at present) as to SEC interpretations of the FCPA and whether factual evidence actually exists to support each element of an FCPA charge.
Friday Roundup
Save the date, Halliburton speaks on Nigeria, and the SEC’s first non-prosecution agreement … it’s all here in the Friday roundup.
Save the Date
FCPA enforcement 2010 is coming to a close. The three most significant events from 2010? The three most interesting events from 2010? And a bold prediction?
That is my task on December 29th when I participate in Securities Docket’s annual “Year in Review” webcast slated for 1 p.m. EST. The webcast is free and you can sign up here.
Other participants who address the same questions as to their area of expertise include Compliance Week editor Matt Kelly, Francine McKenna (re: The Auditors), Francis Pileggi (Delaware corporate law guru), Kevin LaCroix (The D&O Diary), Tracy Coenen (The Fraud Files), Lyle Roberts (The 10b-5 Daily) and Securities Docket’s Bruce Carton.
Halliburton Statement on Nigeria Charges
In last week’s Friday roundup, it was noted that Nigeria dropped charges against Dick Cheney after his former employer, Halliburton, reportedly agreed to pay a $250 million fine. According to various media reports, the sum consisted of $120 million in penalties and the repatriation of $130 million.
A Halliburton spokesman was quoted as saying “we have no comment to make on this.”
Halliburton has now spoken and its statement (here) contradicts the widely reported $250 million figure. The statement reads, in full, as follows:
“Halliburton announced today the resolution of the previously disclosed investigation by the Federal Government of Nigeria (FGN) arising out of allegations of improper payments to government officials in Nigeria in connection with the construction and subsequent expansion by a joint venture known as TSKJ of a natural gas liquefaction project on Bonny Island, Nigeria, in which Halliburton’s former subsidiary KBR, Inc. had an approximate 25 percent interest. Pursuant to this agreement, all lawsuits and charges against KBR and Halliburton corporate entities and associated persons have been withdrawn, the FGN agreed not to bring any further criminal charges or civil claims against those entities or persons, and Halliburton agreed to pay US$32.5 million to the FGN and to pay an additional US$2.5 million for FGN’s attorneys’ fees and other expenses. Among other provisions, Halliburton agreed to provide reasonable assistance in the FGN’s effort to recover amounts frozen in a Swiss bank account of a former TSKJ agent and affirmed a continuing commitment with regard to corporate governance. Any charges related to this settlement will be reflected in discontinued operations.”
SEC’s First Non-Prosecution Agreement
In January 2010, the SEC announced a series of measures (see here) “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions.”
“New cooperation tools” not previously available to the SEC, include, among other things:
* “Cooperation Agreements — Formal written agreements in which the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information and testimony.”
* “Deferred Prosecution Agreements — Formal written agreements in which the Commission agrees to forego an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and to comply with express prohibitions and undertakings during a period of deferred prosecution.”
and
* “Non-prosecution Agreements — Formal written agreements, entered into under limited and appropriate circumstances, in which the Commission agrees not to pursue an enforcement action against a cooperator if the individual or company agrees, among other things, to cooperate fully and truthfully and comply with express undertakings.”
The SEC release noted that “similar cooperation tools have been regularly and successfully used by the Justice Department in its criminal investigations and prosecutions.”
Earlier this week, the SEC announced (here) its first non-prosecution agreement against Carter’s Inc. related to enforcement action against its former Executive Vice President (Joseph M. Elles) for engaging in financial fraud and insider trading.
The SEC’s announcement states as follows:
“The SEC also announced that it has entered a non-prosecution agreement with Carter’s under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to Elles’s unlawful conduct. The non-prosecution agreement reflects the relatively isolated nature of the unlawful conduct, Carter’s prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter’s extensive and substantial remedial actions. This marks the first non-prosecution agreement entered by the SEC since the announcement of the SEC’s new cooperation initiative earlier this year.”
The NPA (here) is similar to DOJ NPAs and DPAs in the FCPA context. Carter’s agreed to cooperate in the investigation of its former employee and any other related enforcement action and Carter’s is prohibited from making any public statement contrary to the factual basis of the agreement (notwithstanding that the NPA does not contain a factual basis or a statement of facts). The NPA specifically states that the agreement should not “be deemed exoneration of [Carter’s] or be construed as a finding by the Commission that no violation of the federal securities laws have occurred.”
Although the Carter NPA is not in an FCPA enforcement action, it is likely that NPAs (and DPAs) will be frequently used by the SEC (as they are by the DOJ) in the FCPA context.
As I note in the “Facade of FCPA Enforcement” (here), DOJ NPAs and DPAs have exploded in recent years and the “lions share” of these agreements are used to resolve FCPA enforcement actions. Many observers believe that NPAs and DPAs have taken the place of declinations and that companies are pressured to enter into such agreements prematurely even before each element of the relevant charge is established.
With the SEC now using such alternative resolution vehicles, the end result will be even less judicial scrutiny (not that there is much judicial scrutiny at present) as to SEC interpretations of the FCPA and whether factual evidence actually exists to support each element of an FCPA charge.
Friday Roundup
Nigeria drops charges against Dick Cheney after Halliburton reportedly pays $250 million; James Giffen is sad, though not bitter; an Iraqi Oil for Food prosecution … in Scotland; International Anti-Corruption Day is “marred”; and another voice joins “the FCPA simply means what the enforcement agencies say it means” chorus … it’s all here in the Friday Roundup.
Charges Against Cheney in Nigeria Dropped
On December 7th, Nigerian authorities apparently filed criminal charges against Dick Cheney, and others, in connection with the Bonny Island bribery scheme. As discussed in this prior post, Cheney was CEO of Halliburton from 1995 until 2000. In February 2009, Halliburton, Kellogg Brown & Root LLC, and KBR Inc. agreed to pay $579 million in combined DOJ/SEC FCPA enforcement action to resolve charges related to Bonny Island. According to the DOJ, the improper conduct took place between 1994 and 2004. The case remains the largest ever FCPA enforcement action against a U.S. company.
Farida Mzamber Waziri, the executive chairwomen of Nigeria’s Economic and Financial Crimes Commission stated, “Dick Cheney was head of Halliburton” “There’s no way such amount of money would’ve been moved to bribe Nigeria without his approval and without his knowledge, this is what we’re saying.” (See here for a video).
In a swift conclusion to the matter, it is been reported (see here among other places) that Nigeria has dropped charges against Cheney after his former employer, Halliburton, agreed to pay a $250 million fine. According to the report, the sum consists of $120 million in penalties and the repatriation of $130 million.
According to this report in the U.K. Telegraph, former U.S. President George H.W. Bush and former Secretary of State James Baker helped in the negotiations.
A Halliburton spokesman is quoted as saying “we have no comment to make on this.”
Sad, But Not Bitter
David Glovin (Bloomberg) recently sat down with James Giffen and penned this article. For more on the Giffen enforcement action and its mysterious conclusion see here for numerous prior posts.
Giffen is sad, though not bitter about what he terms the DOJ’s “selective” prosecution of him and he asks “in whose interest was the investigation in the first place.” Given Giffen’s “public authority” defense, much of the case focused on classified documents. Not even Giffen’s lawyer, William Schwartz (here) had access to many of the documents – one person did and that was Judge William Pauley (S.D.N.Y.) “who made his feelings known.” (see here).
Wehr Group
Glasgow, Scotland based engineering firm Wehr Group plc (here) recently pleaded guilty to two charges of breaching UN sanctions in connection with a number of UN sanctioned Iraqi Oil for Food contracts awarded between 2000 and 2002. As noted in the company’s release (here), “following the guilty plea, Weir has been subject to a confiscation order in the sum of £13,945,962. In addition it has been fined £3 million.” For more see here.
International Anti-Corruption Day “Marred”
Raymond Baker (here), the Director of Global Financial Integrity, says here that “this year’s International Anti-Corruption Day [was] marred by a U.S. Chamber of Commerce attempt to weaken the Foreign Corrupt Practices Act.” In November, the Chamber released a paper (here) authored by Andrew Weissman and Alixandra Smith titled “Restoring Balance – Proposed Amendments to the Foreign Corrupt Practices Act.”
According to Baker, “the short answer” to various issues raised by the current era of FCPA enforcement is simple: “don’t bribe anyone, whether she/he is a public official, a private citizen, or someone in between.”
Gee, thanks for that guidance, problem solved!
The FCPA’s Big Lesson
Richard Cassin, creator of the FCPA Blog and a pioneer of the FCPA’s blogosphere, hit the ball out of the park with this recent column for Ethisphere.
Among other things, Cassin writes as follows: “I know there’s practically no FCPA-related case law, no precedent to follow, no stare decisis to light the way. So the FCPA is pretty much what the enforcement agencies say it is. And that’s what’s so very different and difficult about it. It’s what I call the FCPA’s Big Lesson.”
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A good weekend to all.