Hyperdynamics Resolves FCPA Enforcement Action For $75,000, But Spends $12.7 Million To Get There
Not that Foreign Corrupt Practices Act are conveniently timed or anything like that, but the SEC’s fiscal year ends on September 30th and for the second consecutive day, the SEC announced an FCPA enforcement action (in the past two days the SEC has announced 22 other enforcement actions).
Two days ago, it was Hitachi (see here for the prior post).
Yesterday, it was Hyperdynamics Corp – an oil and gas company with shares quoted by the OTCQX, an over-the-counter marketplace operated by OTC Market Group, Inc.
If there was ever an inconsequential FCPA enforcement this would be it. In fact, the SEC’s normally chatty press office didn’t even issue a release. However, as relevant to the title of this post, tell Hyperdynamics shareholders that this episode was inconsequential and they are likely to have a different opinion.
In this slim administrative action (the specific factual allegations are a mere four paragraphs) the SEC states:
“Hyperdynamics was founded in 1996 as a commercial computer and communications service provider. In 2001, the company transitioned to the oil and gas industry, and one year later, Hyperdynamics purchased contract rights from a small oil company which owned the exclusive drilling rights offshore the Republic of Guinea. Company executives began travelling to Guinea in 2005, and eventually opened a wholly-owned subsidiary in Conakry to facilitate ongoing operations.
From July 2007 through October 2008, Hyperdynamics, through its subsidiary, paid $130,000 for public relations and lobbying services in the Republic of Guinea to two supposedly unrelated entities – $55,000 to BerMia Service SRL, and $75,000 to Africa Business Service (“ABS”). The subsidiary’s books and records were consolidated with Hyperdynamics’s books and records, and these payments were recorded as public relations and lobbying expenses, even though the company lacked sufficient supporting documentation to determine whether the services were actually provided and to identify the ultimate recipient of the funds.
In late 2008, Hyperdynamics discovered that a Guinean-based employee controlled BerMia and ABS. Hyperdynamics also learned that this employee was the sole signatory on the ABS account. But Hyperdynamics could not determine how, if at all, BerMia or ABS spent the funds they had received, or whether any services actually were provided. Moreover, the company could not recover the funds. There is no evidence that these funds were in fact spent on legitimate public relations and lobbying activities, yet Hyperdynamics’s books and records continued to reflect that the funds were spent for these purposes.
Hyperdynamics lacked adequate internal accounting controls over its disbursement of funds through its Guinean subsidiary, as well as its recording of such disbursements. In addition, the company did not have a due diligence and monitoring process in place for vetting third-party vendors; accordingly, it failed to conduct due diligence on BerMia and ABS. As a result, Hyperdynamics did not timely discover that the payments were made to companies controlled by its employee, nor could it ascertain the true purpose for which these funds were spent. The inadequate controls also led Hyperdynamics to record these disbursements as public relations and lobbying expenses without any supporting documentation that such services were provided.”
Based on the above, the SEC found that Hyperdynamics violated the FCPA’s books and records and internal controls provisions.
Under the heading “Remedial Efforts and Cooperation,” the order states:
“Beginning in July 2009, Hyperdynamics replaced its senior management team and its entire Board of Directors. The company also hired its first in-house lawyer, who implemented a number of training programs and revised company policies related to its Guinean operations. Hyperdynamics also increased the number of its accounting personnel, and instituted a series of procedures to more strictly control and identify transfers of funds to Guinea, including the transfer of signature authority over Guinean accounts to Houston-based employees, as well as requiring corporate pre-approval for all Guinean expenditures.
In determining to accept the Offer, the Commission considered remedial acts undertaken by Respondent and cooperation afforded the Commission staff.”
Without admitting or denying the SEC’s findings, Hyperdynamics agreed to pay a $75,000 penalty.
In this disclosure, the company states:
“As previously disclosed, the SEC had issued a subpoena to Hyperdynamics concerning possible violations of the FCPA. This settlement fully resolves the SEC’s investigation. As previously disclosed in May 2015, the DOJ closed its investigation into possible FCPA violations by Hyperdynamics without bringing any charges against the Company.
The allegations in the Order relate to certain issues concerning the company’s books and records and internal controls in 2007-2008. Hyperdynamics consented to the SEC Order without admitting or denying the SEC’s findings and agreed to pay a $75,000 penalty to the SEC.
In reaching this resolution, the Commission considered remedial acts undertaken by the company and cooperation afforded the Commission staff. The SEC Order recognizes that, beginning in July 2009, Hyperdynamics replaced its senior management team and its entire Board of Directors, revised its policies, implemented training programs, increased its legal and accounting personnel, and instituted a series of procedures to more strictly control transfers of funds.”
According to the company’s most recent annual report:
“We incurred approximately $7.5 million in legal and other professional fees associated with the FCPA investigations in the year ended June 30, 2014, and another $5.2 million in the year ended June 30, 2015, for a total of $12.7 million.”
Calculating the ratio between pre-enforcement action professional fees and expenses and settlement amounts, this represents a whopping 170 to 1 ratio. (To learn more about such ratios see “FCPA Ripples“).
If I were a Hyperdynamics shareholder, I would be asking some serious questions.
Nancy Kestenbaum, Lanny Breuer and Barbara Hoffman of Covington & Burling reportedly represented Hyperdynamics.
What If Triton Energy Were Resolved Today?
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
Certain of the “old” Foreign Corrupt Practices Act enforcement actions reviewed thus far in this periodic series were dubious (see here for instance).
Other “old” FCPA enforcement actions contain egregious allegations concerning high-level executive knowledge, acquiescence and cover-up of bribery yet were resolved in what can only be called – a light fashion. Case in point is the 1997 enforcement actions against Triton Energy and several executives. The Triton enforcement action makes reporting of Wal-Mart’s supposed corporate governance failures and oversight look garden-variety.
Learning of the Triton enforcement action causes one to ponder – what if the enforcement action were resolved today?
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In February 1997, the SEC announced the filing of this settled civil complaint against Triton Energy Corporation and Richard McAdoo and Philip Keever (former officers of Triton Indonesia Inc. – a wholly owned subsidiary of Triton). In summary fashion, the complaint alleged:
“This action concerns the activities in Indonesia of Triton Indonesia … During the years 1989 and 1990 defendants McAdoo and Keever, then officers of Triton Indonesia, authorized numerous improper payments to Roland Siouffi, knowing or recklessly disregarding the high probability that Siouffi either had or would pass such payments along to Indonesian government employees for the purpose of influencing their decisions affecting the business of Triton Indonesia. McAdoo and Keever, together with other Triton Indonesia employees, concealed these payments by falsely documenting and recording the transactions as routine business expenditures. Triton Indonesia also recorded other false entries in its books and records. During the relevant time period, Triton failed to devise and maintain an adequate system of internal accounting controls to detect and prevent improper payments by Triton Indonesia to government officials and to provide reasonable assurance that transactions were recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles. Triton Energy did not expressly authorize or direct these improper payments and misbookings.”
The complaint charged Triton Energy with violating the FCPA’s anti-bribery provisions and books and records and internal controls provisions. Keever and McAdoo were charged with violating the FCPA’s anti-bribery provisions and knowingly circumventing a system of internal controls and knowingly falsifying books and records.
The complaint noted that Keever retired from Triton in 1996 and that McAdoo was terminated by Triton in 1989.
The conduct at issue focused on Triton Indonesia being a party to a joint venture agreement which resulted in Triton Indonesia being a party to a Rehabilitation and Secondary Recovery Contract (“RSRC Contract”) with Pertamina, a national oil company owned by the Republic of Indonesia. As alleged in the complaint, the project Triton Indonesia was working on “was subject to taxation by the Indonesian Ministry of Finance and tax liability was determined by auditors from the Ministry of Finance’s audit branch (“BPKP”).
According to the complaint:
“During the Pertamina/BPKP audits, after the auditors completed their review of the books and records, they had an exit meeting with representatives of Triton Indonesia during which they provided their preliminary written findings, including problems with the books and records that might lead to reductions in cost recovery. Following the auditors’ presentation, Triton Indonesia prepared a written response to the audit exceptions. Triton Indonesia and Pertamina/BPKP auditors then entered into negotiations concerning the content of the final audit report. The Pertamina/BPKP auditors had discretion to make a determination as to whether audit exceptions would be included in their audit report or withdrawn. […] These ‘negotiations’ culminated in numerous improper payments to Indonesian auditors.”
The complaint stated that “at the beginning of Triton’s Indonesia’s tenure as operator of the joint venture … the poor books and records and internal controls made it difficult for Triton Indonesia to calculate and document project costs, and threatened the company’s ability to obtain recovery of [project] costs incurred prior to Triton Indonesia’s tenure as operator.” The complaint noted that “from the outset, Triton Indonesia and Triton Energy management anticipated that the deficient state of the books and records of the [project] would adversely impact Triton Indonesia’s ability to obtain certification of the unrecovered costs pool for [two] fiscal years.”
According to the complaint, Triton agreed with its joint venture partner to “retain Roland Siouffi as its business agent for the purpose of acting as an intermediary between Triton Indonesia and Indonesian government agencies, including Pertamina and the Ministry of Finance.”
According to the complaint, “when Keever went to Indonesia … to become Commercial Manager, Triton Energy’s controller at the time told Keever that his performance would be measured by the extent to which [project] expenditures were found to be costs recoverable in the annual Pertamina/BPKP audits.”
The complaint alleged:
“During 1989 and 1990, McAdoo and Keever authorized a number of improper payments to Siouffi entities for the purpose of influencing specific actions by various Indonesian government agencies. To conceal the true purpose of the payments, Triton Indonesia employees created false documents that indicated that the funds were expended for transactions with Siouffi entities for legitimate purposes, such as the purchase of seismic data or repair of equipment used for oil exploration. The expenditures were then recorded on Triton Indonesia’s books and records as having been made for the purpose reflected in the false documentation. These false entries were made in the books and records of Triton Indonesia with the knowing participation of certain Triton Indoensia employees, including McAdoo and Keever.”
The SEC complaint contains separate allegations regarding improper payments: “in connection with a tax audit;” “Pertamina/BPKP Audits;” a corporate tax refund;” the refund of value added tax;” and “relating to a pipeline tariff.” The complaint also references payments of cash totaling $13,500 to Indonesian auditors for the purpose of developing general good will” and “cash payments totalling $1,000 per month to Pertamina clerical employees made for the purpose of expediting payment of monthly crude oil invoices.”
Under the heading “Triton Energy Management Received Information Concerning Improper Payments and False Books and Records” the complaint alleges, in pertinent part:
“From the start of Triton Indonesia’s role as operator [of the joint venture], some Triton Energy officers and managers had concerns about the relationship with Siouffi, including concerns about the vagueness of his contractual duties, the large amounts of money he was receiving, how he might be using that money, and his honesty. Despite these concerns, Triton Energy’s former management did not establish any policies or procedures concerning the circumstances under which Triton Indonesia could make payments to Siouffi for the purpose of influencing a government decision or what activities Siouffi could engage in on Triton Indonesia’s behalf. In addition, at the outset of Triton Energy’s involvement in Indonesia, Triton Energy’s former management became aware of additional information that should have led to a heightened degree of vigilance about the possibility of FCPA violations. Instead, Triton Energy management ignored danger signs and took no precautions.”
Among the facts alleged is that a finance manager (who acted as a liaison to Pertamina/BPKP auditors in connection with annual audits) who was terminated was reinstated in response to “pressure from Pertamina.” In addition, the complaint alleged that “Keever informed certain members of Triton Energy’s former management about certain of the payments being made to Siouffi in order to obtain favorable government decisions” and “although the Triton Energy officers expressed concern, none ordered Triton Indonesia to discontinue these practices.” The complaint further alleged that Triton’s new Internal Auditor, after visiting Indonesia, wrote a confidential memo to Triton Energy’s former management describing his concerns about, among other things, improper payments by Triton Indonesia to Indonesian government officials.” According to the complaint, “the former President of Triton Energy, after reading the Internal Auditors Memorandum in the internal auditor’s presence, ordered the internal auditor to collect all copies of the memorandum and destroy them.”
According to the complaint:
“Triton Energy’s former management made no meaningful effort to determine whether the allegations in the Internal Auditor’s Memorandum were supported by facts. Instead, after learning that the source of the information in the memorandum came from conversations with Triton Indonesia officers and personnel, Triton Energy’s former management dismissed the allegations in the Internal Auditor’s Memorandum. No investigation was conducted and no policies and procedures were revised as a consequence of the conduct described in the Internal Auditor’s Memorandum.”
According to the complaint, “when Triton Energy’s outside auditors raised concerns about possible unlawful activities by Triton Indonesia,” Triton Energy management made a partial disclosure, omitting most of the improper payments and most of the false books and records. At the meeting with the auditors, Triton Energy’s then senior management represented that there was no evidence that money was paid to Indonesian auditors.”
According to the complaint, the payments totaled approximately $450,000.
Without admitting or denying the SEC allegations, Triton Energy consented to entry of a final judgment that permanently enjoined the company from violating the FCPA’s books and records and internal controls provisions and ordered the company to pay a $300,000 civil penalty. The SEC’s release states:
“In accepting the settlement, the Commission has considered the fact that the violations occurred under former management and that certain remedial actions have been implemented by the current board of directors and senior management.”
Without admitting or denying the SEC’s allegations, Keever also consented to entry of a final judgment that permanently enjoined him from violating the FCPA’s books and records and internal control provisions and ordered him to pay a $50,000 penalty.
As noted in this SEC release, approximately four months later , McAdoo also consented to entry of a final judgment that permanently enjoined him from violating the FCPA’s anti-bribery provisions as well as the books and records and internal controls provisions. McAdoo was also ordered to pay a $35,000 civil penalty. This original source article indicates that McAdoo originally asserted his innocence and planned to contest the charges.
Simultaneous with the filing of the above civil complaint against Triton Energy, Keever and McAdoo, the SEC also instituted this administrative action against David Gore (a Director and President of Triton Energy from 1988 until his resignation in 1992), Robert Puetz (Triton Energy’s Vice President of Finance and Chief Financial Officer / Senior Vice President of Finance until his resignation in 1993), William McClure (a contract auditor with Triton Indonesia and thereafter Commercial Manager of Triton Indonesia in 1990 until he left the country) and Robert Murphy (CPA / Controller of Triton Indonesia until 1990) based on the same core conduct alleged in the SEC civil complaint.
The SEC found:
“As Commercial Manager, McClure assumed direct supervisory authority over the accounting function at Triton Indonesia. McClure was required to review and initial documents to authorize certain expenditures. These documents contained the descriptions of expenditures that determined how expenses were recorded in Triton Indonesia’s books and records. As Controller, Murphy had direct responsibility for preparing entries in Triton Indonesia’s books and records. McClure supervised Murphy’s preparation of entries for the books and records of Triton Indonesia. Murphy was responsible for determining that all underlying documentation was present when a bank voucher was issued and initialling the voucher to signify that all required documents were present.”
Consistent with the SEC’s allegations in the civil complaint, the SEC order found that Gore and Puetz “were well aware that Triton Indonesia has entered into contracts with Siouffi entities” and had concerns with various aspects of the relationship. The order further found that “Keever briefed Gore and Puetz about certain of the payments and false books and records” and then states that the “Triton Energy officers expressed concern about such practices which they had neither director nor authorized, but failed to require Triton Indonesia to discontinue these practices.”
As to the Internal Auditor Memorandum referenced in the civil complaint, the SEC’s order found that it was distributed to “Gore and Puetz, among others.” The SEC’s order found:
“Gore, after reading the Internal Auditor’s Memorandum in the internal auditor’s presence, ordered the internal auditor to collect all copies of the memorandum and destroy them. Gore and Puetz made no effort to determine whether the allegations in the Internal Auditor’s Memorandum were supported by facts. Instead, after learning that the source of the information in the memorandum came from conversations with Triton Indonesia officers and personnel, Triton Energy’s former management dismissed the allegations in the Internal Auditor’s Memorandum. As a result, they did not conduct an investigation or revise any policies or procedures relating to the various issues raised in the Internal Auditor’s Memorandum.”
The SEC order also found:
“… [S]hortly before Gore received the Internal Auditor’s Memorandum, Keever informed Gore that Triton Indonesia was making payments to Siouffi in connection with decisions by the Indonesian government and told Gore that money may have been paid to Indonesian auditors, including payments in connection with the predecessor’s tax audit, and the corporate tax refund. Keever also told Gore that the payments were recorded inaccurately in Triton Indonesia’s books and records. Gore responded that he had worked in another foreign country and understood that such things had to be done in certain environments.”
The SEC’s order concluded as follows regarding McClure and Murphy.
“As Triton Indonesia’s Controller, Murphy knowingly participated in creating and recording false entries in Triton Indonesia’s books and records. As Triton Indonesia’s Commercial Manager, McClure failed to assure that the entries prepared by Murphy accurately reflected the underlying transactions. Keever informed both McClure and Murphy that the payments were for a purpose other than what was indicated in documents presented for their signatures. Nevertheless, Murphy signed documents authorizing the expenditures and mischaracterizing them as legitimate business expenses. In addition, Keever informed Murphy about the false characterization of payments which Murphy did not have any role in authorizing. Thereafter, Murphy participated in making false entries in Triton Indonesia’s books and records characterizing the payments as expenses incurred for the purpose indicated in fabricated documentation. By engaging in this conduct, McClure and Murphy violated [the FCPA’s books and records provisions].”
The SEC’s order concluded as follows regarding Gore and Puetz.
“As members of Triton Energy senior management, Gore and Puetz each received information indicating that Triton Indonesia was engaged in conduct that was potentially unlawful. Gore and Puetz received the Internal Auditor’s Memorandum … but took no action to initiate an investigation of the serious issues raised by the internal auditor. Indeed, Gore ordered the internal auditor to collect and destroy all copies of the Internal Auditor’s Memorandum. In addition, as described above, Keever described for Gore and Puetz certain payments made to Siouffi to obtain favorable Indonesian government decisions. After receiving such information, Gore and Puetz failed to investigate the potentially unlawful conduct. Instead, as the senior management of Triton Energy, Gore and Puetz simply acknowledged the existence of such practices and treated them as a cost of doing business in a foreign jurisdiction. The toleration of such practices is inimical to a fair business environment and undermines public confidence in the integrity of public corporations. Accordingly, Gore and Puetz caused Triton Energy to violate [the FCPA’s anti-bribery provisions and books and records provisions].”
In the SEC’s order, McClure, Murphy, Gore and Puetz were ordered to cease and desist from committing or causing any future FCPA violations.
This original source New York Times article noted that the SEC’s complaint was “unusual” and that “it has been more than 10 years since the commission brought this kind of case against a United States company, but William McLucas, director for enforcement of the S.E.C., said the agency has ”a number of investigations under way” relating to improper foreign payments.”
According to media reports, Triton sold its Indonesian operations in 1996.
Friday Roundup
Root causes, a mere $855,000 per working day, “bad in law,” scrutiny alert, and for the reading stack. It’s all here in the Friday roundup.
Root Causes
Understanding the root causes of FCPA enforcement actions can help inform pro-active FCPA compliance policies and procedures. Moreover, recognizing the fallacy of “good companies don’t bribe” can help set realistic expectations in terms of what FCPA compliance policies and procedures can and can not accomplish.
I will be talking about both topics during a free webinar “Understanding the Root Causes of FCPA Scrutiny and Enforcement” on Thursday, May 22nd at 2 p.m. (EDT). The webinar is hosted by Hiperos and you can register here.
Wal-Mart’s Pre-Enforcement Action Professional Fees and Expenses
Over the past 1.5 years I have tracked Wal-Mart’s disclosed pre-enforcement action professional fees and expenses.
While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.
Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.
In its 1Q FY2015 earnings conference call yesterday, Wal-Mart disclosed:
“FCPA and compliance-related expenses for the quarter were approximately $53 million. Approximately $34 million of these expenses represented costs incurred for the ongoing inquiries and investigations, and approximately $19 million was related to our global compliance program and organizational enhancements.”
Doing the math, this equates to approximately $855,000 per working day.
While eye-popping, this recent figure suggests that Wal-Mart’s pre-enforcement action professional fees and expenses may have crested as the figures for the past two quarters were approximately $1.1 and $1.3 million per working day.
That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact. However it must nevertheless be asked – once again – whether FCPA scrutiny has turned into a boondoggle for many involved.
Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA? Does it even matter? See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”
“Bad in Law”
In 2007, the SEC brought this FCPA enforcement action against Dow Chemical. The enforcement action was based on allegations that Dow’s “fifth-tier foreign subsidiary” in India, DE-Nocil Crop Protection Ltd. (“DE-Nocil”), made “approximately $39,700 in improper payments to an official in India’s Central Insecticides Board to expedite the registration of three DE-Nocil products.”
It is always interesting to see what happens when the “dust settles” (see here for the prior post).
India’s Hindustan Times reports here as follows.
“As the Central Bureau of Investigation (CBI) did not attach evidence with the supplementary chargesheet against De-Nocil Crop Protection (presently Dow Agro Sciences India, a subsidiary of Dow Chemical of the US) and Agro Pack, the CBI special court, Haryana, at Panchkula, has discharged the companies in a case of bribing an Indian official to get their products registered. On December 30, 2011, the CBI had filed the supplementary charge sheet but attached no oral or documentary evidence. On Wednesday (May 7), special judge, CBI, Haryana, Rakesh Yadav ruled that being not supported by evidence, the supplementary chargesheet was “bad in law” and so the court could not take cognizance of it. The accused companies no longer have to face trial.”
Query whether this end result is a function of the nature and quality of the India investigation or the nature and quality of SEC neither admit nor deny FCPA enforcement actions.
Scrutiny Alert
In case you missed April’s Buzzfeed report on Cisco’s alleged conduct in Russia, Reuters reports as follows.
“In a series of audits in 2009, Cisco Systems Inc. found that much of the business between resellers of its products and a Russian state-owned telecommunications company, Svyazinvest, could not be verified because it was either “misrepresented” or documents were withheld by the resellers, according to an executive summary of the audits reviewed by Reuters. The June 2009 report on the audits, other internal Cisco documents, and interviews with two sources familiar with the situation, raise questions about whether the company knew what was happening to telecom equipment sales going through its resellers in Russia, as well as whether discounts were passed on to customers as planned.”
For the Reading Stack
An interesting Q&A in Mothers Jones with Ken Silverstein regarding his new book “The Secret World of Oil” and the alleged use of so-called “fixers.” Note: the FCPA’s anti-bribery provisions prohibit not only direct payments to “foreign officials” to obtain or retain business, but also indirect payments through various third parties. Thus, the use of “fixers” if true, is not a way to avoid the FCPA. Moreover, if Silverstein’s allegations are true, the U.S. government is perhaps ignoring (or not caring) about certain alleged conduct. Further note: the Q&A is not completely accurate concerning the James Giffen matter.
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A good weekend to all.
DOJ Announces FCPA Enforcement Action Against Former CEO’s and General Counsel Of PetroTiger
Yesterday the DOJ announced FCPA and related charges against former executives of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, “for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the FCPA, to defraud PetroTiger, and to launder proceeds of those crimes.”
The individuals charged were former co-CEOs of PetroTiger Joseph Sigelman and Knut Hammarskjold and former general counsel Gregory Weisman.
According to the DOJ release, Sigelman and Hammarskjold “were charged by sealed complaints filed in the District of New Jersey on Nov. 8, 2013” and “Hammarskjold was arrested Nov. 20, 2013, at Newark Liberty International Airport” and “Sigelman was arrested on Jan. 3, 2014, in the Philippines and appeared [yesterday] in Guam before a U.S. Magistrate Judge” and “will have an initial appearance in New Jersey federal court on a date to be determined.” According to the release, Weisman “pleaded guilty on Nov. 8, 2013, to a criminal information charging one count of conspiracy to violate the FCPA and to commit wire fraud.”
Sigelman
This criminal complaint, charges Sigelman with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges. The FCPA charges are based on allegations that Sigelman and others made at least four transfers of money in the approximate amount of $333,500 to an account in Colombia of a “foreign government official in Colombia.”
Elsewhere, the complaint identifies the foreign official as “an official at Ecopetrol [who] had influence over the approval and award of contracts by Ecopetrol, including the Mansarovar Contract.” Ecopetrol is alleged to be “the state-owned and state-controlled petroleum company in Colombia” and the complaint states as follows.
“Ecopetrol was created by national law, and it was required by law that Colombia conserve, at a minimum, eighty percent of the shares in circulation, with voting rights. During the relevant time period, Colombia controlled 89.9% of Ecopetrol’s outstanding capital stock, and held the right to elect the majority of the members of the company’s board of directors. Ecopetrol’s board of directors included the Minister of Mines and Energy, the Minister of Finance, and the Director of the National Planning Agency of Colombia. Ecopetrol was responsible for approving contracts to drill or perform services on oil fields in Colombia, including the Mansarovar Contract.”
The complaint also refers to the official’s wife and states that “the Official’s Wife purportedly provided finance and management related consulting services for PetroTiger [when] in reality, the Official’s Wife served as a conduit for bribe payments to the Official.”
Under the heading “Bribery Scheme,” the complaint alleges that Sigelman and other PetroTiger executives [Hammarskjold and Weisman] “attempted to secure the Mansarovar Contract” and “because Ecopetrol had ultimate authority for approving projects and contracts to perform oil-related services in Colombia, Sigelman [and the other executives] were required to obtain approval from Ecopetrol for the Mansarovar Contract.”
According to the complaint, Sigelman and others “in order to secure Ecopetrol’s approval for the Mansarovar Contract,” “paid bribes to the Official, who had the ability to influence the approval process.”
The complaint states that Sigelman and others “attempted to conceal the bribes by funneling the payments through the Official’s Wife and by falsely claiming in documents that the payments were for finance and management consulting services that the Official’s Wife purportedly performed for PetroTiger.” The complaint further states that “when transfers to the bank account in the name of the Official’s Wife failed as a result of incorrect account information,” Sigelman and others “transferred the money directly to a bank account in the name of the Official.”
According to the complaint, PetroTiger was successful in “obtaining Ecopetrol’s approval, and secured the Mansarovar Contract” which was valued “at approximately $39.6 million, and has resulted in a gross profit to date, of approximately $3.5 million.”
The Sigelman complaint also charges one count of conspiracy to commit money laundering and one count of conspiracy to commit wire fraud. These charges are based, in pertinent part, on allegations that an owner of a company “being acquired by Sigelman and others” transferred approximately $262,000 “as part of an illegal kickback scheme” to Sigelman’s bank account and that Sigelman then “divided up the money and transferred portions of the money” to other PetroTiger executives. According to the complaint, Sigelman and the others “did not disclose to their investing partners that they were receiving a kickback in exchange for the additional money that the investing partners would be paying in connection with the acquisition of the Target Company. As a result, the investing partners were deprived of money and property and the honest services of” Sigelman and others. According to the complaint, this “Target Company” was “an oil services company with operations in Colombia” that PetroTiger acquired in 2009 for approximately $53 million.
Hammarskjold
This criminal complaint also charges Hammarskjold with conspiracy to violate the FCPA’s anti-bribery provisions as well as three substantive FCPA charges based on the same conduct alleged in the Sigelman complaint.
The Hammarskjold complaint also charges one count of conspiracy to commit money laundering and one count of conspiracy to commit wire fraud based on the same kickback scheme alleged in the Sigelman complaint.
Weisman
This criminal information alleges the same bribery scheme and kickback scheme as the Sigelman and Hammarskjold complaints. However, the information only charges one count of conspiracy to violate the FCPA and to commit wire fraud.
The Weisman information further states as follows.
“On or about September 28, 2010, at board meeting of PetroTiger, Executive A [Sigelman] stated that he and others were dealing with non-transparent commercial practices in Colombia. On or about September 28, 2010, at the board meeting … in response to a question about whether Executive A was upholding PetroTiger’s Code of Business Principles, which included a prohibition on bribery, Executive A stated that he was.”
The Weisman information also contains a forfeiture allegation seeking forfeiture of approximately $52,000 (the amount of the alleged kickback Weisman received).
In the DOJ’s release, Acting Assistant Attorney General Mythili Raman stated:
“We have said – repeatedly and emphatically – that foreign corruption, whether committed by companies or by the individuals entrusted to run those companies, will not be tolerated. And, our track record in vigorously enforcing the FCPA has shown that message to be undeniably true. The charges unsealed today against two former CEOs of PetroTiger and the guilty plea announced today of the former General Counsel reaffirm our clear message that we will prosecute corruption and fraud wherever we find it. Bribery distorts what should be a level playing field and deprives corporations and governments of funds that should instead be used to strengthen those institutions. Today’s announcement should be a reminder to CEOs and other executives who seek to corrupt the system at the expense of honest businesses: we are not going away.”
U.S. Attorney Paul Fishman of the District of New Jersey stated:
“Bribery of public officials, whether at home or abroad, corrupts business opportunity and undermines trust in government. The under-the-table deals alleged in today’s charges are not an acceptable way of doing business.”
Special Agent in Charge Aaron Ford of the FBI’s Newark Division stated:
“The FBI is committed to pursuing those who disrupt the level playing field to which companies in the U.S. and around the world are entitled. We will continue to investigate these matters by working with law enforcement agencies, both foreign and domestic, to ensure that both corporations and executives who bribe foreign officials for lucrative contracts are punished.”
The DOJ’s release further states:
“The department has worked closely with and has received significant assistance from its law enforcement counterparts in the Republic of Colombia and greatly appreciates their assistance in this matter. The department also thanks the Republic of the Philippines, including the Bureau of Immigration, for its assistance in this matter. Significant assistance was also provided by the Criminal Division’s Office of International Affairs.”
German Company Resolves FCPA Enforcement Action Based On Conduct From “The Distant Past”
Approximately 8 years ago, a German company owned 80% of a German entity doing business in Nigeria. The German entity doing business in Nigeria entered into a joint venture consortium agreement with subsidiaries of a Panamanian company. The Panamanian company had principal places of business in the U.S. and had shares traded on the New York Stock Exchange. The joint venture consortium allegedly made bribe payments to Nigerian officials.
The end result?
Why of course, $32 million dollars to the U.S. Treasury.
Yesterday, the DOJ announced (here) that “Bilfinger SE, an international engineering and services company based in Mannheim, Germany, has agreed to pay a $32 million penalty to resolve charges that it violated the Foreign Corrupt Practices Act by bribing [Nigerian] government … to obtain and retain contracts related to the Eastern Gas Gathering System (EGGS) project, which was valued at approximately $387 million.”
As noted in the DOJ’s release, the EGGS has been the focus, in whole or in part, in several prior enforcement actions against Willbros Group, Jim Brown, Jason Steph, James Tillery and Paul Novak.
The enforcement action involved a DOJ criminal information resolved via a deferred prosecution agreement.
Information
The information alleges that Bilfinger conspired with others “to obtain and retain contracts related to the EGGS project through the promise and payment of over $6 million in bribes to officials of [the Nigerian National Petroleum Corporation – NNPC], [National Petroleum Investment Management Services – a subsidiary of NNPC], the [dominant political party in Nigeria], an official in the executive branch of the Government of Nigeria, and others (collectively – the Nigerian Officials).”
According to the information, in 2003 Bilfinger “agreed to create a joint venture with [Willbros West Africa, Inc. (WWA) and Willbros Nigeria Ltd. (WNL) – both subsidiaries of Willbros International Inc., a Panamanian corporation with principal places of business in the U.S. and with shares traded on the New York Stock Exchange] to bid on the EGGS contract and its optional scopes of work.” In late 2003, [Bilfinger Berger Gas and Oil Services Nigeria Ltd. “BBGOS” – a German company based in Nigeria that was owned 80% by Bilfinger] and WWA/WNL executed a “Consortium Agreement” which formalized Bilfinger’s agreement to create a joint venture in connection with the EGGS project.”
According to the information, “Bilfinger and its coconspirators agreed that the EGGS Consortium would inflate the price of its bids for the EGGS project by 3% so it could cover the cost of paying bribes to Nigerian officials for their assistance in obtaining and retaining the EGGS project and its optional scopes of work.
The information alleges, among other things, that when other conspirators “encountered difficulty obtaining money to make [their] share of the promised bribe payments to Nigerian officials,” Bilfinger agreed to those loan the other conspirators $1 million “with the understanding that the $1 million would be used to pay some of the promised bribe payments to Nigerian officials …”.
The information contains the following relevant jurisdictional allegations.
- “[In 2004] WWA opened a bank account in the U.S. on behalf of the EGGS Consortium, in which payments for work conducted by the EGGS Consortium would be deposited and out of which payments would be made to BBGOS or WWA when authorized by both BBGOS and WWA.”
- “[In 2005], Bilfinger Employee 1 [a German citizen] telephoned Bilfinger Employee 3 [a German citizen], who was in the United States, and asked Bilfinger Employee 3 to meet with Tillery in Boston, MA, to find out what payments had been promised to officials and whether [a relevant contract] was at risk because those payments had not yet been made.”
- [In 2005], Bilfinger Employee 3 flew from Houston, TX, to Boston, MA, to meet with Tillery and inquire about the outstanding corrupt payments and the [relevant contract].”
Based on the above allegations, the information charges conspiracy to violate the FCPA’s anti-bribery provisions and two substantive FCPA anti-bribery charges. The two substantive charges are based on (1) a 2005 “flight from Houston, TX to Boston, MA to discuss promised bribe payments,” and (2) a 2005 “wire transfer of $2,804,496 from Houston, TX to Frankfurt, Germany in connection with the EGGS contract.”
DPA
The charges against Bilfinger were resolved via a DPA in which the company admitted, accepted, and acknowledged that it was responsible for the acts of its officers, directors, employees, and agents as charged in the information.
The DPA has a term of three years and under the heading “relevant considerations” it states:
“The Department enters into this Agreement based on the individual facts and circumstances presented by this case and the Company. Among the facts considered were the following: (a) the Company’s cooperation with the Department, albeit at a late date, including interviewing relevant employees and disclosing the facts learned during those interviews to the Department, facilitating the Department’s interviews of foreign employees; (b) the Company’s remediation efforts, including terminating the employment of certain employees responsible for the corrupt payments and disciplining others, and enhancing its compliance program and internal accounting controls; (c) the Company’s committment to continue to enhance its compliance program and internal accounting controls …; and (d) the Company’s agreement to continue to cooperate with the Department in any ongoing investigation of the conduct of the Company and its officers, directors, employees, agents, and consultants relating to violations of the FCPA …”.
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $28 million to $56 million. The DPA states that the monetary penalty of $32 million “is appropriate given the facts and circumstances of this case, including the Company’s cooperation and remediation in this matter.”
Pursuant to the DPA, Bilfinger agreed to review its existing internal controls, policies and procedures regarding compliance with the FCPA and other applicable anti-corruption laws. The specifics are detailed in Attachment C to the DPA. The DPA also requires Bilfinger to engage a corporate compliance monitor for ”a period of not less than 18 months from the date the monitor is selected.” The specifics, including the Monitor’s reporting obligations to the DOJ, are detailed in Attachment D to the DPA.
As is common in FCPA corporate enforcement actions, the DPA contains a “muzzle clause” prohibiting Bilfinger or anyone on its behalf from “contradicting the acceptance of responsibility by the company” as set forth in the DPA.
Sidley Austin attorneys Thomas Green and Jeffrey Green represented Bilfinger.
In this press release (which the company had to consult with the DOJ before releasing) Bilfinger CEO stated:
“We are pleased that we have now been able to put these events from the distant past behind us. In recent years, Bilfinger has consistently expanded its compliance instruments and today has a modern and efficient system.”