In Depth On The Weatherford Enforcement Action
Last week, the DOJ and SEC announced (here and here) that Switzerland-based oil and gas services company Weatherford International agreed to resolve a Foreign Corrupt Practices Act enforcement action based primarily on alleged conduct by its subsidiaries in Angola, the Middle East, and in connection with the Iraq Oil for Food program. The enforcement action has been expected for some time (as noted in this prior post, in November the company disclosed that it had agreed in principle to the settlement announced last week).
The enforcement action involved a DOJ criminal information against Weatherford Services Ltd. resolved via a plea agreement, a criminal information against Weatherford International Ltd. (“Weatherford”) resolved via a deferred prosecution agreement, and a SEC settled civil complaint against Weatherford. [Note, the SEC enforcement action also alleged violations of the books and records and internal controls provisions in regards to commercial transactions with various sanctioned countries in violation of U.S. sanction and export controls laws. The DOJ – or other government entities – also alleged such conduct, but in resolution documents separate and apart from the FCPA resolution documents highlighted below].
Weatherford agreed to pay approximately $153 million to resolve its alleged FCPA scrutiny ($87 million to resolve the DOJ enforcement action and $66 million to resolve the SEC enforcement action). The Weatherford action is the 8th largest FCPA settlement of all-time (see here for the top ten FCPA settlements).
DOJ
Weatherford Services Ltd.
Weatherford Services (“WSL”), incorporated in Bermuda, is identified as a wholly-owned subsidiary of Weatherford International that “managed most of Weatherford’s activities in Angola.”
The conduct at issue involved “two schemes to bribe Sonangol officials to obtain or retain business.”
Sonangol is alleged to be a “government-owned and controlled corporation” of the Angolan government. The information specifically states:
“Sonangol was the sole concessionaire for exploration of oil and gas in Angola, and was solely responsible for the exploration, production, manufacturing, transportation, and marketing of hydrocarbons in Angola. Sonangol was run by a board of directors established by governmental decree in 1999. Each member of the board was also appointed or renewed in their position by governmental decree. Because Sonangol was wholly owned, controlled, and managed by the Angolan government, it was an ‘agency’ and ‘instrumentality’ of a foreign government and its employees were ‘foreign officials'” under the FCPA.
According to the information, the first bribery scheme “centered around a joint venture which WSL and other Weatherford employees established with two local Angolan entities.” The information alleges that “Angolan Officials 1, 2, and 3 (described as “high-level, senior officials of Sonangol” with influence over contracts) controlled and represented one of the entities” and that a “relative of Angolan Official 4 (described as a “high-level, senior official of Angola’s Ministry of Petroleum” with influence over contracts entered into by the Angolan government) controlled and represented the other.”
The information alleges that the “joint venture began because WSL sought a way to increase its share of the well screens market in Angola” and states that “WSL learned that Sonangol was encouraging oil services companies to establish a well screens manufacturing operations in Angola with a local partner.” Thereafter, “a high-level Weatherford executive sent Angolan Official 1 a letter expressing Weatherford’s intent to form a well screens manufacturing operation in Angola with a local partner and requesting Sonangol’s participation in the process.”
The information next alleges that “Angolan Official 1 advised WSL that Sonangol had selected local partners for WSL and that Sonangol would support the joint venture.” According to the information:
“… the parties agreed that two local Angolan entities (“Angolan Company A” and Angolan Company B”) would be WSL’s joint venture partners. Angolan Officials 1, 2 and 3 conducted all business with WSL on behalf of Angolan Company A. Angolan Company B was owned in part by the daughter of Angolan Official 4.”
According to the information, “certain WSL and Weatherford employees knew from the outset of discussions regarding the joint venture that the members of Angolan Company A included a Sonangol employee and Angolan Official 3’s wife, while Angolan Company B’s members included Angolan Official 4’s daughter and son-in-law.”
According to the information, “prior to entering into the joint venture, neither Weatherford nor WSL conducted any meaningful due diligence of either joint venture partner.” The information specifically alleges that Weatherford Legal Counsel A (a citizen of the U.S. and a Senior Corporate Counsel at Weatherford from 2004 to 2008) reached out to a law firm “to discuss whether partnering with the Angolan companies raised issues under the FCPA,” but that Weatherford Legal Counsel A “did not follow the advice” that had been provided to him. In addition, the information alleges that Weatherford Legal Counsel A “falsely told [another] outside counsel that the joint venture had been vetted and approved by another outside counsel, when, in fact, no outside law firm ever conducted such vetting or gave such approval.”
The information alleges that WSL signed the final joint venture agreement with Angolan Company A and Angolan Company B in 2005, but that “neither Angolan Company A nor Angolan Company B provided any personnel or expertise to the joint venture, nor did they make any capital contributions.”
According to the information:
“In 2008, Angolan Company A and Angolan Company B received joint venture dividends for 2005 and 2006, including on revenues received in 2005 [before the joint venture agreement was executed]. […] In total, the joint venture paid Angolan Company A $689,995 and paid Angolan Company B $136,901.”
The information alleges that “prior to the distribution of joint venture dividends, WSL executives knew that Angolan officials were directing the distribution of those dividends.”
According to the information, “WSL benefitted from the joint venture arrangement” in the following ways: “Sonangol began taking well screens business away from WSL’s competitors, even when a competitor was supplying non-governmental companies, and awarding it to WSL” and “WSL received awards of business for which its bids were, by its own admission, not price competitive.”
The second bribery scheme alleged in the information relates to the “Cabinda Region Contract Renewal” in which WSL allegedly “bribed Angolan Official 5 (described as “a Sonangol official with decision-making authority in Angola’s Cabinda region”) so that he would approve the renewal of a contract under which WSL provided oil services to a non-governmental oil company in the Cabinda region of Angola.” The information alleges that even though the contract was between WSL and a non-governmental company, Angolan law required “that it be approved by Sonangol before being finalized” and that “Angolan Official 5 was the Sonangol official responsible for approving or denying the renewal contract.”
The information alleges that Angolan Official 5 solicited the bribe and that “WSL executives agreed to pay the bribe Angolan Official 5 had demanded” even though a prior WSL Manager had refused to pay it. According to the information, WSL made the payments to Angolan Official 5 through the Freight Forwarding Agent (described as a Swiss Company who provided freight forwarding and logistics services in Angola) who had previously paid bribes on behalf of WSL.”
As to the Freight Forwarding Agent, the information alleges that WSL retained the agent via a consultancy agreement in which the agent rejected a specific FCPA clause, but that “WSL and Weatherford acquiesced by removing the FCPA clause and inserting a clause requiring the Freight Forwarding Agent to ‘comply with all applicable laws, rules, and regulations issued by any governmental entity in the countries of business involved.” According to the information, “WSL generated sham purchase orders for consulting services the Freight Forwarding Agent never performed, and the Freight Forwarding Agent, in turn, generated sham invoices for those non-existent services.” The information alleges that the Freight Forwarding Agent passed money on to Angolan Official 5.
Based on the above, the information charges WSL with one count of violating the FCPA’s anti-bribery provisions and specifically invokes the dd-3 prong of the statute applicable to “persons” other than issuers or domestic concerns.
Pursuant to the plea agreement, WSL agreed to pay a criminal fine in the amount of $420,000.
Weatherford International
The Weatherford information largely focuses on the company’s internal accounting controls and alleges as follows.
“Weatherford, which operated in an industry with a substantial corruption risk profile, grew its global footprint in large part by purchasing existing companies, often themselves in countries with high corruption risks. Despite these manifest corruption risks, Weatherford knowingly failed to establish effective corruption-related internal accounting controls designed to detect and prevent corruption-related violations, including FCPA violations, prior to 2008.
Prior to 2008, Weatherford failed to institute effective internal accounting controls, including corruption-related due diligence on appropriate third parties and business transactions, limits of authority, and documentation requirements. This failure was particularly acute when it came to third parties, including channel partners, distributors, consultants, and agents. Weatherford failed to establish effective corruption-related due diligence on third parties with interaction with government officials, such as appropriately understanding a given third party’s ownership and qualifications, evaluating the business justification for the third party’s retention in the first instance, and establishing and implementing adequate screening of third parties for derogatory information. Moreover, Weatherford failed to implement effective controls for the meaningful approval process of third parties. Weatherford also did not require, in practice, adequate documentation supporting retention and in support of payments to third parties, such as appropriate invoices and purchase orders.
Prior to 2008, Weatherford did not have adequate internal accounting controls and processes in place that effectively evaluated business transactions, including acquisitions and joint ventures, for corruption risks and to investigate those risks when detected. Moreover, following the establishment of joint ventures and certain other business transactions, Weatherford did not appropriately implement its policies and procedures to ensure an effective internal accounting control environment through proper integration.
Prior to 2008, Weatherford also did not have an effective internal accounting control system for gifts, travel, and entertainment. In practice, expenses were not typically adequately vetted to ensure that they were reasonable, bona fide, or properly documented.
These issues were exacerbated by the fact that, prior to 2009, a company as large and complex as Weatherford – with its substantial risk profile – did not have a dedicated compliance officer or compliance personnel. Although Weatherford promulgated an anti-corruption policy that it made available on its internal website, it did not translate that policy into any language other than English, and it did not conduct anti-corruption training.
Prior to 2008, Weatherford did not have an effective system for investigating employee reporting of ethics and compliance violations. If an employee’s ethics questionnaire response indicated an awareness of payments or offers of payments to foreign officials or of undisclosed or unallocated funds, Weatherford did not have a protocol in place to perform any further investigation into the alleged corruption. As a matter of practice, in fact, Weatherford did not conduct additional investigation of such allegations. Prior to 2004, Weatherford did not require any employee to complete any kind of ethics questionnaire.
Further, Weatherford lack effective mechanisms to control its many foreign subsidiaries’ activities to ensure that they maintained internal accounting controls adequate to detect, investigate, or deter corrupt payments made to government officials.”
Under the heading “corrupt conduct” the information alleges – in summary form – as follows:
“Due to Weatherford’s failure to implement such internal accounting controls, a permissive and uncontrolled environment existed within Weatherford in which employees of certain of its wholly owned subsidiaries in Africa and the Middle East were able to engage in various corrupt conduct over the course of many years, including both bribery of foreign officials and fraudulent misuse of the United Nations’ Oil for Food Program.”
Thereafter, the information contains nine paragraphs of allegations that track the Angola allegations in the WSL information.
In addition, the information contains allegations about another alleged “scheme, in the Middle East, from 2005 through 2011” in which “employees of another Weatherford subsidiary [Weatherford Oil Tool Middle East Limited (WOTME) – described as a British Virgin Islands corporation headquartered in Dubai that was a wholly-owned subsidiary of Weatherford and responsible for managing most of Weatherford’s activities in North Africa and the Middle East] awarded improper ‘volume discounts’ to a distributor who supplied Weatherford products to a government-owned national oil company, believing those discounts were being used to create a slush fund with which to make bribe payments to decision makers at the national oil company.”
According to the information, “officials at the national oil company had directed WOTME to sell goods to the company through this particular distributor” and the information alleges:
“Prior to entering into the contract with the distributor, neither WOTME nor Weatherford conducted any due diligence on the distributor, despite (a) the fact that the Distributor would be furnishing Weatherford goods directly to an instrumentality of a foreign government; (b) the fact that a foreign official had specifically directed WOTME to contract with that particular distributor, and (c) the fact that executives at WOTME knew that a member of the country’s royal family had an ownership interest in the distributor.”
According to the information, “between 2005 and 2011, WOTME paid approximately $15 million in volume discounts to the distributor” that were “recorded in WOTME’s general ledger under a heading titled “Volume Discount Account.”
The information next contains four paragraphs of allegations relevant to the Iraq Oil for Food program and how Weatherford’s “failure to implement effective internal accounting controls also permitted corrupt conduct relating” to the program.
In a summary allegation, under the heading “Profits from the Corrupt Conduct in Africa and the Middle East” the information states:
“Due to Weatherford’s failure to implement internal accounting controls, an environment existed within Weatherford in which employees of certain of its wholly owned subsidiaries in Africa and the Middle East were able to engage in various corrupt business transactions, which conduct earned profits of $54,486,410, which were included in the consolidated financial statements that Weatherford filed with the SEC.”
Based on the above conduct, the information charges Weatherford with violating the FCPA’s internal controls provisions – specifically – that Weatherford knowingly:
“(a) failed to implement, monitor, and impose internal accounting controls and to maintain their effectiveness; (b) failed adequately to train key personnel to implement internal accounting controls to detect and avoid illegal payments and to identify and deter violations of those controls; (c) failed to monitor and control the financial transactions of its subsidiaries, in a manner that provided reasonable assurances that its subsidiaries’ transactions were executed in accordance with management’s general and specific authorization; (d) failed to monitor and control the financial transactions of its subsidiaries, in a manner that provided reasonable assurances that its subsidiaries’ transactions were recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and any other criteria applicable to such statements; (e) failed to maintain a sufficient system for the selection and approval of, and performance of corruption-related due diligence on, third party business partners and joint venture partners, which, in turn, permitted corrupt conduct to occur at subsidiaries; (f) failed to investigate appropriately and respond to allegations of corrupt payments and discipline employees involved in making corrupt payments; (g) failed to take reasonable steps to ensure the company’s compliance and ethics program was followed, including training employees, and performing monitoring to detect criminal conduct; (h) failed to maintain internal accounting controls sufficient to prevent a subsidiary from entering into a joint venture agreement to funnel improper benefits to, and receive preferential treatment from, foreign government officials; (i) failed to maintain internal accounting controls sufficient to prevent a subsidiary from making payments to a channel partner not authorized by contract knowing there was a substantial likelihood that those payments were used to make corrupt payments; and (j) failed to maintain internal accounting controls sufficient to prevent kickbacks paid to the government of Iraq by a subsidiary.”
The charge against Weatherford was 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 has been, on the whole, strong, including conducting an extensive worldwide internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the Department, including the production of more than 3.8 million pages of data; (b) the Company has engaged in extensive remediation, including terminating the employment of officers and employees responsible for the corrupt misconduct of its subsidiaries, establishing a Compliance Officer position that is a member of the Company’s executive board, as well as a compliance office of approximately 38 full-time compliance professionals, including attorneys and accountants, that the Compliance Officer oversees, conducting more than 30 anti-corruption compliance reviews in many of the countries in which it operates, enhancing its anti-corruption due diligence protocol for third-party agents and consultants, and retaining an ethics and compliance professional to conduct an assessment of the Company’s ethics and compliance policies and procedures designed to ensure compliance with the FCPA and other applicable anti-corruption laws; (c) the Company has committed to continue to enhancing its compliance program and internal accounting controls …; (d) the Company has already significantly enhanced, and is committed to continue to enhance, its compliance program and internal controls …; and (e) the Company has agreed to continue to cooperate with the Department in any ongoing investigation …”
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $87.2 million to $174.4 million. The DPA states that the monetary penalty of $87.2 million “is appropriate given the facts and circumstances of this case, including the nature and extent of the Company’s criminal conduct, the Company’s extensive cooperation, and its extensive remediation in this matter.”
The DPA specifically states that “any criminal penalties that might be imposed by the Court on WSL in connection with WSL’s guilty plea to a one-count Criminal Information charging WSL with violations of the FCPA, and the plea agreement entered into simultaneously, will be deducted from the $87.2 million penalty agreed to under this Agreement.”
Pursuant to the DPA, Weatherford 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 Weatherford 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 Weatherford or anyone on its behalf from “contradicting the acceptance of responsibility by the company” as set forth in the DPA.
In the DOJ’s release, Acting Assistant Attorney General Mythili Raman stated:
“Effective internal accounting controls are not only good policy, they are required by law for publicly traded companies – and for good reason. This case demonstrates how loose controls and an anemic compliance environment can foster foreign bribery and fraud by a company’s subsidiaries around the globe. Although Weatherford’s extensive remediation and its efforts to improve its compliance functions are positive signs, the corrupt conduct of Weatherford International’s subsidiaries allowed it to earn millions of dollars in illicit profits, for which it is now paying a significant price.”
Valerie Parlave, Assistant Director in Charge of the FBI’s Washington Field Office, stated:
“When business executives engage in bribery and pay-offs in order to obtain contracts, an uneven marketplace is created and honest competitor companies are put at a disadvantage. The FBI is committed to investigating corrupt backroom deals that influence contract procurement and threaten our global commerce.”
SEC
The SEC’s complaint (here) is largely based on the same core set of facts alleged in the above DOJ action.
In summary fashion, the complaint alleges:
“Between at least 2002 and July 2011, Weatherford and its subsidiaries authorized bribes and improper travel and entertainment intended for foreign officials in multiple countries to obtain or retain business or for other benefits. Weatherford and its subsidiaries also authorized illicit payments to obtain commercial business in Congo and authorized kickbacks in Iraq to obtain United Nations Oil for Food contracts. Weatherford realized over $59.3 million in profits from business obtained through the use of illicit payments.”
As to the additional Congo allegations, the complaint states:
“In addition to bribery schemes involving Angolan government officials, WSL made over $500,000 in commercial bribe payments through the Swiss Agent to employees of a commercial customer, a wholly-owned subsidiary of an Italian energy company, between March 2002 and December 2008.
[…]
WSL mischaracterized the bribe payments as legitimate expenses on its books and records. Bank account records and a U.S. brokerage account statement show that among the recipients were two employees of the commercial customer who were responsible for awarding contracts to WSL. Weatherford obtained profits of$1,304,912 from commercial business in Congo relating to payments made by Swiss Agent.”
The SEC complaint also contains allegations concerning conduct in Algeria and Albania.
Under the heading “Improper Travel and Entertainment in Algeria,” the complaint alleges:
Weatherford also provided improper travel and entertainment to officials of Sonatrach, an Algerian state-owned company, that were not justified by a legitimate business purpose. The improper travel and entertainment to Sonatrach officials include:
• June 2006 trip by two Sonatrach officials to the FIFA World Cup soccer tournament in Hanover, Germany;
• July 2006 honeymoon trip of the daughter of a Sonatrach official; and
• October 2005 trip by a Sonatrach employee and his family to Jeddah, Saudi Arabia, for religious reasons that were improperly booked as a donation
In addition, on at least two other occasions, Weatherford provided Sonatrach officials with cash sums while they were visiting Houston. For example, in May 2007, Weatherford paid for four Sonatrach officials, including a tender committee official, to attend a conference in Houston. Prior to the trip, a Weatherford finance executive sent an email to a Weatherford officer requesting $10,000 cash to be advanced to a WOTME employee without providing any explanation tor the cash advance. The request was approved and a portion of the funds was provided to the tender committee official. There is no evidence the cash was used for legitimate business or promotional expenses. In connection with a December 2007 trip by three Sonatrach officials traveling to Houston, a Weatherford finance employee questioned the propriety of a WOTME employee’s request for a $14,000 cash advance in connection with the trip. The finance employee’s concern was disregarded and the request was ultimately approved at high levels within Weatherford and a portion of the funds was provided to the officials. In total, Weatherford spent $35,260 on improper travel, entertainment and gifts for Algerian officials from May 2005 through November 2008 that were recorded in the company’s books and records as legitimate expenses.”
Under the heading “Improper Payments to Albanian Tax Authorites,” the complaint alleges:
“From 2001 to 2006, the general manager and financial manager at a Weatherford Italian subsidiary, WEMESP A, misappropriated over $200,000 of company funds, a portion of which was improperly paid to Albanian tax auditors. WEMESPA’s general manager and financial manager misappropriated the funds by taking advantage of Weatherford’s inadequate system of internal accounting controls. They misreported cash advances, diverted payments on previously paid invoices, misappropriated government rebate checks and received reimbursement of expenses that did not relate to business activities, such as golf equipment and perfume.
[…]
In addition to the cash payments, in 2005, after a regime shift in Albania, the Country Manager provided three laptop computers for the tax director and two members of Albania’s National Petroleum Agency, which the WEMESPA executives approved and misrecorded in the books and records.”
Under the heading “Misconduct During the Investigation and Subsequent Remediation Efforts,” the complaint states:
“Certain conduct by Weatherford and its employees during the course of the Commission staffs investigation compromised the investigation. These activities involved the failure to provide the staff with complete and accurate information, resulting in significant delay. In one instance, the staff sought information concerning the Iraq Country Manager who signed letters agreeing to pay bribes to Iraqi officials during the Oil for Food Program. The staff was informed that the Country Manager was missing or dead when, in fact, he remained employed by Weatherford. In at least two instances, email was deleted by employees prior to the imaging of their computers. On another occasion, Weatherford failed to secure important computers and documents and allowed potentially complicit employees to collect documents subpoenaed by the staff. Subsequent to the misconduct, Weatherford greatly improved its cooperation and engaged in remediation efforts, including disciplining employees responsible for the misconduct, establishing a high level Compliance Officer position, significantly increasing the size of its compliance department, and conducting numerous anti-corruption reviews in many of the countries in which it operates.”
Under the heading “Anti-Bribery Violations,” the complaint states in pertinent part:
“Weatherford’s conduct in the Middle East and Angola violated [the FCPA’s anti-bribery provisions]. From 2005 through 2011, Weatherford authorized $11.8 million in payments to national oil company officials through a distributor intended to wrongfully influence national oil company decision makers to obtain and retain business. Weatherford also violated [the anti-bribery provisions] when it retained the Swiss Agent to funnel bribes to a Sonangol official to obtain the Cabinda contract. Weatherford similarly violated [the anti-bribery provisions] by bribing other Sonangol officials via the joint venture in return for contracts and preferential treatment.”
Under the heading “Failure to Maintain Books and Records,” the complaint states in pertinent part:
“Weatherford, directly and through its subsidiaries, also violated [the books and records provisions] when it made numerous payments and engaged in many transactions that were incorrectly described in the companys books and records. In the Middle East, for example, the money given to a distributor to be used as bribes was reflected in Weatherford‘s books and records as legitimate volume discounts. In Angola and Congo, payments to foreign officials and others were described as legitimate consulting fees rather than bribe payments. Payments to Sonangol executives through the joint venture were misrecorded as legitimate dividend payments.”
Under the heading “Failure to Maintain Adequate Internal Controls,” the complaint states in pertinent part:
“Weatherford violated [the internal controls provisions] by failing to devise and maintain an adequate system of internal accounting controls. The violations were widespread and involved conduct at Weatherford’s headquarters as well as at numerous subsidiaries. Executives, managers and employees throughout the organization were aware of the conduct, which lasted a decade. Weatherford paid millions of dollars to consultants, agents and joint venture partners without adequate due diligence. Weatherford approved cash payments to Algerian officials traveling to Houston without any justification for the payments. Employees made payments to agents without regard to grants of authority and, on some occasions, without even receiving an invoice. In Italy, internal accounting controls were ineffective, allowing executives to embezzle and pay bribes for years.
In the Middle East, the company failed on several occasions to perform due diligence on the distributor it used, despite the fact that the agent was imposed upon them by a national oil company official and would be selling to a government entity. The use of large volume discounts was not routinely reviewed. […] Weatherford also failed to provide FCPA … training. While Weatherford did require certain employees to complete a yearly ethics questionnaire seeking instances of alleged misconduct, Weatherford failed to investigate or even review the responses.”
As noted in the SEC’s release, Weatherford agreed to pay approximately $65.6 million to the SEC, including an approximate $1.9 million penalty assessed in part for lack of cooperation early in the investigation.
In the SEC’s release, Andrew Ceresney (Co-Director of the SEC’s enforcement division) stated:
“The nonexistence of internal controls at Weatherford fostered an environment where employees across the globe engaged in bribery and failed to maintain accurate books and records. They used code names like ‘Dubai across the water’ to conceal references to Iran in internal correspondence, placed key transaction documents in mislabeled binders, and created whatever bogus accounting and inventory records were necessary to hide illegal transactions.”
Kara Brockmeyer (Chief of the SEC’s FCPA Unit) stated:
“Whether the money went to tax auditors in Albania or officials at the state-owned oil company in Angola, bribes and improper payments were an accustomed way for Weatherford to conduct business. While the profits may have seemed bountiful at the time, the costs far outweigh the benefits in the end as coordinated law enforcement efforts have unraveled the widespread schemes and heavily sanctioned the misconduct.”
Joseph Warin (Gibson Dunn) represented Weatherford.
In this statement, Bernard Duroc-Danner (Weatherford’s Chairman, President and CEO) stated:
“This matter is now behind us. We move forward fully committed to a sustainable culture of compliance. With the internal policies and controls currently in place, we maintain a best-in-class compliance program and uphold the highest of ethical standards as we provide the industry’s leading products and services to our customers worldwide.”
On the day of the enforcement action, Weatherford’s shares closed up approximately 1.2%.
Total Agrees To Pay $398 Million To Resolve Its FCPA Scrutiny
Yesterday, the DOJ and SEC announced (here) and (here) a Foreign Corrupt Practices Act enforcement action against Total S.A., a French oil and gas company that has American Depositary Shares registered with the SEC and traded on the New York Stock Exchange.
The enforcement action involved a DOJ criminal information resolved via a deferred prosecution agreement and a SEC administrative cease and desist order. Total agreed to pay approximately $398 million to resolve its alleged FCPA scrutiny ($245.2 million to resolve the DOJ enforcement action and $153 million to resolve the SEC enforcement action). The $398 million enforcement action is the third largest in FCPA history in terms of fine / penalty amount.
DOJ
The DOJ enforcement action involved a criminal information (here) resolved through a deferred prosecution agreement (here).
Information
In the criminal information, the DOJ charged Total with conspiracy to violate the FCPA’s anti-bribery provisions and violating the FCPA’s books and records and internal controls provisions. The conduct at issue centered on Total’s negotiation of a contract with the National Iranian Oil Company (“NIOC”) in 1995 and 1997 for the development of the certain oil and gas fields. NIOC is described in the information as a “government-owned corporation operating under the direction and control of the Ministry of Petroleum of Iran.”
The information alleges as conspiracy “to obtain and retain lucrative contracts related to [the oil and gas fields] through the promise and payment of tens of millions of dollars in unlawful payments to the Iranian Official and others. The Iranian Official is described in the information as “the Chairman of an Iranian engineering company that was more than 90% owned by the Government of Iran and substantially controlled by the Government of Iran.” The information further states that “from at least early 2001, the Iranian Official was the head of an Iranian organization concerned with fuel consumption, which was a wholly owned subsidiary of NIOC, and was a government advisor to a high-ranking Iranian official.”
The information alleges that Total caused Total International Ltd. (a wholly-owned subsidiary of Total registered in Bermuda) to execute purported consulting agreements with Intermediary One (described as an employee of a Swiss private bank who acted at the direction of the Iranian Official) and Intermediary Two (described as a British Virgin Islands company that acted at the direction of the Iranian Official) as a “mechanism for Total to pay at the direction of the Iranian Official millions of dollars in unlawful payments.”
According to the information, Total paid approximately $60 million to accounts designated by Intermediary One and Two. The information allegations that “Total mischaracterized the payments under the various consulting agreements as ‘business development expenses,’ when they were, in fact, unlawful payments for the purpose of inducing the Iranian Official to use his influence in connection with the granting of development rights” in the oil and gas projects.
The information then alleges 20 overt acts in furtherance of the conspiracy. 19 of the overt acts (95%) are alleged to have taken place between 10 to 18 years ago. The most recent alleged overt act is a November 2004 wire transfer. The only alleged overt act with a U.S. nexus is a 1995 wire transfer of $500,000 (.8% of the overall bribe payments) from Total International’s account at Banker’s Trust in New York to an account in Switzerland.
As to the FCPA books and records charge, the information states as follows.
“… Total knowingly falsified and caused to be falsified books, records, and accounts, required to, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Total, to wit: Total (a) mischaracterized the unlawful payments under the various consulting agreements as ‘business development expenses’ and (b) improperly characterized the unlawful consulting agreements as legitimate consulting agreements.”
As to the FCPA internal controls charge, the information states as follows.
“… Total knowingly circumvented and knowingly failed to implement a system of internal accounting controls sufficient to provide reasonable assurances that transactions and dispositions of Total’s assets complied with applicable law, including the FCPA, to wit: Total: (a) failed to implement adequate anti-bribery compliance policies and procedures; (b) failed to maintain an adequate system for the selection and approval of consultants; (c) failed to conduct adequate audits of payments to purported consultants; (d) failed to establish a sufficiently empowered and competent corporate compliance office; (e) failed to take reasonable steps to ensure the company’s compliance and ethics program was followed; (f) failed to evaluate regularly the effectiveness of the company’s compliance and ethics program; (g) failed to provide appropriate incentives to perform in accordance with the compliance and ethics program; (h) concealed the consulting agreements’ true nature and true participants; (i) performed no due diligence concerning the named or unnamed parties to these agreements; and (j) lacked controls sufficient to provide reasonable assurances that the consulting agreements complied with applicable laws.”
DPA
The above charges against Total were resolved via a DPA in which Total admitted, accepted, and acknowledged that it was responsible for the acts of its officers, employees, agents, and subsidiaries as charged in the information.
The DPA has a term of three years and under the heading “relevant considerations” it states as follows.
“The Department enters into this Agreement based on the individual facts and circumstances presented by this case and Total. Among the facts considered were the following: (a) the related investigation by French criminal enforcement authorities of the same conduct that forms the basis of this resolution and to which the Department has been providing assistance; (b) the evidentiary challenges presented to both parties by this matter, in which most of the underlying conduct occurred in the 1990s and early 2000s; and (c) Total’s production of relevant documents from abroad and disclosure of the results of its internal investigation into the misconduct described in the Information.”
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $235.2 to $470.4 million. The $245.2 million that Total agreed to pay pursuant to the DPA is a rare instance of an FCPA corporate penalty being within the Guidelines range. Most corporate FCPA criminal fines are approximately 25% below the minimum amount suggested by the Guidelines range.
Pursuant to the DPA, Total agreed to review its existing internal controls, policies and procedures regarding compliance with the FCPA, the anti-corruption provisions of French law, and other applicable anti-corruption laws. The specifics are detailed in Attachment C to the DPA. The DPA also requires Total to engage a corporate compliance monitor who is a French national for a three year term. The specifics, including the Monitor’s reporting obligations to the DOJ, are detailed in Attachment D to the DPA.
In the DOJ’s release (here) Acting Assistant Attorney General Mythili Raman stated as follows.
“Today we announce the first coordinated action by French and U.S. law enforcement in a major foreign bribery case. Our two countries are working more closely today than ever before to combat corporate corruption, and Total, which bought business through bribes, now faces the criminal consequences across two continents.”
The DOJ release further states as follows.
“In addition, French enforcement authorities announced earlier today that they had requested that Total, Total’s Chairman and Chief Executive Officer, and two additional individuals be referred to the Criminal Court for violations of French law, including France’s foreign bribery law.”
In this Wall Street Journal article, “Total said the company and [its CEO] acted in accordance with all applicable French laws. The decision to send [Total] and its CEO to trial now rests with the magistrate in charge of the investigation.” Total’s CFO is quoted as follows concerning he U.S. settlement. “These settlements, the outcome of which are customary in the U.S., allow us to put an end to this investigation.”
SEC
The SEC’s administrative cease and desist order (here) is based on the same core set of facts alleged in the above DOJ action.
The Order states, in summary fashion, as follows.
“During the relevant time period, Total and others violated the anti-bribery provisions of the Foreign Corrupt Practices Act by making payments at the direction of the Iranian Official in connection with obtaining contracts. In addition, Total lacked sufficient internal controls and, by mischaracterizing the payments as legitimate consulting fees, Total violated the books and records [and internal controls] provisions of the federal securities laws.”
Under the heading “Total’s Steps to Conceal the Payments” the Order states as follows.
“From the inception of Total’s relationship with the Iranian Official Total mischaracterized the expenses under the Consulting Agreements as ‘business development expenses’ when they were, in fact, unlawful payments for the purpose of inducing the Iranian Official to use his influence in connection with granting rights to Total for the development of the [oil and gas] fields. Total improperly characterized the unlawful consulting agreements as legitimate consulting agreements. Total ceased making payments to the Iranian Official’s designated intermediary in approximately November 2004.”
As noted in this SEC release, the Order requires Total to pay disgorgement of $153 million in illicit profits and to cease and desist from committing future FCPA violations. In the release, Andrew Calamari (Director of he SEC’s New York Regional Office) stated as follows. “Total used illicit payments to win business in Iran, and reaped substantial financial benefits as a result. Total must now pay back all of its profits from the company’s corrupt conduct and additionally pay criminal penalties on top of that.”
Robert Luskin (Patton Boggs) represented Total.
*****
Total’s most recent SEC filing states, in pertinent part, as follows.
“In 2003, the SEC followed by the DOJ issued a formal order directing an investigation in connection with the pursuit of business in Iran by certain oil companies, including among others, Total.”
“Since 2010, the Company has been in discussions with U.S. authorities (DOJ and SEC)” to resolve the case.
*****
The Total enforcement action is not the first FCPA enforcement action against a foreign oil and gas company focused on conduct in Iran’s oil and gas fields. In 2006, the DOJ and SEC brought a coordinated FCPA enforcement action against Norway-based Staoil by which the company agreed to pay $21 million in combined fines and penalties. Like the Total enforcement action, the Statoil enforcement action was also based on a slim US jurisdictional nexus – that the company received an invoice from a U.K. consulting company instructing that money “be routed through a United States bank in New York, New York to a bank account in Switzerland” which the company paid.
Ashland Oil – The “FCPA’s” First Repeat “Offender”
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
In 1986 the SEC brought this civil injunctive action against Ashland Oil, Inc. (a Kentucky based oil refining company) and its Chairman and CEO Orin Atkins for engaging in conduct in violation of the FCPA’s anti-bribery provisions.
The complaint began by noting that in 1975, prior to the passage of the FCPA, the defendants consented to final judgments of permanent injunction enjoining them from using corporate funds “for unlawful political contributions or other similar unlawful purposes.” As noted in “The Story of the Foreign Corrupt Practices Act” Ashland Oil’s payments to Albert Bernard Bongo, the President of Gabon, were among a group of payments that drew Congressional attention to the foreign corporate payments problem and motivated Congress to pass the FCPA in 1977.
The 1986 Ashland Oil enforcement action is thus notable as the first instance of an “FCPA” repeat “offender.”
As highlighted in more detail below, the enforcement action is also notable for the following reasons: (i) the thing of value consisted of buying a “foreign official’s” interest in a largely worthless mine); (ii) the conduct at issue lead to an FCPA-related civil suit in which two terminated company employees were awarded $70 million in damages; and (iii) there was controversy both as to the DOJ’s and SEC’s handling of the conduct at issue.
In the 1986 action, the SEC alleged that Ashland Oil and Atkins “paid $25 million in principal plus approximately $4 million in interest, and by virtue of the acquisition of an interest in Midlands Chrome [a largely worthless Zimbabwe mine owned by the “foreign official” and his family], gave something of value to James Landon [a British national seconded (detailed) to the government of Oman who served as a special adviser to the Sultan of Oman on Omani intelligence and security matters] … for the purpose of inducing Landon to use his influence with the government of Oman … in order to assist Ashland in obtaining and retaining business with the government of Oman … namely certain business related to crude oil.”
According to the complaint, Atkins was told that Midlands Chrome “could be purchased from persons who could be sympathetic to Ashland’s desire to become a purchaser of crude oil from Oman.” Even though a company lawyer advised that the transaction raised issues under the FCPA, the SEC alleged that the “board of directors of Ashland held a meeting at which Atkins presented for the Board’s approval the acquisition of Midland Chrome.” According to the complaint, Atkins viewed the acquisition as a “high risk project” but one that had “potential of being more than offset by a potential crude oil contract …”. According to the complaint, initial board meeting minutes show that Atkins said “the corporation was interested [in the Midlands Chrome acquisition] for the reason that it might thereby be enabled to obtain a contract to purchase crude oil from Oman” but that “this statement was deleted from the final version of the minutes at Atkins’ direction.”
Based on the above core conduct, in a detailed 35 page complaint, the SEC alleged three substantive FCPA anti-bribery violations.
Atkins resigned as chairman of Ashland in 1981 after an internal investigation into a number of questionable foreign payments. According to media reports, when the 1986 matter was resolved Atkins issued a statement which read as follows. “Although it would be my personal preference to litigate this matter, I have agreed to settle this action so that the company can put this lingering dispute behind it, and because to contest this matter would have involved disproportionate trouble and expense.” For more on the life of Orin Atkins, see here and here.
In media reports, Richard Murphy, an SEC enforcement lawyer, said the Ashland case was significant because it demonstrated that the SEC will go beyond the traditional “cash cases” and scrutinize more complicated transactions to determine if they represent violations.
In 1995, Ashland Oil changed its name to Ashland Inc.
In an interesting side note, former Ashland employees Bill McKay and Harry Williams sued the company for breach of contract and wrongful discharge, asserting that Ashland’s pattern of corrupt practices amounted to a violation of the Racketeer Influenced and Corrupt Organizations law. McKay alleged that he was terminated because he refused to take part in any bribery schemes and that he refused in subsequent investigations to hide Ashland’s conduct from officials at the IRS and SEC. According to a 1989 ABA Journal report, “Williams had not been asked to take part in any foreign payments, but he’d become sympathetic to McKay’s efforts to change Ashland’s policy.” According to the report, Williams “made an anonymous phone call to the SEC and spoke freely about Ashland’s recent actions abroad.” A jury returned a verdict of approximately $70 million. According to the ABA report, McKay was awarded over $44.5 million, and the rest was apportioned to Williams. According to the report, Ashland threatened to appeal and the parties settled for $25 million.
Set forth below, in pertinent part, is an interesting article published in the Washington Post on July 10, 1988. about the DOJ’s and SEC’s handling of the conduct at issue.
“Lawyers for two former executives who won a $ 69.5 million award from Ashland Oil Co. contend that their victory shows the Securities and Exchange Commission pulled its punches in handling charges of overseas bribery and other illegal conduct by Ashland. The two former vice presidents had said in wrongful-dismissal lawsuits and in SEC testimony that Ashland paid tens of millions of dollars in bribes to foreign officials to get scarce crude oil and then tried to cover up the illegal conduct. They said they lost their jobs after refusing to participate in conspiracies, perjury and other crimes. Last month, a U.S. District Court jury in Covington, Ky., awarded Bill E. McKay $ 44.6 million and Harry D. Williams $ 24.9 million after a 35-day trial. The jury said the liability should be shared by Ashland; its former chairman and chief executive, Orin E. Atkins; John R. Hall, who succeeded Atkins in 1981, and Richard W. Spears, senior vice president for human resources and law.”
“The SEC filed a much narrower civil lawsuit in July 1986 charging that Ashland and Atkins had bribed an official of Oman to get oil from the sultanate. The suit was filed in tandem with a consent decree, a final court judgment in which Ashland and Atkins neither admitted nor denied past violations while agreeing to face criminal penalties for future ones.”
“The jury and the SEC each had essentially the same evidence of possible violations of the Foreign Corrupt Practices Act (FCPA) of 1977. The gap between the jury’s verdict and the SEC action shows that the SEC dealt with the matter too lightly, according to John R. McCall and Kenneth M. Robinson, the lawyers for McKay and Williams. ‘I can understand how counsel for McKay and Williams are proud of their achievement, and they certainly have the right to crow about it,’ said SEC enforcement chief Gary G. Lynch. ‘But any criticism of the commission’s investigation, or of the results that we achieved, is simply unwarranted.'”
“Punitive damages accounted for only $ 3 million of the awards to McKay and Williams. Compensatory damages were tripled — to $66.5 million — for conspiring to violate, and for violating, the Racketeer Influenced and Corrupt Organizations Act. RICO makes it unlawful for any person associated with an enterprise affecting commerce to lead or to join in ‘conduct of [the] enterprise’s affairs through a pattern of racketeering activity.’ The jury found that the three individual defendants had all conducted or participated in ‘a pattern of racketeering activity’ principally through multiple violations of the FCPA antibribery section and of a law prohibiting travel for the purpose of violating the section.”
[…]
“The SEC’s 1986 lawsuit, which followed months of negotiations with Ashland’s law firm, Cravath, Swaine & Moore, named only one person paid by the oil company, James T.W. (Tim) Landon of Oman, as a foreign government official under the FCPA’s antibribery provisions. The complaint also alleged only one bribe, described by Ashland as a $ 25 million investment in a Landon-controlled chromium mine in Rhodesia. But the jury found that Ashland, ‘with corrupt intent to bribe,’ had made payments to three figures it said were foreign officials under the FCPA: Landon and Yehia Omar of Oman, and Hassan Y. Yassin of Saudi Arabia (who also has operated a consulting firm in McLean). With the same corrupt intent, the jury said, Ashland had made payments to a fourth recipient, Sadiq Attia, ‘knowing or having reason to know that’ all or a portion of the money — $ 17 million — ‘would be used to bribe a government official of Abu Dhabi.'”
“The SEC complaint and consent decree did not mention Yehia Omar or cite any Abu Dhabi and Saudi Arabia payments. Last December, SEC Chairman David S. Ruder told Senate Banking Committee Chairman William Proxmire (D-Wis.) that the Division of Enforcement ‘concluded that the evidence was … insufficient to support further charges of violations’ of the FCPA. In an interview after the jury verdict, Lynch said ‘there was not sufficient evidence that we felt comfortable we could prevail’ if charges were brought based on Ashland payments to Omar. ‘Even before we sat down to negotiate, we had decided privately to exclude Omar, Abu Dhabi, and Saudi Arabia from the consent decree. ‘It was clear to us that the Landon transaction was the strongest, because we believed we could establish that Landon was a government official at the time the chrome transaction occurred.’ Lynch said. He called a multiple-count complaint unnecessary. ‘We were suing for injunctive relief,’ and ‘we could get it with Landon,’ he said. ‘There was no need to push and take on a litigation risk in a case that was much less certain.’ He extended this argument to the omission of the Abu Dhabi and Saudi Arabia cases.”
“But lawyers McCall and Robinson disagreed. ‘The finest judicial scrutiny our American judicial system can provide has now determined that the earlier government efforts were incomplete,’ McCall said. It’s ‘ridiculous’ for the SEC to claim the evidence was insufficient to convince a jury that bribery far beyond that which it alleged hadn’t occurred, he said.”
“Lynch also defended the SEC’s decision not to ask a federal court to find Ashland and Atkins had violated a 1975 consent decree and to hold them in criminal contempt. ‘We did have a concern about meeting the higher burden of proof in order to prove criminal contempt,’ Lynch said. […] One difficulty in going the criminal route was that ‘the major thrust’ of the 1975 decrees involved unlawful political contributions, and ‘these were foreign bribes,’ Lynch said.”
“But the lawyers for McKay and Williams dismissed this explanation. They pointed out that the 1975 consent decrees prohibited false or fictitious bookkeeping entries, and said the $ 25 million Oman item that the SEC called a bribe, as well as the Abu Dhabi and Saudi Arabia payments, all were recorded by Ashland as ordinary outlays. ‘It was like shooting ducks in a barrel,’ Robinson said. ‘There was no answer that any Ashland official could give on the stand to explain the fraud that was in the documents that they wrote. And how the SEC could miss that is beyond description.’ ‘The SEC should have seen it. These were indictable offenses … I don’t see the evidence that the SEC even slapped Ashland’s wrist. They just closed the book by executing another consent decree — a promise to pay, which is all that it is.'”
“Arthur F. Mathews, who was an SEC deputy enforcement chief in 1969, said in an interview that ‘in the horse-trading for not litigating,’ Cravath, Swaine ‘got the staff to strike Yehia Omar … If I had to guess, they did not include Yehia Omar in their action because they thought it was a toss-up whether you could prove it, and they gave it up in the bargain.'”
“McCall said the SEC staff may well have done all it could have, particularly in light of the Reagan administration’s apparent reluctance to enforce the FCPA’s antibribery provisions.’ The SEC commissioners, for example, voted 3 to 2 to reject the division’s initial recommendation for a lawsuit that named only Landon as the recipient of a bribe. Only after the division reargued its case did the commission reverse itself, allowing Lynch to file the lawsuit. Lynch said the SEC disregarded a report by an outside counsel who concluded that the Oman transactions had not violated the FCPA or the 1975 consent decree. Williams and McKay had challenged the independence of the outsider, Pittsburgh attorney Charles J. Queenan. Queenan is a friend of Cravath, Swaine presiding partner and Ashland director Samuel C. Butler, who submitted the report to the SEC as the work of an independent counsel. ‘We did not accept the conclusion that it was an ‘independent counsel’ report,” Lynch said. The SEC staff ‘did our own very thorough investigation of the matter,’ he said. ‘It is clear that if we had accepted the Queenan report’s findings, we would not have filed an action.”
[…]
“Sen. Proxmire, who monitors FCPA enforcement, also has raised questions about the Justice Department’s role in the Ashland case. The department had full access to the SEC’s files from the start of the SEC staff investigation in May 1983. Last October, after a Washington Post series on Ashland’s payments to overseas consultants, Proxmire asked the department if it had investigated the matter and if ‘it has concluded that violations of the FCPA have taken place.’ If the conclusion was that there’d been no violations, ‘I would like an explanation of the rationale underlying such a judgment,’ Proxmire said. ‘If the department has not investigated these allegations, I request that you do so and let me know the results.’ Assistant Attorney General John R. Bolton said on Jan. 20 that he would respond when he received a report from the fraud section of the Criminal Division. On June 20, Proxmire, having heard nothing more for six months, sent Attorney General Edwin Meese III a news story on the jury verdict in Kentucky and asked ‘whether the Department of Justice will now initiate a criminal action.’ If not, Proxmire said he wanted to know why. A department spokesman said a response is being prepared.”
Parker Drilling Resolves FCPA Enforcement Action Involving Conduct In Nigeria
It’s been quite a week on the FCPA enforcement front.
On Monday, the DOJ announced (here) criminal obstruction of justice charges against “Frederic Cilins a French citizen [for] attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.”
Yesterday, it was reported (here) that former Siemens executive Uriel Sharef had, as expected, settled the SEC enforcement action against him by agreeing, without admitting or denying the SEC’s allegations, to pay a $275,000 penalty. (See here for the prior post discussing the DOJ’s and SEC’s December 2011 charges against Sharef and others).
Yesterday, the DOJ announced (here) that criminal charges “have been unsealed against one current and one former executive of the U.S. subsidiary of a French power and transportation company for their alleged participation in a scheme to pay bribes to foreign government officials.” The individuals are:
Frederic Pierucci (“a current company executive who previously held the position of vice president of global sales for the Connecticut-based U.S. subsidiary) “who was charged in an indictment unsealed in the District of Connecticut with conspiring to violate the Foreign Corrupt Practices Act (FCPA) and to launder money, as well as substantive charges of violating the FCPA and money laundering.” According to the DOJ, Pierucci, a French national, was arrested Sunday night at John F. Kennedy International Airport.
David Rothschild (“a former vice president of sales for the Connecticut-based U.S. subsidiary”) who pleaded guilty on Nov. 2, 2012, to a criminal information charging one count of conspiracy to violate the FCPA. The charges against Rothschild and his guilty plea were recently unsealed.
Future posts will explore in more detail each of the above developments.
Today’s post is about yesterday’s other FCPA development – the announcement of the long-expected enforcement action against Parker Drilling (a Houston-based oil drilling services company) for conduct in Nigeria.
As indicated in this DOJ release, the Parker Drilling action “stemmed from the DOJ’s Panalpina-related investigations.”
As detailed in this prior post, in November 2010, the DOJ and SEC announced coordinated FCPA enforcement actions against Swiss-based freight forwarder Panalpina and six oil and gas companies that utilized its services in connection with business in Nigeria. The November 2010 enforcement action resulted in approximately $237 million in combined DOJ/SEC settlement amounts. (For additional reading on these actions, please visit the CustomsGate tab under the search feature of this site or see here where all the prior actions are linked). As noted in this prior statistical post, Panalpina-related enforcement actions are one, of just a few unique events, that have given rise to the majority of FCPA enforcements since 2007, and Panalpina-related enforcement actions significantly contributed to the “spike” in FCPA enforcement actions in 2010.
Total fines and penalties in the Parker Drilling enforcement action were approximately $15.9 million (approximately $11.8 million in the DOJ enforcement action and approximately $4.1 million in the SEC enforcement action).
This post summarizes the DOJ’s and SEC’s allegations and resolution documents.
DOJ
The DOJ enforcement action involved a criminal information (here) against Parker Drilling resolved through a deferred prosecution agreement (here)
Criminal Information
Parker Drilling operated oil-drilling rigs in Nigeria owned by Parker Drilling (Nigeria Limited), a Nigerian entity and wholly-owned subsidiary of Parker Drilling Offshore International, Inc., (a Cayman Islands corporation wholly-owned by Parker Drilling). According to the information, “Parker Drilling ceased drilling operations in Nigeria in 2006” and the conduct at issues focused on two issues or events that occurred between 8 to 12 years ago.
First, the information, like the prior Panalpina-related enforcement actions, alleged conduct in connection with obtaining temporary importation permits (TIPs) in Nigeria for oil-drilling rigs. The information alleges that in 2001, Parker Drilling retained Panalpina to “obtain TIPs and TIP extensions on Parker Drilling’s behalf. According to the information, between 2001 and 2002:
“Panalpina obtained new TIPs for Parker Drilling’s rigs by submitting false paperwork on Parker Drilling’s behalf to avoid the time, cost, and risk associated with exporting the rigs and re-importing them into Nigerian waters (a process that Panalpina referred to as the ‘paper process’ or ‘recycling.’). Panalpina created and caused to be presented to Nigerian officials documents that reflected that the rigs had been physically exported and re-imported. In reality, the drilling rigs never left Nigerian waters.”
Second, and more significant in terms of the conduct alleged in the information, the DOJ alleges conduct in relation to the Nigerian “Panel of Inquiry for the Investigation of All Cases of Temporary Import Permits Issued Between 1984 to Year 2000” (the “TI Panel”). According to the information, the TI Panel was “presidentially appointed, operated under the auspices of the Nigerian President’s Office, and possessed the power to issue subpoenas and levy fines” in connection with certain duties and tariffs that the Nigerian Customs Service (“NCS”) collected or failed to collect between 1984 and 2000.
As to the TI Panel, the information alleges that beginning in 2002 the TI Panel began reviewing Parker Drilling. According to the information, thereafter Parker Drilling engaged Nigeria Outside Counsel (a Nigerian citizen based in Nigeria who advised Parker Drilling on customs and other matters in Nigeria) and a Nigeria Agent (a Nigerian and British citizen based in the U.K. to assist Parker Drilling in connection with customs matters in Nigeria) who represented Parker Drilling before the TI Panel.
The information alleges that in 2004 “the TI Panel concluded that Parker Drilling had violated [Nigerian law] with respect to several of its TIPS” and that the “TI Panel assessed a fine of $3.8 million against Parker Drilling.” The information then outlines a “bribery scheme,” that resulted in the TI Panel reducing Parking Drilling’s fine “to just $750,000.”
In connection with this “bribery scheme,” the information alleges conduct as to Employee A (a U.S. citizen based in Nigeria who, during the relevant time period, was the General Manager of Parker Drilling’s operations in Nigeria); Employee B (a U.S. citizen based in Nigeria who also was a General Manager of Parker Drilling’s Operations in Nigeria); Executive A (a U.S. citizen based in Houston who performed financial and compliance functions for Parker Drilling between 2002 through 2005); Executive B (a U.S. citizen based in Houston who performed a legal function for Parker Drilling); U.S. Outside Counsel (a U.S. citizen and partner in a U.S. law firm who served as Parker Drilling’s outside counsel who provided legal and business advice to Parker Drilling on customs and other issues in Nigeria).
Specifically, the information alleges that U.S Outside Counsel suggested that Parker Drilling retain the Nigeria Agent to resolve its Nigerian customs issues even though Nigeria Agent’s “resume, which U.S. Outside Counsel provided to Parker Drilling, did not reflect any past experience in Nigeria or handling customs issues.” According to the information, Parker Drilling “conducted no additional due diligence into Nigeria Agent’s qualifications.”
The information alleges that “with one exception, Parking Drilling paid Nigeria agent indirectly through the U.S.-based law firm” and that “Executives A and B paid and caused to be paid all of Nigeria Agent’s expenses without receiving any invoices particularly describing the expenditures’ purposes.” According to the information, many of expenses related to food, entertainment, social events and the like and the information alleges various meetings the Nigeria Agent had with various Nigerian foreign officials.
The information further alleges that Parker Drilling’s treasurer informed Executive B “that the lack of invoices could raise an issue in Parker Drilling’s ongoing Sarbanes Oxley audit.” Thereafter, the information alleges, the Nigeria Agent sent an invoice and that Executive B “accepted the invoice and retained it in Parker Drilling’s files, knowing that the invoice did not accurately reflect the true purpose of Parker’s Drillings” prior payments to the Nigeria Agent.
The information then states as follows. “All told, Parker Drilling transferred and caused to be transferred to Nigeria Agent approximately $1.25 million to address Parker Drilling’s TI Panel issues” and that “Nigeria Agent succeeded in reducing Parker Drilling’s TI Panel Fines.”
Based on the above conduct, the information charges one count of violating the FCPA’s anti-bribery provisions. Although the above Panalpina-related allegations are incorporated by reference into the paragraphs charging the FCPA violation, the information specifically identifies only the TI Panel conduct and states as follows. “Parker Drilling made and cause to be made from the United States … a series of payments totaling approximately $1.25 million to Nigeria Agent, knowing that all or a portion of those payments would be given or used to procure goods and services that were to be given to a foreign government official in return for the diminution of a lawfully assessed fine.”
Deferred Prosecution Agreement
The above charge against Parker Drilling was resolved via a DPA in which Parker Drilling 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 as follows.
“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, including conducting an extensive internal investigation and collecting, analyzing, and organizing voluminous evidence and information for the Department; (b) the Company has engaged in extensive remediation, including ending its business relationships with officers, employees or agents primarily responsible for the corrupt payments, enhancing its due diligence protocol for third-party agents and consultants, increasing training and testing requirements, and instituting heightened review of proposals and other transactional documents for all the Company’s contracts; (c) the Company has retained a full-time Chief Compliance Officer and Counsel who reports to the Chief Executive Officer and Audit Committee, as well as staff to assist the Chief Compliance Officer and Counsel; (d) the Company has already significantly enhanced and is committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth [elsewhere in the DPA]; (e) the Company has implemented a compliance-awareness improvement initiative and program that includes issuance of periodic anti-bribery compliance alerts; (f) the Company has already implemented many of the elements described [elsewhere in the DPA]; and (g) the Company has agreed to continue to cooperate with the Department in any ongoing investigation …”.
Pursuant to the DPA, the advisory Sentencing Guidelines range for the conduct at issue was $14.7 million to $29.4 million. The DPA then states as follows.
“The Company agrees to pay a monetary penalty in the amount of $11,760,000, an approximately 20% reduction off the bottom of the fine range […]. The Company and the Department agree that this fine is appropriate given the facts and circumstances of this case, including the Company’s cooperation, extensive remediation, committment to continue to enhance its compliance program, and culpability relative to other companies examined in this investigation.”
During the period of the DPA, Parker Drilling will have annual reporting obligations to the DOJ concerning its remediation and implementation of various compliance measures. As is typical in FCPA DPAs, Parker Drilling also agreed to a “muzzle clause” (see this prior post for more information).
SEC
In a related enforcement action based on the same core conduct, the SEC brought a civil complaint (here) against Parking Drilling.
The introductory paragraph of the complaint states as follows.
“This matter involves violations of the Foreign Corrupt Practices Act (“FCPA”) by Defendant Parker Drilling Company. In 2004, through its outside counsel, Parker Drilling retained a Nigerian agent to assist the company with customs disputes related to the importation of its drilling rigs into Nigeria. During the course of the agent’s work, two Parker Drilling executives knowingly paid the agent large sums of money through its outside counsel for, among other things, the “entertainment” of Nigerian foreign officials in an effort to obtain their influence in resolving the customs disputes.”
The SEC complaint also contains a paragraph with the same general Panalpina-related allegations as alleged in the DOJ’s criminal information.
Under the heading “Remedial Efforts” the complaint states as follows.
“Parker Drilling demonstrated significant cooperation and conducted an extensive internal investigation. Since the time of the conduct noted in this Complaint, Parker Drilling has made significant enhancements to its global anti-corruption compliance program, including: retaining a full-time Chief Compliance Officer and Counsel who reports to the Chief Executive Officer and Audit Committee and full-time staff to assist him; enhancing anti-corruption due diligence requirements for relationships with third parties; increasing compliance monitoring and corporate auditing specifically tailored to anti-corruption; implementing a compliance awareness initiative that includes issuance of periodic anti-bribery compliance alerts; enhancing financial controls and governance; and expanding anti-corruption training throughout the organization.”
Based on the above conduct, the SEC charged an FCPA anti-bribery violation and an FCPA books and records and internal controls violation. Other than restating the language of the books and records and internal controls provisions, the SEC complaint does not contain any specific allegations concerning these charges.
As noted in this SEC release, Parker Drilling agreed to pay disgorgement of 3,050,00 plus pre-judgment interest of $1,040,818, and consented to the entry of a final judgment permanently enjoining it from future FCPA violations.
Mitchell Ettinger, Saul Pilchen and Stephanie Cherny (Skadden, Arps) represented Parker Drilling.
Parker Drilling in this release stated as follows.
“After an extensive investigation, with which we fully cooperated, we are pleased to have reached agreement with the DOJ and the SEC, and we will continue to maintain a vigorous FCPA compliance program, to emphasize the importance of compliance and ethical business conduct, and to enhance our compliance efforts.”
Parker Drilling had previously disclosed that the DOJ and SEC’s investigations concerned “certain of our operations relating to countries in which we currently operate or formerly operated, including Kazakhstan and Nigeria.”
The FCPA’s First Mega Enforcement Action
[This post is part of a periodic series regarding “old” FCPA enforcement actions]
The year was 1982 and the Foreign Corrupt Practices Act was nearing five years old. Up to this point, enforcement was sparse and focused on single-actor type cases. See here, here, here, here and here for FCPA enforcement actions up to this point.
In 1982, the first FCPA mega-case was brought and it involved five corporate defendants and twelve individual defendants.
Specifically, in October 1982, the DOJ brought an indictment (here) against:
- Crawford Enterprises Inc. (“CEI”) (a Houston based private company that sold compression equipment systems to oil and gas companies);
- Donald Crawford (CEI’s Chairman and sole shareholder and, at certain relevant times, CEI’s President);
- William Hall (CEI’s Executive Vice President and, at certain relevant times, CEI’s President);
- Ricardo Beltran (President and majority shareholder of Grupo Industrial Delta, a Mexican corporation);
- Mario Gonzalez (a U.S. citizen who assisted Grupo Delta and CEI communicate with certain alleged foreign officials);
- Andres Garcia (a U.S. citizen who assisted Grupo Delta and CEI communicate with certain alleged foreign officials);
- George McLean (Vice President of Solar Turbines International (“Solar”), a division of International Harvester Company);
- Luis Uriarte (the Latin American Regional Manager of Solar);
- Al Eyester (President of Ruston Gas Turbines “Ruston”);and
- James Smith (Vice President of Ruston).
The indictment charged a conspiracy between the defendants and others to pay money to Mexican foreign officials and Grupo Delta “knowing that all or a portion of such money would be offered, given or promised directly or indirectly” to foreign officials for the purpose of influencing the acts and decisions of the officials “in their official capacity, and inducing them to use their influence with Pemex so as to affect and influence the acts and decisions of Pemex in order to assist” Crawford, the other defendants, and others in “obtaining or retaining business with Pemex.”
The indictment alleges that Petroleos Mexicanos (“Pemex”) was the “national oil company wholly owned by the Government of the Republic of Mexico and was responsible for the exploration and production of all of the oil and natural gas resources of Mexico and for acquiring the equipment, including compression equipment systems, necessary for such exploration and production.”
The indictment alleged that “Pemex was an instrumentality of a foreign government” and that two individuals (Ignacio de Leon and Jesus Chavarria) were “foreign officials” based on their positions of “subdirector of Pemex responsible for the purchase of goods and equipment on behalf of Pemex” and “subdirector of Pemex responsible for the exploration and production of Mexican oil and natural gas.”
[As an aside, it should be noted that in the recent “foreign official” challenges, the DOJ has argued that its charging decision in the Crawford cases as to Pemex demonstrated the validity of its position that employees of SOEs are “foreign officials” under the FCPA. For instance, the recent FCPA Guidance states that the SEC and DOJ ‘‘have pursued cases involving instrumentalities since the time of the FCPA’s enactment’’ and that the ‘‘second-ever FCPA case charged by the DOJ’’ involved bribes to executives of the Mexican national oil company.
However being consistently wrong, does not make one right and, as noted in my article “Grading the FCPA Guidance,” missing from the Guidance discussion or associated citations on this issue, is any reference to the fact that George McLean, the only defendant in the series of related cases to put DOJ to its burden of proof at trial, was found not guilty by the jury.]
The conspiracy charge alleged that CEI and Crawford agreed to pay and paid the “foreign officials” “bribes equalling approximately 4.5% of each Pemex purchase order for compression equipment systems in which” CEI participated and that “it was further a part of the conspiracy” that CEI and Crawford arranged with defendants Beltran, Gonzalez and Garcia that Grupo Delta would: “(a) hold itself out as the Mexican agent of CEI, while in truth acting primarily as the conduit for the bribe payments; (b) disguise the bribe payments as ‘commissions’ due by providing to CEI false and fictitious invoice for each payment received; and (c) provide Gonzalez and Garcia with a base of operations from which to perform their function as middlemen and channels of communications between the co-conspirators” and the foreign officials.”
The indictment further alleged that the defendants used the term “folks” as a code word for the “foreign officials” “in order to conceal from others their true identities as Pemex officials and the existence of the bribe scheme.” The indictment alleged that “in order to create a pool of money with which to pay bribes” CEI along with Solar and Ruston “submitted to Pemex bids which were inflated to include a 4.5% markup for the “folks.”
The indictment alleged that CEI, along with Solar and Ruston received purchase orders from Pemex for compression equipment systems in the approximate amount of $225 million and that approximately $10 million in bribe payments were made to the “foreign officials” as part of the bribery scheme.
In addition to the conspiracy charge, the indictment also alleged approximately fifty substantive FCPA anti-bribery violations against various combinations of the defendants. The indictment also charged CEI, Crawford and Hall with an obstruction charge based on allegations that the defendants destroyed certain documents relevant to a grand jury subpoena.
Media reports described the action as the first major criminal investigation under the FCPA. According to the reports, in November 1982, CEI, Crawford, Hall, Garcia, McLean, Uriate, and Eyster pleaded not guilty. Crawford and Hall stated that while commission payments were made to Grupo, no such bribes were paid to Pemex officials.
CEI released a statement which said that “despite vigorous and repeated denials by Crawford Enterprises of any wrongdoing in connection with these allegations, the investigation has continued for nearly 3.5 years.” The company said that Pemex and the Mexican government had looked into similar charges and found no wrongdoing in the award of Pemex contracts to Crawford. The company’s statement further indicated as follows. “Four factors accounted for CEI’s success in becoming one of Pemex’s principal gas compression contractors: its proven experience in the industry; its aggressive delivery schedules that other firms simply could not match; its maintenance and repair of equipment installed in Mexico; and the lower costs to Pemex as a result of all the above.”
Prior to the above-reference October 1982 indictment, in September 1982 the DOJ charged Ruston Gas Turbines Inc., C.E. Miller Corporation and Charles Miller based on the same core set of allegations. The DOJ charged Ruston Gas Turbines in a one count criminal information (see here) with a substantive FCPA violation and the company pleaded guilty and was ordered to pay a $750,000 fine (see here). The DOJ charged C.E. Miller Corporation and Miller (President, Chairman of the Board, and majority shareholder of the company) in a one count criminal information charging substantive FCPA violations and aiding and abetting FCPA violations. (See here). C.E. Miller Corporation and Miller both pleaded guilty and the company was ordered to pay a $20,000 fine and placed on probation for three years (see here) and Miller was sentenced to three years probation (see here).
Prior to the above-referenced September 1982 charges, in May 1981 the DOJ charged Gary Bateman (an International Sales Manager for CEI and also Chairman of the Board, President and sole shareholder of Applied Process Products Overseas, Inc.) in a multi-count information (see here) charging various misdemeanor violations of the Currency and Foreign Transactions Reporting Act concerning the transportation of money to Mexico in connection with the bribery scheme. Bateman pleaded guilty and agreed to pay a civil penalty of approximately $330,000. In January 1983, the DOJ also charged Applied Process Products Overseas, Inc. in a one-count information (here) charging a substantive FCPA violation based on the same core set of allegations. The company pleaded guilty and was ordered to pay a $5,000 fine. (See here).
After the above-referenced October 1982 charges, in November 1982 the DOJ also filed a criminal information against International Harvester (see here). The information was based on the same core set of allegations as set forth above and based on the conduct of its employees McLean and Uriarte. International Harvester pleaded guilty to conspiracy to violate the FCPA (see here) and was ordered to pay a $10,000 fine and agreed to also pay $40,000 civil cost reimbursement.
The DOJ’s offer of proof in the International Harvester case (see here) contained the following statement.
“After Solar had agreed to participate and to cooperate with CEI, and pursuant to the 1977 enactment of the Foreign Corrupt Practices Act [International Harvester’s long-standing Policy on Conflicts of Interest and Ethical Business Conduct] was revised and supplemented to affirm that improper payments prohibited by the Act were also prohibited as a matter of company policy. In 1977, 1978, 1979, and 1980, through an annual audit process, each International Harvester managerial employee was required to certify his or her compliance and to report any action that might conflict with company policy for review by the Office of the General Counsel and corrective action, if warranted. During those years, Uriarte and McLean each reported in the annual audit process that he was aware of International Harvester policy and had taken no action in violation thereof. Insofar as each of them participated in the conspiracy described herein, he accordingly concealed from International Harvester his participation and the participation of the Solar Turbine Division. Neither Solar employee held a position which required him to report to International Harvester management. There has been no evidence that any officers, directors or management of International Harvester knew of or participated in the conspiracy charged.”
In January 1983, the DOJ charged Marquis King (an officer and director of C.E. Miller) in a one-count information charging a misdemeanor violation of the Currency and Foreign Transactions Reporting Act concerning the transportation of money to Mexico in connection with the bribery scheme. (See here). King pleaded guilty and he was sentenced to 14 months probation and ordered to pay a $5,000 fine. (See here).
In June 1985, CEI pleaded guilty to conspiracy to violate the FCPA and 46 substantive FCPA violations. (See here). CEI agreed to pay a $10,000 criminal fine as to the conspiracy charge and $75,000 as to each of the 46 substantive charges for a total fine amount of $3,460,000. At the same time, the following defendants pleaded nolo contendere: Donald Crawford, Al Eyster, James Smith, Andres Garcia, and William Hall. Crawford pleaded nolo contendere to conspiracy to violate the FCPA and 46 substantive FCPA violations and was ordered to pay a total fine amount of $309,000 (see here); Eyster pleaded nolo contendere to conspiracy to violate the FCPA and 41 substantive FCPA violations and was ordered to pay a total fine amount of $5,000 (see here); Smith pleaded nolo contendere to conspiracy to violate the FCPA and 44 substantive FCPA violations and was ordered to pay a total fine amount of $5,000 (see here); Garcia pleaded nolo contendere to conspiracy to violate the FCPA and 46 substantive FCPA violations and was ordered to pay a total fine amount of $75,000 (see here); and Hall pleaded nolo contendere to conspiracy to violate the FCPA and 32 substantive FCPA violations and was ordered to pay a total fine amount of $150,000 (see here).
That leaves McLean and Uriarte. Stay tuned for the rest of the story.
Of further note from this enforcement action, Pemex filed a civil suit in U.S. District Court in Houston against Crawford, CEI, the two foreign officials, and twelve others in a bid to recover monies allegedly extracted from Pemex. In its complaint, Pemex sought several million dollars in both compensatory and punitive damages from Crawford and the other entities based upon the same conduct that was alleged in the DOJ enforcement actions. Pemex’s suit was based upon alleged violations of the Sherman Antitrust Act, the Robinson-Patman Act, and the Racketeering Influenced and Corrupt Organizations Act. Pemex also asserted causes of actions based upon commercial bribery and common law fraud. Various of the defendants in the civil action sought relevant documents from Pemex and it was ultimately held in contempt for not producing the documents. For additional background on this case, see 643 F.Supp. 370; 826 F.2d 392.