As highlighted in this prior post, in 2010 ENI S.p.A (an Italy-based oil and gas company with American Depositary Shares listed on the New York Stock Exchange) along with its wholly-owned subsidiary Snamprogetti resolved a $125 million SEC Foreign Corrupt Practices Act enforcement action concerning conduct in Nigeria.
On Friday, the SEC announced that ENI resolved another FCPA enforcement action – this one a $24.5 million enforcement action concerning conduct in Algeria by Saipem S.p.A. (a minority-owned and controlled subsidiary during the relevant time period). The conduct at issue in the enforcement action occurred 10 – 13 years ago.
In summary fashion, this administrative order finds:
“Between 2007 and 2010, Saipem S.p.A. (“Saipem”), a subsidiary controlled by Eni S.p.A. (“Eni”), which at the time held a 43% interest in Saipem, entered into four sham contracts with an intermediary [widely reported to be Farid Noureddine Bedjaoui] to assist in obtaining contracts awarded by Algeria’s state owned oil company. Saipem conducted little or no due diligence before entering into the contracts, received no legitimate services from the intermediary, and falsely characterized its payments to the intermediary as lawful “brokerage fees” in its books and records, which were consolidated into Eni’s during the relevant period. As a consequence, Eni, an Italian multinational oil and gas company whose American Depositary Receipts (“ADRs”) are listed on the New York Stock Exchange, violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”).
Executive A [widely reported to be Alessandro Bernini], who served as Saipem’s CFO from 1996 to 2008, participated in Saipem’s approval of the intermediary contracts, despite being aware of Saipem’s lack of due diligence, and facilitated the payments to the intermediary, despite being aware of the lack of services rendered by the intermediary. Executive A was later hired to be the CFO of Eni in August 2008, and continued to facilitate Saipem’s payments to the intermediary while at Eni.
Saipem paid approximately €198 million to the intermediary and was awarded at least seven contracts from the Algerian state-owned oil company. The intermediary directed a portion of the money it received from Saipem to Algerian government officials or their designees.
As a result of Saipem’s and Executive A’s conduct, Eni’s consolidated financial statements failed to accurately record the true nature of Saipem’s transactions with the intermediary in Eni’s books and records. Instead, in violation of the books and records provisions of [the FCPA], Eni—based on Saipem’s own characterization of its intermediary payments—indicated in its filings with the Commission that those payments were lawful “brokerage fees.”
In contravention of [the FCPA’s internal control provisions], because Eni’s CFO was aware of and participated in Saipem’s conduct, Eni failed to proceed in good faith to use its influence to cause Saipem to devise and maintain a system of internal accounting controls consistent with [the internal controls provisions].
During the relevant period, Saipem’s practice was to annually distribute to its shareholders approximately one-third of its profits, so Eni, with its 43% minority-controlling interest, benefitted from the profits derived from Saipem’s contracts in Algeria. As a 43% shareholder of Saipem, Eni also benefitted from the fact that Saipem took a tax deduction on the fees it paid to the intermediary, despite not receiving legitimate services from the intermediary and thus not incurring a legitimate business expense.
In September 2018, an Italian trial court found Saipem, Executive A, and others guilty of the Italian crime of international corruption for the payments from Saipem through an intermediary to Algerian officials. Eni, its former CEO, and a senior Eni executive were acquitted of the same and related charges by the same court. The court ordered Saipem to forfeit approximately €198 million, which the court variously described as “the crime’s profit,” “the amount of the bribe paid by Saipem,” “the quantum paid for the acquisition of the contracts and, as such, the proceeds of the crime” and “commissions” paid to the intermediary. The court also ordered Saipem to pay a €400,000 fine. Executive A received a 49-month prison sentence. On January 15, 2020, the Milan Court of Appeals affirmed the trial court’s acquittal of Eni and its officers but overruled the trial court and acquitted the remaining defendants, including Saipem and Executive A, of all charges. This recent ruling may be further appealed to the Supreme Court of Italy.”
Regarding the intermediary, the Order finds:
“The intermediary never rendered any legitimate services to Saipem. In fact, the intermediary was wholly unequipped to provide the contemplated consulting services in the technically complex energy design sector, having no employees or offices in Algeria and only a “virtual office” in Geneva, Switzerland staffed by one individual.”
Under the heading “Eni Failed to Exercise Good Faith to Use Its Influence to Cause Saipem to Design and Maintain Sufficient Internal Accounting Controls,” the order finds:
“Eni, as the controlling minority shareholder, required Saipem to maintain its own internal controls policies, including adopting Eni’s directives of transparency, traceability, and anti-bribery compliance. However, because of the conduct of Executive A and others at Saipem, Saipem’s internal accounting controls were not adequately implemented and were ineffective.
Eni’s subsidiary Saipem conducted no substantive review of the intermediary contracts at Saipem. For example, Saipem’s legal department conducted a pre-review of the sham contracts prior to anyone signing them, but these contracts had no names inserted, not even the name of the intermediary. Accordingly, Saipem’s legal department did not conduct any review of the intermediary’s business or reputation. Although Saipem had its own internal audit department, its audits performed on the intermediary contracts were either inadequate or perfunctory, such as simply matching invoices to payment amounts. Saipem’s intermediary contracts were not within the scope of Eni’s internal audit function because Saipem had its own internal audit department.
Executive A, as Saipem’s CFO at the time, along with other senior officers, bypassed contracting and procurement controls to enter into contracts with the intermediary, including falsifying and backdating documents concerning the intermediary contracts in Board notes and approvals. Saipem also made payments to the intermediary on at least one occasion without approval from the appropriate senior officer until nearly a year after the payment had been made. These actions demonstrate that Saipem’s internal accounting controls were inadequate and insufficient.
In August 2008, Executive A was hired to be the CFO of Eni. At Eni, he remained involved in Saipem’s intermediary contracts by communicating with the intermediary and its owner and associates, sending emails concerning the intermediary, and facilitating Saipem’s ongoing payments to the intermediary. For example, in early 2009, an associate of the intermediary emailed Executive A, Eni’s CFO at the time, for assistance in getting an invoice paid by Saipem. In response, in May 2009, Executive A sent an email from his Eni email account to a Saipem manager requesting that Saipem pay the invoice.
While at Eni, Executive A continued to conceal Saipem’s sham intermediary contracts from, among others, his colleagues at Eni. For example, in August 2009, he received an email from a Saipem accounting employee that the semi-annual intermediary fees reported to Eni for 2009—which Executive A knew to be payments to the intermediary for services that were not rendered—amounted to €63 million rather than the €22 million that was previously reported, due to an “incorrect allocation” at Saipem. Eni corrected its interim financial statements because of this discrepancy, yet Executive A did not disclose the true nature of those “intermediary fees” to anyone else at Eni. To avoid further scrutiny, he did not request any inquiry or review of that accounting discrepancy. Similarly, he did not request any inquiry or review as to why Saipem’s “intermediary fees” increased four-fold from 2007 to 2008.
After becoming CFO of Eni, Executive A continued to override and undermine Saipem’s internal accounting controls by exerting his influence over Saipem and requesting that it prepay an invoice from the intermediary that was not due yet. Executive A also circumvented Saipem’s anti-bribery internal controls by emailing the intermediary’s “strawman” owner and also meeting with the intermediary’s true owner.
In late 2012, Eni became aware that Saipem had entered into four agreements with the intermediary without conducting adequate due diligence. Eni also learned that Executive A had continued to involve himself in Saipem’s payments to the intermediary. Immediately upon discovering those facts, Eni separated Executive A from the company.
[The FCPA] provides that when an issuer that holds 50 per centum or less of the voting power with respect to a domestic or foreign firm, the [FCPA] require[s] only that the issuer proceed in good faith to use its influence, to the extent reasonable under the issuer’s circumstances, to cause such domestic or foreign firm to devise and maintain a system of internal accounting controls consistent with [the FCPA]. Such circumstances include the relative degree of the issuer’s ownership of the domestic or foreign firm and the laws and practices governing the business operations of the country in which such firm is located. An issuer which demonstrates good faith efforts to use such influence shall be conclusively presumed to have complied with the [the FCPA].
Here, however, because Saipem’s accounting for intermediary fees was inaccurate, and because Executive A participated in the approval of and payments to the intermediary while at Saipem and continued to take certain actions to facilitate payments to the intermediary while CFO of Eni, Eni failed to proceed in good faith to cause Saipem to devise and maintain sufficient internal accounting controls. As the principal finance officer of Eni, Executive A could not have been proceeding in good faith to cause Saipem to devise and maintain sufficient internal accounting controls while simultaneously being aware of, and participating in, conduct at Saipem that undermined those controls. Because its CFO was not acting in good faith, Eni cannot rely on the provisions of [the above FCPA provisions].”
Based on the above, the order finds that Eni violated the FCPA’s books and records and internal controls provisions.
Without admitting or denying the SEC’s findings, Eni agreed to cease and desist from violating the FCPA’s books and records and internal controls provisions and agreed to pay $24.5 million in disgorgement and prejudgment interest ($19.75 million in disgorgement and $4.75 million in prejudgment interest).
Under the heading “Eni’s Remedial Efforts,” the order states:
“[The SEC] considered remedial acts promptly undertaken by Eni and cooperation afforded the Commission staff, including compiling financial data and analysis relating to the transactions at issue, making substantive presentations on key topics, and providing translations of key documents and foreign proceedings.”
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