In 2011, Tenaris S.A. (a company headquartered in Luxembourg with American Depository Receipts listed on the New York Stock Exchange) resolved an approximate $9 million Foreign Corrupt Practices Act enforcement action regarding conduct in Uzbekistan (see here for the prior post).
For several years, Tenaris has been under scrutiny for its relationship with Petrobras in Brazil and in October 2016 the company “voluntarily notified” the SEC and DOJ. (See here).
Yesterday, the FCPA Repeat Offender Club welcomed Tenaris to its growing membership as the SEC announced an approximate $78.1 million enforcement action against the company.
In summary fashion, this administrative order finds:
“This matter concerns violations of the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977 (“FCPA”) by Tenaris, as a result of a bribe scheme involving agents and employees of its Brazilian subsidiary to obtain and retain business from a Brazil state-owned entity (“SOE”) Petróleo Brasileiro S.A. (“Petrobras”). Between 2008 and 2013, approximately $10.4 million in bribes were funded on behalf of a Tenaris Brazilian subsidiary by companies affiliated with Tenaris’ controlling shareholder and paid to a Brazilian government official in connection with the bidding process at the SOE. During the same relevant period, the Tenaris Brazilian subsidiary obtained more than $1.0 billion in contracts from Petrobras.”
The “Facts” portion of the order states in full:
“During the relevant period, Tenaris was a global supplier of steel pipes and related services for the world’s energy industry. Tenaris was listed on the New York Stock Exchange, Buenos Aires Stock Exchange, Mexican Stock Exchange, and the Italian Stock Exchange. It operated in North and South America, Europe, Asia and Africa. In Brazil, Tenaris held 99% of the voting shares of its subsidiary, Confab, a Brazilian producer of welded steel pipe products.
In order to increase sales in Brazil, in 2008, Confab’s long-time agent (“Confab Agent”) entered into an understanding with Government Official [described as a Brazilian national who was a high-ranking manager in Petrobras’ supply procurement and tender process department who pled guilty in Brazil to corruption-related crimes in connection with his position at Petrobras] that Government Official would use his authority to influence Petrobras to forgo an international tender process for certain contracts for pipes and tubes, thereby favoring Confab, by continuing its status as the only domestic supplier, and allowing direct negotiations with it. Confab would benefit through the elimination of international competitors which may have submitted lower bids and forced Confab to lower its price, if not lose the contract altogether. Further, with a steady stream of business from Petrobras, Confab would maintain full operation of its production unit in Brazil, further advantaging it over potential international competitors who had expensive shipping costs that Confab did not. In exchange Government Official received approximately 0.5% of Confab’s revenue from these contracts.
In an effort to conceal the bribe payments, Government Official recruited an associate (“Associate”) to help him arrange for the receipt of payments. Associate arranged for the formation of Uruguayan Company, a shell company in Uruguay, and the opening of a bank account in its name. During the relevant period, the bribes were paid into Uruguayan Company’s bank account for the benefit of Government Official.
Associate communicated with Confab Agent and later a senior Confab employee about the bribe scheme including about the timing of bribe payments being deposited into the Uruguayan Company bank account.
The bribe payments to Government Official were sourced initially from a bank account in the name of a San Faustin [ controlled offshore company, which itself was funded by Tenaris-affiliated and San Faustin-affiliated companies. From there, the money passed through various offshore San Faustin-related holding companies and bank accounts located in both the U.S. and foreign jurisdictions. Each of these companies and accounts were controlled by employees of entities within the Techint Group who had roles or close associational ties with Tenaris and/or its management. One such entity and related bank account used in the scheme was Panamanian Company. In 2013, the payments to Government Official’s Uruguayan Company’s bank account came from Panamanian Company.
[San Faustin is described as a Luxembourg private limited liability company, which controls the Techint Group, an international conglomerate with interests in the steel, oil & gas, and engineering and construction sectors. During the relevant period, San Faustin, through its wholly owned subsidiary Techint Holdings S.a.r.l., owned 60.45% of Tenaris’ shares. San Faustin shared certain common officers and directors with Tenaris]
To conceal the bribe payments, fake contracts were executed between Uruguayan Company and Panamanian Company in which Panamanian Company agreed to pay Uruguayan Company for purported past and future consultancy and advisory services that Uruguayan Company performed for “the companies of the group to which [Panamanian Company]” was a part.
[Panamanian Company is described as an off-the-shelf shell entity incorporated and eventually liquidated at the behest of employees of entities within the Techint Group who had roles or close associational ties with Tenaris and/or its management]
Additional bribe payments were funneled to Government Official through similar means.
In total, Government Official received at least $10.4 million in bribes between 2008 and 2013. Government Official used the money for various purposes, including to purchase real estate and artwork.
The various transactions by which illicit payments were routed in connection with the Petrobras contracts were inaccurately reflected in Confab’s books and records. Confab’s books and records were consolidated into Tenaris’ for purposes of Commission filings.
Despite known corruption risks in connection with its Brazilian operations and having been previously the subject of a Non-Prosecution Agreement with the Department of Justice and a Deferred Prosecution Agreement with the Commission as a result of bribes Tenaris paid to obtain business from an SOE in Uzbekistan, Tenaris failed to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances to detect and prevent the payment of bribes and to adequately identify and disclose related party transactions.”
Based on the above, the order finds that Tenaris violated the FCPA’s anti-bribery, books and records, and internal controls provisions.
Without admitting or denying the SEC’s findings, Tenaris agreed to pay approximately $78.1 million (disgorgement of approximately $42.8 million, prejudgment interest of approximately $10.3 million and a $25 million civil penalty).
The administrative order also requires, for a two year period, that Tenaris:
“[S]hall report to the Commission staff periodically, at no less than six-month intervals, the status of its remediation and implementation of compliance measures related to the effectiveness of the anti-corruption policies, procedures, practices, internal accounting controls, recordkeeping, and financing reporting processes particularly as to preventing the use of unaccounted funds for illicit purposes to benefit Tenaris, including the use of funds available to Tenaris’ officers, directors, employees and/or agents as a result of their dual affiliation with Tenaris and San Faustin and related entities. During this two-year period, should [Tenaris] discover credible evidence, not already reported to the Commission staff, that questionable or corrupt payments or questionable or corrupt transfers of value may have been offered, promised, paid, or authorized by [Tenaris], or any entity or person acting on behalf of [Tenaris], or that related false books and records have been maintained; or that [Tenaris’s] internal controls failed to detect and prevent such conduct, [Tenaris] shall promptly report such conduct to the Commission staff.”
As to Cooperation and Remediation, the order states:
“In determining to accept the Offer, the Commission considered Tenaris’ cooperation and remedial efforts. Tenaris’ cooperation included providing translated copies of various documents and relevant witness testimony and encouraging parties outside of the Commission’s subpoena power to provide relevant evidence and information.
Tenaris made and continues to make enhancements to its internal accounting controls, global compliance organization and its policies and procedures regarding due diligence, use of third parties, and maintenance of adequate records. Tenaris’ remedial measures have included terminating its commercial agents in Brazil and significantly reducing its use of commercial agents worldwide. Tenaris implemented a Code of Conduct, a Code of Ethics for Senior Financial Officers, a Business Conduct Policy and several related procedures, and regular anti-bribery and compliance training.”
In this release, Charles Cain (Chief of the SEC’s FCPA Unit) stated:
“Tenaris failed for many years to implement sufficient internal accounting controls throughout its business operations despite known corruptions risks. This failure created the environment in which bribes were facilitated through a constellation of companies associated with its controlling shareholder.”
This Tenaris release states:
The U.S. Department of Justice (“DOJ”) has informed Tenaris that it has closed its parallel inquiry into this matter without taking action.
Tenaris voluntarily notified the SEC and DOJ of this matter in 2016 and believes the resolution with the SEC is in the best interest of the Company and its stakeholders. The Company cooperated fully with investigators, as the SEC noted in its Order Instituting Proceedings.
[…]
Upon learning of these allegations in connection with an inquiry by Brazilian authorities, Tenaris conducted, with the assistance of external counsel, an internal investigation and found no evidence corroborating any involvement by Tenaris or its directors, officers or employees in respect of improper payments. Any such payments were made pursuant to an arrangement between a third party working for Confab and a Petrobras official. An internal investigation commissioned by Petrobras also found no evidence that Confab obtained any unfair commercial benefit or advantage from Petrobras in return for payments, including improperly obtained contracts.
Tenaris and its affiliates are committed to transparency and integrity based on the highest ethical standards and strict compliance with the laws and regulations of all jurisdictions in which they operate. As the SEC recognized in its Order, Tenaris has implemented a range of process improvements and remediation actions as part of its continuous focus on enhanced compliance. Its remedial measures have included terminating its commercial agents in Brazil and significantly reducing its use of commercial agents worldwide.”
According to a recent Tenaris release (dated May 22, 2022):
“[The company] was advised today that the Milan court of first instance overseeing an investigation in Italy into allegedly improper payments made in Brazil prior to 2014 for the supposed benefit of Confab Industrial S.A., a Brazilian subsidiary of the Company, dismissed for lack of jurisdiction the case brought by the public prosecutor against each of Tenaris’s Chairman and Chief Executive Officer Paolo Rocca and Board members Gianfelice Rocca and Roberto Bonatti, and the Company’s controlling shareholder, San Faustin S.A.. The court stated that “the criminal proceeding should not even have been initiated”. The public prosecutor may appeal the decision.”
Tenaris was represented by Sullivan & Cromwell.
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