The SEC has announced that Frank’s International N.V., (a Dutch oilfield services provider) now known as Expro Group Holdings N.V., has resolved an approximate $8 million Foreign Corrupt Practices Act enforcement action.
The conduct at issue based focuses on Angola and occurred between 2008 and 2014 (in other words approximately 10-15 years ago).
This administrative order finds in summary fashion:
“This matter concerns violations of the anti-bribery, books and records, and internal accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”) by Frank’s. From approximately January 2008 through October 2014, Frank’s paid commissions to a sales agent in Angola when Frank’s subsidiary employees based in the region knew that there was a high probability that the agent would use the commissions to bribe Angolan government officials on behalf of Frank’s. In fact, some of the funds were diverted to an Angolan government official to influence the award of oil and natural gas services contracts. During the relevant period Frank’s lacked adequate internal accounting controls related to the retention and payment of agents that interacted with foreign government officials on behalf of the company.”
As to relevant background, the order states:
“Frank’s was founded in 1938 and originally operated from its founder’s garage in Lafayette, Louisiana. The company, and its successors, were majority-owned and managed by the founder’s family for most of its history. The company was privately held until its August 2013 IPO.
Frank’s was a Netherlands corporation during the relevant time period. Many of its senior executives were located in Houston, Texas, although some leadership and oversight over West Africa was located abroad. Frank’s General Counsel and Chief Financial Officer were based in Houston, with other legal and finance representatives located abroad. Houston-based employees reviewed and approved the contracts between Frank’s Angolan Operations and Angola Agent relevant to the bribe scheme […] . Frank’s initiated the commission payments prior to becoming a public company and it continued to pay the commissions after it became an issuer.”
“From its August 9, 2013, initial public offering, until October 1, 2021, Frank’s had a class of securities registered under Section 12(b) of the Exchange Act and its shares traded on the New York Stock Exchange under the ticker symbol FI.”
In a rather humorous (at least for an FCPA enforcement action) heading titled “Frank’s Sonangol Problem,” the order states:
“Angolan state-owned oil company, Sonangol, awarded concessions to major international oil companies granting the exploration and production rights to onshore and offshore areas referred to as blocks. Frank’s Angolan Operations sought to provide tubular services and technology to support the drilling of primarily deep water wells in Angola’s offshore blocks. Although Frank’s was hired by the various major international oil companies that received the concessions, the oil companies would not contract with vendors disfavored by Sonangol.
Beginning in September 2007, Frank’s tried to increase its business in Angola, but learned through an oil company that Sonangol was blocking its hiring and it could no longer use Frank’s to provide tubular services. Senior Frank’s managers learned that Sonangol directed the customer to use a competitor of Frank’s that purportedly made a superior financial investment in Angola. But a senior Sonangol executive relayed that Sonangol could change its mind if Frank’s established a consulting company and paid five percent of the value of the contract to the consulting company for the benefit of high-ranking Sonangol officials. A Frank’s employee based in the region assessed the seriousness of the situation in a contemporaneous email and wrote, “I do not think it’s an exaggeration to say we are fighting for our survival.” During September and October 2007, Frank’s considered the request that it establish a consulting company. Frank’s did not form the consulting company, but instead hired a sales agent.”
Under the heading “Frank’s Retains Angola Agent,” the order finds:
“In November 2007, without conducting due diligence and without a contract in place, the company retained Angola Agent, who had known the country manager for another Frank’s subsidiary operating in Africa for more than two decades. Angola Agent did not have the relevant technical background to advocate on the company’s behalf before Sonangol and, in fact, did not attend technical meetings with Sonangol. However, he had personal relationships with Angola Official and other Sonangol employees. Frank’s retained Angola Agent despite the fact that employees based in the region were aware of the high probability that Angola Agent would use the payments he received from Frank’s to bribe Angolan government officials. After hiring Angola Agent, the company’s meetings with Sonangol went from short, unproductive meetings to successful gatherings with approximately 20 officials in attendance.
On December 18, 2007, Frank’s VP of Africa & the Middle East emailed Frank’s Dubai-based Regional Chief Operating Officer regarding the customer contract that Sonangol had initially blocked: “Pls advise how you want to handle the timing of the payment to [Angola Agent]…. Believe timing is critical in this matter from a political point of view.” The following day, he sent another email to the Regional COO regarding a different offshore block, “Spoke to [Angola Agent]; he confirms that no payment should take place before contract is signed.”
Frank’s Angolan Operations paid its first commission to Angola Agent on January 15, 2008. Shortly after, a major oil company informed Frank’s that Sonangol had questioned Frank’s commitment to “Angolanization”—a term used to describe the use of local businesses and workers on Sonangol projects. Frank’s VP of Africa & the Middle East emailed Frank’s Regional COO stating, “[A]s you are aware, [Angola Official] is on [Angola Agent’s] payroll (white Angolan) will see what we can do.”
Frank’s Angolan Operations continued to use Angola Agent, still without a contract and without having conducted due diligence, throughout 2008. Shortly before the end of the year, Frank’s CFO and Chief Accounting Officer asked questions about the commission payments. To satisfy the requests from Houston for supporting documentation, Frank’s Regional COO and its VP of Africa & the Middle East approved an agency agreement with one of Angola Agent’s companies, which was backdated to January 1, 2008, to support the approximately $688,000 that had already been paid by Frank’s Angolan Operations. After paying these commissions, Frank’s Angolan Operations retained its previously at risk contracts and obtained two new contracts.
In January 2011, Frank’s Angolan Operations began paying Angola Agent under a second agency agreement. Although the second agency agreement provided for a 10 percent sales commission related to specific projects, the invoices submitted by Angola Agent and paid by Frank’s Angolan Operations generically referred to “various marketing expenses paid on behalf of Frank’s International.” Although the agreement referenced 10 percent commissions, only 2.2 percent was actually paid in commissions. As before, Angola Agent served as a bribe conduit, but Frank’s recorded the payments as “business expenses—entertainment and meals” in its books and records.
Angola Agent funneled a portion of the money he received from Frank’s Angolan Operations pursuant to the second agency agreement to Angola Official. In January 2011, Frank’s Angolan Operations made the first payment of $60,000 to Angola Agent. In turn, Angola Agent paid Angola Official $54,000 two months later. A similar series of transactions occurred during July 2011 when Angola Agent diverted $191,000 of $212,000 paid by Frank’s Angolan Operations to Angola Official. In January 2012, Frank’s Angolan Operations received and paid a $328,000 invoice from Angola Agent. In March of that year, Angola Agent paid Angola Official $289,000. During the time period when Frank’s Angolan Operations paid commissions to Angola Agent pursuant to the second agency agreement, it obtained four new contracts in Angola.
In October 2012, Frank’s Angolan Operations and Angola Agent entered into a third agency agreement that granted Angola Agent a 2.75% commission for sales up to $40 million and 2.5% of sales exceeding that amount. The contract had an effective date of April 1, 2012, and after it was signed, Angola Agent began sending invoices that purported to compensate Angola Agent for “representation fees” owed from April through October 2012. Frank’s employees based in the region continued to authorize payments to Angola Agent, despite being aware of the high probability that the funds would be used corruptly. Frank’s recorded the payments as legitimate “commissions.”
Under the heading “Frank’s Continues Using Angola Agent and Providing Benefits to Angola Official after Becoming a Public Company,” the order finds:
“On August 9, 2013, Frank’s successfully completed its initial public offering, and became an issuer for purposes of the FCPA, when its shares began trading on the New York Stock Exchange. Frank’s Angolan Operations continued paying Angola Agent commissions pursuant to the third agency agreement and continued to record the suspect payments as “commissions.” After the IPO, Angola Agent diverted funds he received from Frank’s Angolan Operations to offshore accounts held by companies whose ultimate ownership was untraceable. During this period after becoming as issuer, Frank’s Angolan Operations obtained five new contracts in Angola.
While Frank’s was a public company, Frank’s VP of Africa & the Middle East, who authorized Angola Agent’s commissions despite being aware of the high probability that Angola Agent would use the funds to bribe Angola Official or other government officials, approved additional benefits to Angola Official in the form of travel and entertainment in 2013 and 2014. This included obtaining a travel visa for Angola Official, by falsely claiming the official was a Frank’s Angola sales employee. The trips included roundtrip airfare, lodging, dining, sightseeing tours, and local transportation for Angola Official and his companion.
Between January and June 2014, the Houston-based General Counsel drafted and approved two new agency agreements between Angola Agent and Frank’s Angolan Operations (collectively, “fourth agency agreement”). Although the fourth agency agreement, like the prior agreements, purported to pay legitimate sales commissions, the nature of Angola Agent’s work remained unchanged.
During the course of his representation between 2008 and 2014, Angola Agent’s businesses received approximately $5.5 million from Frank’s Angolan Operations, a portion of which was paid to Angola Official. Frank’s received at least $4,176,858 in post-IPO net profits from its contracts with oil companies where Sonangol was the ultimate customer and for which Angola Official, or other Sonangol officials, possessed decision-making authority.”
Based on the above, the SEC found that Frank’s violated the FCPA’s anti-bribery, books and records, and internal controls provisions.
Without admitting or denying the SEC’s findings, Frank’s International agreed to cease and desist from committing or causing any future FCPA violations and agreed to pay approximately $8 million (disgorgement of $4,176,858 and prejudgment interest of $821,863 and a civil money penalty in the amount of $3,000,000).
Under the heading “Frank’s Remedial Efforts,” the order states:
“In determining to accept the Offer, the Commission considered Frank’s self-reporting, remedial actions, and cooperation afforded the Commission staff. Its cooperation included bringing witnesses from outside the U.S. for interviews, voluntarily producing relevant documents, and sharing facts uncovered during its internal investigation—including facts relating to conduct that occurred before becoming an issuer. Its remediation included terminating the involved employees, terminating the relationship with Angola Agent, improving its internal accounting controls, and further enhancements to its internal controls environment and compliance program following its merger with Expro Group.”
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