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Gunvor Resolves Net $474.4 Million FCPA Enforcement Action

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In 2021, Raymond Kohut (a Canadian citizen who lived in the Bahamas and worked in business development for Gunvor Group Ltd., a Switzerland based commodities firm) pleaded guilty in connection with an Ecuador bribery scheme. (See here for the prior post).

Last week, the DOJ returned to the same core conduct in announcing a Foreign Corrupt Practices Act enforcement action against Gunvor.

The net FCPA settlement amount was $474.4 million (a $187.3 million criminal fine and a $287.1 million forfeiture amount).

In summary fashion, the DOJ alleges:

“In or about and between 2012 and 2020, Gunvor, through Kohut, Gunvor Manager #1, and Gunvor Manager #2, knowingly and willfully conspired and agreed with others to corruptly offer and pay bribes to, and for the benefit of, Ecuadorian officials to secure improper advantages in order to obtain and retain business from Petroecuador in connection with the purchase and sale of oil products through contracts between Petroecuador and State-Owned Entity #1 and between Petroecuador and State-Owned Entity #2.’

Gunvor Manager #1 is described as a citizen of Spain and a resident of Switzerland who, between July 2011 and May 2014, was a crude oil trader at Gunvor S.A. When he left the company, Gunvor Manager #1 was a Managing Director at Gunvor Bahamas and Kohut’s supervisor between June 2014 and March 2017.

Gunvor Manager #2 is described as a citizen of Spain and resident of Switzerland who, between 2011 and 2018, served in senior managerial roles in Gunvor’s crude oil department, and, at various times, Gunvor Singapore and Gunvor Bahamas. Guvnor Manager #2, left the Company in August 2019.

State-Owned Entity #1 and State-Owned Entity #2 are described as energy trading companies based in Asia.

According to the DOJ:

“In furtherance of the scheme, Gunvor, through Gunvor Singapore, paid more than $97 million to Antonio Pere and Enrique Pere via their companies EIC and OIC. Gunvor, acting through its employees Kohut, Gunvor Manager #1 and Gunvor Manager #2, and its agents, knew and intended that a portion of the payments be used to bribe Ecuadorian officials. In turn, Antonio Pere and Enrique Pere made millions of dollars in bribe payments on Gunvor’s behalf to Ecuadorian officials, including, directly and indirectly, to Nelson Arias Sandoval (a citizen of Ecuador and senior manager at Petroecuador between 2010 and May 2017), Ecuadorian Official #1 (a citizen of Ecuador and a senior manager at Petroecuador in or about and between 2017 and 2020), Ecuadorian Official #2 (a citizen of Ecuador who held various high-level positions in the Ecuadorian Ministry of Hydrocarbons and the Ecuadorian Ministry of Energy in or about and between 2013 and 2020), Ecuadorian Official #3 (a citizen of Ecuador who held high-level positions in the Ecuadorian government from in or about and between 1997 and 2019), Ecuadorian Official #4 ( a citizen of Ecuador and an executive-level employee of Petroecuador during the relevant time period), and others.

In furtherance of the scheme, Antonio Pere and Enrique Pere set up shell companies for the purpose of laundering Gunvor’s corrupt payments, entered into several services agreements to facilitate the payment of bribes, created fake invoices for purported consulting services and used email accounts with pseudonyms to transfer funds to offshore shell companies involved in the conspiracy. The illegal payments were made through multiple bank accounts in the United States and abroad in an effort to conceal the bribes.

Gunvor and its affiliate companies earned more than $384 million in profits from the business Gunvor corruptly obtained related to Petroecuador during the relevant time period.”

Antonio Pere Ycaza (“Antonio Pere”) (a citizen of Ecuador, Spain and the United States who resided in Miami) and Enrique Pere Ycaza (“Enrique Pere”) (a citizen of Ecuador and Spain) provided consulting services to Gunvor and exercised control over companies and bank accounts in the United States and elsewhere that were used to facilitate the payment of bribes to Ecuadorian government officials in order to, among other things, obtain and retain business for Gunvor. Energy Intelligence & Consulting Corp. (“EIC”) was a shell company formed in Panama by Antonio Pere and Enrique Pere. EIC was used to pay and conceal bribe payments to Ecuadorian officials in order to obtain and retain business for Gunvor and other companies. Oil Intelligence Corp. (“OIC”) was a shell company formed in the British Virgin Islands by Antonio Pere and Enrique Pere. OIC was used to pay and conceal bribe payments to Ecuadorian officials in order to obtain and retain business for Gunvor and other companies.

As highlighted in this prior post, in 2022 Antonio Pere and Enrique Pere pleaded guilty to FCPA and related charges in connection with the Ecuador conduct at issue in the Sargeant Marine and Vitol FCPA enforcement actions.

As highlighted here, in 2022 Nelson Arias Sandoval pleaded guilty to one count of conspiracy to commit money laundering.

Back to the Gunvor enforcement action.

According to the DOJ:

“In exchange for the bribes, Arias, Ecuadorian Official #1, Ecuadorian Official #2 and other foreign officials provided, and agreed to provide, improper advantages to Gunvor including: (a) helping to direct Petroecuador to award contracts to State-Owned Entity #1 and State-Owned Entity #2 for the ultimate benefit of Gunvor; and (b) providing Gunvor, through certain of its employees and agents, information about Petroecuador that assisted Gunvor in corruptly obtaining and retaining business for Gunvor in connection with Petroecuador.”

In addition to wire transfers to accounts maintained for the benefit of Arias, the DOJ further alleges that:

“[I]n or around 2014, after executing a contract pertinent to Gunvor’s business related to Petroecuador, Antonio Pere, at Gunvor Manager #1’s direction, bought Arias an 18-karat gold Patek Philippe timepiece worth approximately $38,000 in exchange for Arias’s assistance with approval of the contract and for providing confidential Petroecuador information to Gunvor.”

According to the DOJ, Arias left Petroecuador in 2017 and “notwithstanding Arias’s departure, Antonio Pere and Enrique Pere, acting as Gunvor’s agents, continued to pay him bribes through 2019 based on the corrupt arrangement formed at the time Arias was an official at Petroecuador.” The DOJ further alleges:

“Following Arias’s departure from Petroecuador, Gunvor and its coconspirators adopted a new method to effectuate the bribery scheme. Beginning in or around 2017, Gunvor, through Antonio Pere and Enrique Pere, began paying bribes to Ecuadorian Official #1, Ecuadorian Official #2, and various other officials within Petroecuador who provided confidential Petroecuador information to Gunvor.”

Under the heading, “Efforts to Conceal the Bribery Scheme,” the DOJ alleges:

“Throughout the scheme, the co-conspirators undertook efforts to conceal the nature of their communications. For example, from the inception of the bribery scheme, Gunvor Manager #1 instructed Kohut to communicate using personal email accounts. Kohut complied with Gunvor Manager #1’s instruction, and Gunvor Manager #1, as well as Antonio Pere and Enrique Pere, also used personal or pseudonymous email accounts to communicate about the scheme. In addition, in their email communications regarding the scheme, Kohut, Antonio Pere and Gunvor Manager #1 often referred to co-conspirators by aliases rather than their actual names.”

[…]

By in or about January 2018, Gunvor executives and compliance personnel were aware that Gunvor had paid Antonio Pere and Enrique Pere tens of millions of dollars pursuant to the Company’s services agreements with EIC and OIC, without having received other supporting documentation for EIC’s or OIC’s business activities on Gunvor’s behalf. Between in or about May 2018 and in or about May 2020, Gunvor executives and compliance personnel made requests to Antonio Pere and Enrique Pere (i) for supporting documentation to justify the commission payments and (ii) to meet with executives and compliance personnel. Antonio Pere and Enrique Pere failed repeatedly to provide complete responses to Gunvor’s documentary requests and would not travel to Gunvor’s headquarters for the requested meeting. Notwithstanding these repeated failures, Gunvor continued to make corrupt payments to entities owned and controlled by Antonio Pere and Enrique Pere until approximately January 2020, at which time Gunvor suspended payments to OIC. Gunvor terminated its services agreement with OIC in or around May 2020.”

Based on the above, Gunvor was charged with conspiracy to violate the FCPA’s anti-bribery provisions.

The plea agreement mentions the following “facts and circumstances.”

“(a) The nature and seriousness of the offense conduct … including a multi-year scheme to pay more than $90 million to intermediaries knowing that a portion of the payments would be used to bribe senior government officials in Ecuador in exchange for the Defendant obtaining and retaining lucrative business, resulting in profits of more than $384 million to the Defendant;

(b) The Defendant did not receive voluntary disclosure credit pursuant to the Criminal Division’s Corporate Enforcement and Voluntary Self-Disclosure Policy (the “Corporate Enforcement and Voluntary Self-Disclosure Policy”), or pursuant to the United States Sentencing Guidelines (“U.S.S.G.” or “Sentencing Guidelines”) § 8C2.5(g)(1), because it did not voluntarily and timely disclose to the Offices the conduct described in the Statement of Facts;

(c) The Defendant received credit for its cooperation with the Offices’ investigation pursuant to U.S.S.G. § 8C2.5(g)(2) because it cooperated with the investigation and demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct; the Defendant also received credit for its cooperation and remediation pursuant to the Corporate Enforcement and Voluntary Self-Disclosure Policy, by, among other things: (i) producing documents to the Offices from multiple foreign countries expeditiously while navigating foreign data privacy and criminal laws; (ii) providing information obtained through its own internal investigation to the government, which allowed the government to preserve and obtain evidence as part of the government’s investigation; (iii) making detailed, factual presentations to the Offices; (iv) arranging for the interview of an employee based outside the United States; (v) promptly collecting, analyzing, and organizing voluminous information, including complex financial information, at the request of the Offices, and producing an analysis of trading activity conducted by multiple outside forensic accounting firms retained by the Defendant; (vi) translating foreign language documents to facilitate and expedite review by the Offices; and (vii) imaging the phones of relevant custodians at the beginning of the Defendant’s internal investigation, thus preserving business communications sent on mobile messaging applications;

(d) The Defendant provided to the Offices all non-privileged facts known to it, including information about all individuals involved in the conduct described in the attached Statement of Facts and conduct disclosed to the Offices prior to the Agreement;

(e) The Defendant engaged in timely and appropriate remedial measures, including: (i) eliminating the use of third-party business origination agents; (ii) enhancing its third party due-diligence process; (iii) developing and implementing a control framework for internal business developers and additional layers of review and approval for counterparty payments; (iv) enhancing the independent compliance committee with responsibility for reviewing high-risk transactions; (v) engaging resources to review the Company’s compliance program and test the effectiveness of the Company’s overall reporting process, its reporting hotline and the effectiveness of the investigation of reports made through the hotline; (vi) evaluating and updating its compensation policy to better incentivize compliance with the law and corporate policies; (vii) hiring additional compliance personnel; (viii) testing and enhancing its compliance program, including by conducting compliance culture reviews, testing new third party due diligence process and payment controls, and evaluating controls around business development activities; and (ix) developing and implementing a risk-based business communications policy that addresses the use of ephemeral and encrypted messaging applications;

(f) The Defendant has enhanced and has committed to continuing to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment C to this Agreement (“Corporate Compliance Program”);

(g) Based on the Defendant’s remediation and the state of its compliance program, and the Defendant’s agreement to report to the Offices as set forth in Attachment D to this Agreement (“Enhanced Compliance Reporting Requirements”), the Offices determined that an independent compliance monitor was not necessary;

(h) The Defendant has a history of misconduct. In October 2019, the Company reached a resolution with the Office of the Attorney General of Switzerland resulting from a corrupt scheme to bribe officials in Congo-Brazzaville and Côte d’Ivoire to secure oil contracts obtained between approximately 2009 and 2012. As part of the 2019 Swiss resolution, the Defendant admitted that it lacked sufficient controls to prevent the underlying misconduct and failed to take “all the reasonable organizational measures” required to prevent the Defendant’s employees and agents from engaging in bribery. The conduct described in the instant Statement of Facts was occurring, in part, at the same time as the prior Swiss investigation and resolution;

(i) The Defendant is entering into a parallel resolution with the Office of the Attorney General of Switzerland relating to certain conduct described in the Statement of Facts; and

(j) The Defendant has agreed to continue to cooperate with the Offices in any ongoing investigation ….

(k) Accordingly, after considering (a) through (j) above, the Offices have determined that the appropriate resolution in this case is for the Defendant to plead guilty to one count of conspiracy to violate the anti-bribery provisions of the FCPA pursuant to this Agreement; a criminal monetary penalty in the amount of $374,560,071 (Total Criminal Fine), which reflects a discount of 25 percent off the 30th percentile of the applicable Sentencing Guidelines fine range, taking into account the Company’s cooperation and remediation, as well as its prior history, pursuant to the Corporate Enforcement and Voluntary Self-Disclosure Policy; and forfeiture in the amount of $287,138,444.”

The plea agreement further states:

“The Offices and the Defendant further agree that the Defendant will pay the United States Treasury $187,280,036, equal to approximately 50 percent of the Total Criminal Fine, no later than ten business days after entry of the judgment by the Court. The Offices agree to credit the remaining amount of the Total Criminal Fine as follows:

(i) Up to $93,640,017 of the Total Criminal Fine will be credited against the amount the Defendant pays to authorities in Switzerland—so long as the Defendant pays such amount to Switzerland pursuant to the Defendant’s separate resolution with Swiss authorities related to the bribery conduct specified in the Statement of Facts; provided that, in the event the Defendant does not pay the Swiss authorities any part of the $93,640,017 within twelve months after this Agreement is fully executed, the Defendant will be required to pay the full remaining amount to the United States Treasury within ten business days of the expiration of such twelve-month period; and

(ii) Up to $93,640,017 of the Total Criminal Fine will be credited against any amount the Defendant pays to authorities in Ecuador—so long as the Defendant pays such amount to Ecuador pursuant to any separate resolution with Ecuadorian authorities relating to bribery conduct specified in the Statement of Facts; provided that, in the event the Defendant does not pay the Ecuadorian authorities any part of the $93,640,017 within twelve months after this Agreement is fully executed, the Defendant will be required to pay the full remaining amount to the United States Treasury within ten business days of the expiration of such twelve-month period.”

In the DOJ release, U.S. Attorney Breon Peace for the Eastern District of New York stated:

“[This] guilty plea and sentencing marks yet another example of this office’s efforts to combat widespread corruption. Corruption erodes the public’s trust in their government, prevents government officials from acting in the best interests of the people they represent and harms businesses that play by the rules, driving up prices for consumers. The Justice Department, including my Office, will not tolerate bribes being paid by American companies or foreign companies misusing the U.S. financial system.”

Brent Wible (Acting Senior Counselor of the Justice Department’s Criminal Division) stated:

“Over nearly a decade, Gunvor representatives bribed high-level government officials at Ecuador’s state-owned oil company to enter into business transactions with other state-owned entities that ultimately benefited Gunvor. As a result of this complex bribery scheme, Gunvor obtained hundreds of millions of dollars in illicit profits. Foreign bribery emboldens corrupt officials and undermines the rule of law. Gunvor’s guilty plea demonstrates that the Criminal Division remains resolute in our efforts to root out bribery and official corruption. We will continue to hold both corporations and individuals who bribe foreign officials to account, in coordination with our international partners.”

Jeffrey Veltri (Special Agent-in-Charge, Federal Bureau of Investigation, Miami Field Office) stated:

“Gunvor’s years long bribery scheme involving high-level Ecuadoran officials was both detrimental to the business environment and eroded the public’s trust and confidence in their government. This guilty plea and significant fine would not have been possible without significant cooperation from our international partners in the Cayman Islands, Colombia, Curacao, Ecuador, Panama, Portugal, Singapore, and Switzerland. This truly was an international effort.”

This Gunvor release states that the company “has accepted responsibility for the actions of certain of its former agents and employees – all of whom Gunvor stopped working with years ago and before it learned of the U.S. investigation.”

In the release, Gunvor Group Chairman Torbjörn Törnqvist stated:

“As a company Gunvor made mistakes at the time, for which we are sorry and that we have worked diligently to fix. Today, Gunvor upholds an industry-leading compliance program that we are committed to continuously enhance. Corruption has no place in our company and will never be tolerated.”

O’Melveny and Myers attorneys Mark Racanelli and Rebecca Mermelstein represented Gunvor.

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