This recent post highlighted the approximate $8 million FCPA enforcement action against Frank’s International based on conduct in Angola.
This post highlights additional issues to consider.
Timeline
As highlighted in this prior post, in June 2016 Frank’s International disclosed:
“The Company is conducting an internal investigation of the operations of certain of its foreign subsidiaries in West Africa including possible violations of the U.S. Foreign Corrupt Practices Act, the Company’s policies and other applicable laws. In June 2016, the Company voluntarily disclosed the existence of its extensive internal review to the U.S. Securities and Exchange Commission and the United States Department of Justice. It is the Company’s intent to fully cooperate with these agencies and any other applicable authorities in connection with any further investigation that may be conducted in this matter.”
Thus, from start to finish, the company’s FCPA scrutiny lasted approximately seven years.
FCPA scrutiny lasting seven years is unconscionable.
I’ve said it many times, and will continue saying it until the cows come home: if the DOJ/SEC want their FCPA enforcement programs to be viewed as more credible and more effective the enforcement agencies must resolve instances of FCPA scrutiny much quicker.
This is particularly true in the Frank’s International matter given the following language from the SEC:
“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.”
Root Causes
It has been highlighted numerous times on these pages.
The root cause of certain FCPA enforcement actions are a local law or regulation that force companies into a relationship that is not necessarily market driven – but a distortion of the market.
For instance, this prior post highlighted many FCPA enforcement actions concerning conduct in Angola (a leading oil producing country in Africa which logically results in many companies in the oil industry doing business in the country).
Most of these enforcement actions have involved relationships with Sonangol employees, and many of these enforcement actions have, as a root cause, Angola’s local content requirement which requires foreign companies to partner with Angolan companies.
So it was in the Frank’s International enforcement action.
As stated by the SEC:
“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.”
Elsewhere, the SEC mentions that “Sonangol had questioned Frank’s commitment to “Angolanization”—a term used to describe the use of local businesses and workers on Sonangol projects.”
Statute of Limitations
Although not specifically mentioned in the SEC’s order, part of Frank’s “cooperation afforded the Commission staff” may have included a waiver of statute of limitations defenses or a tolling of the statute of limitations.
Indeed, the conduct at issue in the enforcement action occurred between 2008 and 2014 (in other words approximately 10-15 years ago) – beyond any conceivable statute of limitations.
Third Party Issues
Regardless of the above issues, the Frank’s International enforcement action highlights a laundry list of third party compliance deficiencies in the eyes of the SEC as it found, among other things, that:
- Without conducting due diligence and without a contract in place, the company retained Angola Agent.
- 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.
- Frank’s Angolan Operations continued to use Angola Agent, still without a contract and without having conducted due diligence, throughout 2008.
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