This post highlighted the recent $78.1 million Foreign Corrupt Practices Act enforcement action against Tenaris (the second time the company has resolved an FCPA enforcement action in the last approximate decade).
This post highlights additional issues to consider from the enforcement action.
Timeline
Tenaris “voluntarily notified” the SEC and DOJ of the matters involved in the enforcement action in October 2016.
Thus, from start to finish, Tenaris’s scrutiny lasted approximately 5.5 years. This is simply 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 situations (which are nearly all) in which the company under FCPA scrutiny cooperates with the DOJ/SEC inquiry.
As to Tenaris, the SEC stated: “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.”
Insert Phrase
As highlighted in this post, a U.S. appellate court recently held that the SEC’s practice of imposing civil monetary penalties in administrative proceedings was unconstitutional because Congress delegated its legislative power to the SEC without providing an intelligible principle by which the SEC could exercise the delegated power.
The Tenaris enforcement action – like so many SEC FCPA enforcement actions in the last decade – was an administrative action in which the SEC imposed a $25 million civil monetary penalty.
I could use my own phrases, but I encourage you to come up with your own.
It is [_____] that the SEC used an enforcement approach in the Tenaris matter that was recently found unconstitutional by an appellate court.
Jurisdiction
Unlike many SEC FCPA enforcement actions against foreign issuers that “merely” charge or find violations of the FCPA’s books and records and internal controls provisions, the Tenaris enforcement action also found violations of the FCPA’s anti-bribery provisions.
As a foreign issuer, Tenaris can only be subject to the anti-bribery provisions to the extent “the mails or any means or instrumentality of interstate commerce” are corruptly used in connection with a bribery scheme.
The order contains merely six words regarding this required legal element and states:
“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.”
Risk Aversion
Astute (and experienced) FCPA observers know that certain FCPA enforcement actions do not necessarily represent viable violations based on the law and facts.
Yet, seldom are the circumstances as apparent (or discussed) as in the Tenaris enforcement action.
The FCPA’s anti-bribery provisions of course have a required “obtain or retain business” element.
Yet, here is all the SEC’s order found:
“In order to increase sales in Brazil, in 2008, Confab’s long-time agent (“Confab Agent”) entered into an understanding with Government Official 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. (emphasis added)
In other words, the SEC does not find that Tenaris “obtained or retained” any business as a result of the alleged bribery scheme. It merely found that the alleged bribery scheme was intended to influence Petrobras to forego an international tender process for certain contracts and that if there was an international tender process competitors “may” have submitted lower bids and forced Confab to lower its prices, if not lose the contract altogether.
In connection with the enforcement action, the press release by Tenaris stated:
“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. (emphasis added).
Moreover, approximately two weeks prior to the SEC enforcement action, Tenaris issued another press release stating:
“[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.”
Notwithstanding the SEC’s actual findings and notwithstanding the other relevant information above, Tenaris resolved the FCPA enforcement action by agreeing to pay approximately $78.1 million because the company “believe[d] the resolution with the SEC is in the best interest of the Company and its stakeholders.”
Is It Asking Too Much
In the concluding paragraph of the “facts” portion of the administrative action, the SEC states:
“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.”
The “reasonable assurances” standard is indeed found in the FCPA, but as has been discussed numerous times on these pages, the “detect and prevent” standard is not. The words or concepts are nowhere to be found in the FCPA.
When bringing a $78.1 million enforcement action, is it asking too much for the SEC to invoke the actual and proper legal standard?
