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Sargeant Marine Cements $16.6 FCPA Resolution With DOJ Regarding Bribery Schemes In Brazil, Venezuela, And Ecuador

Earlier this week, the DOJ announced [1] that Sargeant Marine Inc. (SMI – an asphalt company based in Florida) “pleaded guilty and agreed to pay $16.6 million to resolve foreign bribery charges stemming from conduct by the company and its employees and agents in Brazil, Venezuela and Ecuador.”

The total criminal penalty was actually $90 million, but because of SMI’s “inability to pay” the settlement amount was only $16.6 million.

According to the DOJ release: “Previously, a corporate executive for Sargeant Marine, Daniel Sargeant; two Sargeant Marine traders who were active in Brazil, Venezuela and Ecuador, Roberto Finocchi and Jose Tomas Meneses; an agent and a consultant who acted as bribe intermediaries in Brazil and Venezuela, Luiz Eduardo Andrade and David Diaz; and a former Venezuelan government official, Hector Nunez Troyano, who received some of the bribes, pled guilty.  In addition, on September 10, 2020, a criminal complaint was unsealed in federal court in Brooklyn charging another former Venezuelan official with conspiracy to commit money laundering, in part for his alleged role in the Sargeant Marine Venezuela scheme.” These individual FCPA enforcement actions will be highlighted in a future post.

As stated in this criminal information [2]:

“In or about and between 2010 and 2018, SMI, through certain of its employees and agents, knowingly and willfully conspired and agreed with others to corruptly offer and pay bribes to, and for the benefit of, foreign officials in Brazil, Venezuela, and Ecuador, including Petrobras Official #1 [a high-ranking executive], Petrobras Official #2 [an executive with responsibility over asphalt contracts], Brazilian Politician #1 [a member of the Brazilian Congress], Brazilian Politician #2 [a minister in the Brazilian government], PDVSA Official #1 [an individual with responsbility over asphalt contracts], PDVSA Official #2 [a supervisor of PDVSA Official #1], PDVSA Official #3 [an analyst who was involved in asphalt contracts], PDVSA Official #4 [an employee wo was involved in asphalt contracts] and Petroecuador Official #1 [a senior manager], to secure an improper advantage in order to obtain and retain business from Petrobras, PDVSA and Petroecuador. As a result of the bribery schemes, SMI and its affiliated companies earned profits in excess of $38 million.”

Petrobras is described as a Brazilian state-owned and state-controlled oil company in which the Brazilian government directly owned more than 50% of Petrobras’s common shares with voting rights.

PDVSA is described as the Venezuelan state-owned and state-controlled oil company. Among other products, PDVSA supplied asphalt to companies around the world and also provided funding for various operations of the Venezuelan government.

Petroecuador is described as the state-owned oil company of Ecuador wholly-owned and controlled by the government of Ecuador and performed a function that Ecuador treated as its own.

As to the Brazil Bribery Scheme, the information states that between 2010 and 2015, SMI, through certain of its employees and agents, including Sargeant, knowingly and willfully conspired and agreed with others to corruptly offer and pay bribes to, and for the benefit of, Brazilian officials “to secure an improper advantage in order to obtain and retain business with Petrobras and to win millions of dollars in contracts from Petrobras.” According to the information, “to facilitate the bribery scheme and to conceal the true nature of the bribe payments” SMI “create fake consulting contracts and fake invoices, made payments from the United States to offshore bank accounts held in the name of shell companies that were controlled [by Intermediaries] and caused bribe payments to be made in cash and through other means.”

[3]

According to the information:

An Intermediary “believed that a competitor of SMI was winning contracts from Petrobras because that competitor was favored by a particular Brazilian politician and was likely paying bribes to that politician. In an effort to win that business from Petrobras for SMI, Intermediary arranged a dinner with Petrobras Official #1 and Brazilian Politician #1, a powerful member of the Brazilian Congress at the time.

At the dinner, Intermediary told Petrobras Official #1 and Brazilian Politician #1 that if they assisted SMI with winning business from Petrobras, they would be paid bribes on the resulting contracts. Petrobras Official #1 and Brazilian Politician #1 agreed to the scheme, and Petrobras Official #1 directed his subordinates in the asphalt department to give business to SMI.”

According to the information, various members of the conspiracy communicated using a U.S.-based e-mail account to which members of the conspiracy had the password and login information to, among other things negotiate bribe payments. The information states:

“When one member of the conspiracy wanted to communicate using this method, they would draft an email using the account and save it in the drafts folder. They would then tell another member of the conspiracy to log in and check the drafts folder in the account. In this way, the co-conspirators were able to communicate remotely without actually transmitting emails outside of the email account.”

According to the information “as a result of the Brazilian bribery scheme in or about and between 2010 and 2015, SMI and affiliated companies earned profits of approximately $26.5 million.

As to the Venezuela Bribery Scheme, the information states:

“In or about and between 2012 and 2018, SMI, through certain of its employees and agents, including Sargeant … knowingly and willfully conspired and agreed with others to corruptly offer and pay bribes to, and for the benefit of, foreign officials in Venezuela … to secure improper advantages in order to obtain and retain business with PDVSA.

To facilitate the bribery scheme and to conceal the true nature of the bribe payments, SMI and its co-conspirators, among other things, created fake consulting contracts and fake invoices, made payments from the United States to offshore bank accounts held in the name of shell companies that were controlled by Intermediary, and caused bribe payments to be made into offshore shell company accounts.

In furtherance of the scheme, the co-conspirators … used U.S.-based email accounts and U.S.-based text messaging platforms to communicate with each other and PDVSA Official #1 about the scheme.”

According to the information:

“Prior to 2012, PDVSA refused to sell asphalt to SMI or companies related to SMI. To circumvent this prohibition, SMI and Swiss Asphalt Company [described as a competitor to SMI] agreed that Swiss Asphalt Company would purchase asphalt from PDVSA at the request and direction of SMI, and then resell that asphalt to SMI at a small premium.

For Swiss Asphalt Company to obtain the contracts, SMI, through certain agents and employees, including Sargeant … agreed to offer and pay bribes to PDVSA Official #1 and PDVSA Official #2.”

The information also alleges that in March 2015, SMI and its co-conspirators agreed to pay bribes to PDVSA officials, through an Intermediary and PDVSA Official #1, in exchange for receiving non-public information from PDVSA and to obtain a competitive advantage in obtaining and retaining business with PDVSA.” According to the information, the code word “Chocolates” was used to refer to the confidential information that was obtained through the corrupt bribery scheme.

The information states that “as a result of the Venezuela bribery scheme, SMI and its affiliated entities earned profits of approximately $8.2 million.

The information also states:

“PDVSA was required to pay penalties (called demurrage fees) to Swiss Asphalt Company, which, in its role as a pass-through, it then remitted to SMI. To recover the amount of these penalties, SMI and its co-conspirators, including Intermediary #4 and PDVSA Official #1, agreed to pay, and paid, bribes to various PDVSA employees in exchange for their authorization of PDVSA’s payment of demurrage fees to Swiss Asphalt Company.”

As to the Ecuador Bribery Scheme, the information alleges:

“In or about 2014, SMI, through certain of its employees and agents, knowingly and willfully conspired and agreed with others to corruptly offer and pay bribes to, and for the benefit of, foreign officials in Ecuador, including Petroecuador Official #1, to secure an improper advantage in order to obtain and retain business with Petroecuador and win lucrative contracts with Petroecuador.

To facilitate the bribery scheme and to conceal the true nature of the bribe payments, SMI and its co-conspirators, among other things, created fake consulting contracts and fake invoices and made payments from bank accounts in the United States to offshore bank accounts held in the name of shell companies that were controlled by [an] Intermediary and the Intermediary close relative.”

According to the information, “as a result of the bribery scheme, SMI earned profits of approximately $3.2 million.”

Based on the above, SMI was charged with conspiracy to violate the FCPA’s anti-bribery provisions. The criminal charge was resolved through this plea agreement [4]. Interestingly, the plea agreement is “related to conduct by the Defendant in Brazil and the United States.”

According to the Plea Agreement “the gross pecuniary gain resulting from the offense is $38,045,679”.and the advisory guidelines fine range was $120 million – $240 million. As stated in the Plea Agreement “the appropriate total criminal penalty is $90 million.” However, as stated in the Plea Agreement:

“The Defendant has represented, and the [DOJ] has independently verified, that the Defendant as an inability to pay a criminal fine in excess of $16.6 million over a period of 8 months. Accordingly, the Defendant agrees to pay $3.1 million no later than 7 business days after the entry of judgment of the Defendant’s sentence by the Court, and an additional $13.5 million no later than 8 months after the entry of judgment of the Defendant’s sentence by the Court.”

The Plea Agreement was based on the following facts and circumstances:

a. the Defendant did not receive voluntary disclosure credit … because it did not voluntarily self-disclose [the conduct at issue;

b. the Defendant received full credit for its cooperation [with the DOJ’s] investigation pursuant to the FCPA Corporate Enforcement Policy … by, among other things: (i) conducting a thorough internal investigation; (ii) meeting requests from the [DOJ] promptly; (iii) proactively identifying issues and facts that would likely be of interest to the [DOJ]; (iv) making factual presentations to the [DOJ]; (v) producing relevant documents to the [DOJ]; and (vi) voluntarily making foreign-based employees available for interviews in the U.S.

c. the Defendant provided to the [DOJ] all relevant facts known to it, including information about the individuals involved in the misconduct, which assisted the [DOJ’s] prosecution of individuals in this case;

d. the Defendant engaged in extensive remedial measures, including: no longer operating in Brazil, Venezuela, Ecuador or Chile; separating an employee involved in the conduct at issue; and providing compliance training to current employees;

e. the Defendant made specific enhancements to the Company’s internal controls and compliance program, including a new anti-corruption policy, a new employee manual, and new third party due diligence and onboarding procedures;

f. based on the Defendant’s remediation, the state of its compliance program, including ensuring that its compliance program will satisfy the minimum elements set in Attachment C to this Agreement, the Company’s risk profile, including the small size of the Company’s ongoing operations, and the Defendant’s agreement to report to the [DOJ], the [DOJ] determined that an independent compliance monitor is unnecessary;

g. the nature and seriousness and pervasiveness of the offense conduct, which included executives at the highest level of the Company, including payment of bribes to high-level government officials in Brazil over a period of years, and conduct in multiple jurisdictions;

h. the Defendant has no prior criminal history;

i. the Defendant has agreed to continue to cooperate with the [DOJ] in any ongoing investigation; and

j. the [DOJ], with the assistance of a forensic accounting expert, conduct an ability to pay analysis, considering a range of factors outlined in the Justice Department’s Inability to Pay Guidance, including but not limited to … (ii) the Company’s current financial condition arising from the recent sale of its joint venture interest; and (iii) the Company’s alternative sources of capital, including from potential loans against guaranteed future assets. Based on that analysis, the [DOJ] determined that a criminal fine of greater than $16.6 million would substantially threaten the continued viability of the Company.

Pursuant to the plea agreement, SMI will report to the DOJ “periodically, at no less than 12 month intervals during a three-year term, regarding remediation and implementation of the compliance program and internal controls, policies, and procedures” described in Attachment C.

In the DOJ’s release, Acting Assistant Attorney General Brian Rabbitt stated:

“With today’s guilty plea, Sargeant Marine has admitted to engaging in a long-running pattern of paying bribes to corrupt officials in three South American countries to obtain lucrative business. Today’s resolution, together with charges the department has brought against individuals involved in Sargeant Marine’s illegal schemes, demonstrates the department’s continuing commitment to holding companies and their executives responsible for international corruption.”

Acting U.S. Attorney Seth DuCharme of the Eastern District of New York stated:

“Today’s resolution is the result of a multi-year, multi-national, collaborative effort to root out corruption perpetrated by an American company in three countries. We will continue to investigate and prosecute any company that corrupts foreign government officials in order to gain a competitive edge, as well as any of their executives and employees who participate in those efforts.”

Assistant Director Calvin Shivers of the FBI’s Criminal Investigative Division stated:

“The FBI is dedicated to rooting corruption out of our market, keeping the United States fair for vendors and consumers alike. Sargeant Marine Inc. attempted to get ahead of competitors by paying bribes to foreign officials in violation of the Foreign Corrupt Practices Act.  As today’s guilty pleas demonstrate, the FBI will relentlessly investigate those attempting to cheat the market, and we will bring them to justice.”

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