Last Friday, the Department of Justice announced that Samsung Heavy Industries (SHI – a South Korea-based engineering company that provides shipbuilding, offshore platform construction, and other construction and engineering services with a branch office in Houston) agreed to resolve a net $37.5 million Foreign Corrupt Practices Act enforcement action.
As highlighted below, the conduct at issue involved SHI’s relationship with Pride International (which is now part of Valaris plc) through which it sold a $636 million drillship to Petrobras.
According to the criminal information:
“Beginning in or about 2007 and continuing until in or about 2013, Samsung Heavy Industries knowingly and willfully conspired and agreed with others to corruptly provide payments to, and for the benefit of, foreign officials to secure an improper advantage and to influence those foreign officials in order to obtain and retain business with Petrobras, to wit: the sale of an offshore oil drillship to Chartering Company [identified in this SHI release as Pride International] which would then be chartered to Petrobras.”
Petrobras is described as a Brazilian state-controlled oil company and during the relevant time period the Brazilian government directly owned approximately 50.3% of Petrobras’s common stock with voting rights, while an additional ten percent of Petrobras’s shares were controlled by the Brazilian Development Bank and Brazil’s Sovereign Wealth Fund.
According to the information:
“In or about June 2007, SHI entered into an option agreement with Chartering Company, which gave Chartering Company the right but not the obligation to purchase a newly constructed oil drillship from SHI (the “Option Drillship”) with the same specifications as another oil drillship purchased in the recent past by Chartering Company from SHI. Negotiations between SHI and Chartering Company were handled primarily by SHI Senior Manager 1 [a South Korean citizen] from SHI’s office in Houston.
Samsung understood that Chartering Company would only exercise its option to purchase the Option Drillship if Chartering Company secured a contract with Petrobras to charter the Option Drillship to Petrobras. Thus, Samsung and Chartering Company were both incentivized for Chartering Company to secure a contract with Petrobras.”
The information then alleges how SHI engaged Brazilian Agent 1 in part to make payments to Petrobras officials in order to increase the chance Petrobras would charter the Option Drillship from Chartering Company, and thus increase the chance that Chartering Company would purchase the Option Drillship from SHI.
According to the information, SHI informally agreed to pay Brazilian Agent 1 $20 million to serve as SHI’s agent on the Option Drillship deal with Chartering Company and that in connection with the deal Brazilian Agent 1 engaged Brazilian Agent 2 to assist with corrupt payments to the Petrobras officials and to split the $20 million payment with Brazilian Agent 2. According to the information, “SHI increased the price it charged Chartering Company for the Option Drillship by $20 million to offset the $20 million it agreed to pay Brazilian Agent 1.”
As alleged in the information, “SHI Senior Manager 1 and others became aware that Brazilian Agent 1 would use a portion of the money received from SHI to pay bribes to Petrobras officials in association with the chartering of the Option Drillship.”
SHI is charged in the information with conspiracy to violate the FCPA’s anti-bribery provisions under the so-called dd-3 prong of the FCPA. The jurisdictional element in this prong of the FCPA is “while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of” a bribery scheme.
In this regard, the information alleges that in December 2007, “SHI Senior Manager 1 spoke to Brazilian Agent 1 by telephone from SHI Senior Manager 1’s office in Houston. SHI Senior Manager 1 asked Brazilian Agent 1 what Brazilian Agent 1 planned to do with the $20 million in commission payments … Brazilian Agent 1 told SHI Senior Manager 1 that portions of the $20 million commission would be paid as bribes to two Petrobras officials, and it was SHI Senior Manager 1’s understanding that Brazilian Official 1 [an executive of Petrobras] and Brazilian Official 2 [an executive senior manager of Petrobras] would be the bribe recipients.”
The information also alleges that in December 2007 SHI Senior Manager 1 also wrote an e-mail to several South-Korea based SHI employees from his office in Houston concerning the general scheme. Moreover, the information alleges that SHI received certain commission invoices that were paid via correspondent banks in the United States and that Brazilian Agent caused money to be transferred via correspondent banks in the United States for the benefit of the Brazilian officials.
The “most recent” overt act alleged in the information occurred on May 31, 2013.
The criminal charge against SHI was resolved through this deferred prosecution agreement. The three year DPA was based on the following:
“a. the Company did not receive voluntary disclosure credit because it did not voluntarily and timely disclose to the Fraud Section and the Office the conduct …
b. the Company would have received full credit for its cooperation with the Fraud Section’s and the Office’s investigation, including: (i) conducting a thorough internal investigation; (ii) making regular factual presentations to the Fraud Section; (iii) voluntarily making foreign-based employees available for interviews in the United States; and (iv) producing relevant documents to the Fraud Section and the Office from foreign countries accompanied by translations of key documents; but the Company did not receive full credit for its cooperation due to its failure to meet reasonable deadlines imposed by the Fraud Section and the Office and delays it caused in reaching a resolution;
c. the Company provided to the Fraud Section and the Office all relevant facts known to it, including information about the individuals involved in the conduct ….;
d. the Company engaged in significant remedial measures, including: (i) making significant enhancements to the Company’s compliance program, including hiring additional compliance staff, implementing enhanced anti-corruption policies and improved whistleblower policies and procedures, and instituting mandatory anti-corruption training for all employees; and (ii) the enactment of controls, including the implementation of heightened due diligence controls over third party vendors, including review by compliance professionals;
e. the Company has enhanced and has committed to continuing to enhance its compliance program and internal controls ….;
f. based on the Company’s remediation and the state of its compliance program, and the Company’s agreement to report to the Fraud Section and the Office … the Fraud Section and the Office determined that an independent compliance monitor was unnecessary in this case;
g. the nature and seriousness of the offense conduct, including the involvement of the Company in a multi-year scheme to pay millions of dollars to offices of Petrobras, the state-controlled oil company of Brazil;
h. the Company has no prior criminal history; and
i. the Company has agreed to continue to cooperate with the Fraud Section and the Office in any ongoing investigation ….
j. Accordingly … the Fraud Section and the Office believe that the appropriate resolution in this case is a deferred prosecution agreement with the Company; and aggregate discount of 20 percent off of the bottom of the otherwise application U.S. Sentencing Guidelines fine range; and the Company’s agreement to report to the Fraud Section and the Office …”
The advisory guidelines calculation set forth in the DPA sets forth a fine range of $94.4 million to $188.7 million and the parties agreed that the “appropriate total criminal penalty is $75.48 million.”
Pursuant to the DPA, SHI will pay the U.S. $37.7 million equal to 50% of the Total Criminal Penalty with the remaining amount to be paid to Brazilian authorities.
In the DOJ release, Assistant Attorney General Brian Benczkowski stated:
“Samsung Heavy Industries paid millions of dollars to a Brazilian intermediary, knowing that some of that money would be used to bribe high-level executives at Petrobras and obtain a lucrative shipbuilding contract. Today’s resolution is yet one more example of the Department’s continued commitment to root out bribery and to work with our foreign counterparts to investigate schemes spanning multiple international jurisdictions.”
U.S. Attorney Zachary Terwilliger (E.D. Va.) stated:
“Samsung Heavy Industries caused millions of dollars in corrupt bribe payments to be paid to foreign officials to win business, upsetting what should have been a level playing field for other companies that followed the rules. Effective corporate policies and procedures are necessary to ensure that corporations do not engage in foreign bribery. We will continue to hold corporations accountable.”
Perrye Turner (Special Agent in Charge of the FBI’s Houston Field Office) stated:
“The FCPA encourages U.S. companies to fairly compete in an open, global marketplace. Violations of the FCPA injure the integrity of our free economic system. Our agents work every day to uphold that economic integrity, and we urge anyone who suspects an FCPA violation to contact their local FBI Field Office.”
As stated in the SHI’s release:
“As part of the DPA, SHI will not be required to have a compliance monitor. SHI will instead provide the DOJ with annual compliance-program reports. SHI also will pay a total fine of $75,481,600. Half of that amount will be paid within 10 business days to the U.S. Government, and the other half will be paid within the next 12 months either to the Brazilian Government if a separate resolution is reached with Brazilian authorities or to the U.S. Government if no such payment is made to Brazil during that 12-month period.”
In the release, SHI CEO Joon Ou Nam stated:
“We deeply regret the company’s involvement in these events, which is contrary to our values and ethical standards. Many of the events described in our agreement happened more than a decade ago, and the individuals involved are no longer with the company. Over the past years, we have taken extensive steps, at our own initiative, to strengthen our anti-corruption compliance program to meet the highest standards of compliance and ethics.”
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