Foreign Corrupt Practices Act settlement amounts are one obvious consequence of FCPA non-compliance and tend to generate the most headlines. However, as has been discussed on these pages for years including in this article titled “FCPA Ripples”, settlement amounts tend to be a relatively modest consequence of the overall financial ramifications of FCPA scrutiny and enforcement.
Pre-enforcement action professional fees and expenses are often 3-5 times (and sometimes higher) the actual FCPA settlement amount and post-enforcement action professional fees and expenses quickly add up as well. In addition, many instances of FCPA scrutiny and enforcement result in shareholder litigation – whether a derivative action against officers and directors for alleged breaches of fiduciary duty and/or a securities fraud action.
And then there can be numerous other business effects as the below example concerning Vitol demonstrates.
As highlighted here, in December 2020 Vitol Inc., the U.S. affiliate of the Vitol group of companies, which together form one of the largest energy trading companies in the world, agreed to resolve a net $90 million FCPA enforcement action for conduct in Brazil, Ecuador and Mexico.
As to Mexico, the DOJ alleged:
“[F]rom at least in or about and between 2015 and 2020, Vitol, through its employees and agents, used Intermediary 1 to make bribe payments to Mexican officials to receive inside information and obtain business.
For example, in or about 2018, Vitol paid bribes to a Mexican official at a wholly-owned PEMEX subsidiary in order to receive confidential, inside information to help obtain a contract with the PEMEX subsidiary. To effectuate the bribe payments, Vitol caused two Mexican entities to execute sham consulting agreements with shell companies controlled by Intermediary 1.
Pursuant to the sham consulting agreements, the Vitol trader subsequently caused the Mexican entities to create fake invoices that the Vitol trader sent to Intermediary 1. Using the fake invoices to justify the payments, Intermediary 1 wired bribe payments to bank accounts controlled by the Mexican entities for the ultimate benefit of the Mexican official.”
As to the ripple effects of Vitol’s FCPA enforcement action, Reuters reports:
“Mexico is looking to renegotiate some of its hundreds of millions of dollars-worth of contracts with Vitol SA after the global energy trader acknowledged paying kickbacks to win business with state oil company Pemex.
The dispute in Mexico, the world’s fourth-largest importer of refined oil products, is part of the fallout from a December agreement that Houston-based Vitol Americas made with the U.S. Department of Justice (DOJ).
Mexican President Andres Manuel Lopez Obrador on March 3 announced his government has launched its own criminal investigation into the scheme.
In addition, Pemex is scouring existing contracts with Vitol for signs of anything “irregular,” and will be looking to jettison provisions it considers unfavorable, Chief Executive Octavio Romero Oropeza told Reuters in an interview Thursday.
“Now we need to question practically everything,” Romero Oropeza said. “If we can’t come to an agreement, we’ll stop doing business with Vitol.”
Collectively, Pemex’s deals with the global trader amount to “more than $1 billion” said a person with direct knowledge of the review. “The whole universe of contracts, any contract (Pemex) considers disadvantageous, is going to be taken to the negotiating table,” the person said.
Executives of various Pemex units have been asked by the company’s legal department to identify contract terms they would like changed in negotiations with Vitol, the person familiar with the review said.”
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