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SFO Announces Charges Against British Multinational Bank and Four Former Executives in Qatar
On Tuesday, June 20, the UK Serious Fraud Office (“SFO”) announced charges against a British multinational bank and four former executives for conspiracy to commit fraud and provision of unlawful financial assistance in violation of the Companies Act 1985. These charges relate to the bank’s capital raising arrangements with a Qatar's state-owned holding company and a contract oil and gas land drilling provider in June and October 2008, as well as to a $3 billion loan facility made available to the State of Qatar acting through the Ministry of Economy and Finance in November 2008. According to the SFO press release, the investigation was first announced in 2012, and the individuals charged include a former Chief Executive Officer of the British multinational bank, a former Executive Chairman of the bank’s Capital Investment Banking and Investment Management in Middle East and North Africa, a former Chief Executive of the bank’s Wealth and Investment Management, and a former European Head of the bank’s Financial Institutions Group.
While no US-based charges have been announced, the SFO’s announcement comes on the heels of the bank’s March 2017 disclosure to the SEC in which the company stated that “the DOJ and SEC are undertaking an investigation into whether the Group’s relationships with third parties who assist the bank to win or retain business are compliant with the U.S. Foreign Corrupt Practices Act.”
SFO Charges Additional Individual Defendant in Connection with German-Based Company North Sea Investigation
The United Kingdom’s Serious Fraud Office (SFO) has reportedly charged the former chief commercial officer of a German-based company with two counts of conspiracy to make corrupt payments to assist the company with attaining or retaining contracts for freight forwarding services to the North Sea oil exploration project Jasmine. The former executive is the seventh individual charged, in addition to the company, with violations of section 1 of the UK Prevention of Corruption Act 1906 and section 1 of the Criminal Law Act 1977 for alleged conduct between January 2010 and May 2013 in connection with the Jasmine project.
The charges follow on the heels of separate corruption charges against the company and other individuals related to an Angolan project. Last July, the SFO charged the company and seven individuals with violation of section 1 of the Prevention of Corruption Act 1906 and section 1 of the Criminal Law Act 1977 through conspiring to make corrupt payments between January 2005 and December 2006 to an agent of the Angolan state oil company, Sonangol, in order to facilitate the company’s freight forwarding business operations and contracts in Angola.
FDIC Releases Winter 2016 “Supervisory Insights”
On March 7, the FDIC released its Winter 2016 Supervisory Insights, which contains articles discussing credit risk trends and balance sheet growth, emphasizes the importance of strong risk management practices, and provides a roundup of recently released regulatory and supervisory guidance. Doreen Eberley, Director of the FDIC’s Division of Risk Management Supervision, stated in the release that “[h]istorically, financial institutions that have prudently managed loan growth have been better positioned to withstand periods of stress and continue to serve the credit needs of their local communities.” Her statement goes on to “encourage bankers to identify and correct loan underwriting and administration problems before they adversely affect the bottom line.” The Supervisory Insights note that nearly 80 percent of insured institutions grew their loan portfolios during the third quarter of 2016, which is “a figure not far from the peak of nearly 83 percent of institutions that grew their portfolios in 2005.” While this edition focused primarily on lending in the following sectors—commercial real estate, agriculture, and oil and gas—it also stressed the need for managing loan concentrations through strong, forward-looking risk management practices that allow for early intervention.
Second Circuit Hears Oral Arguments on Accomplice Theory of Liability Under FCPA
On March 2, 2017, a three judge panel for the United States Court of Appeals for the Second Circuit heard oral arguments in U.S. v. Hoskins. The government charged U.K. citizen with FCPA violations as part of a larger scheme involving a U.S. subsidiary of a French company. The citizen, a non-resident foreign national who did not act on U.S. soil and who was an executive of a non-U.S. company, argued in federal district court that Congress did not intend for people like him to be subject to direct FCPA liability, and that the government cannot circumvent Congressional intent by charging him with accomplice liability. In August of 2015, the federal district court in Connecticut ruled in the citizen’s favor, holding that the government would first have to show that the citizen was subject to direct liability as an agent of a U.S. concern in order to reach accomplice liability. The legal issues at hand are detailed in previous FCPA Scorecard posts here and here.
In addition to the important question of the scope of liability of foreign nationals under the FCPA, this argument has a secondary importance related to the right of the government to appeal criminal matters under Title 18 U.S.C. § 3731. Section 3731 allows the government to appeal “from a decision, judgment, or order of a district court dismissing an indictment or information or granting a new trial after verdict or judgment, as to any one or more counts, or any part thereof….” Here, the citizen argues that the court did not dismiss any counts, so the government had no right to make the interlocutory appeal. For its part, the government argues that the court’s ruling was effectively a dismissal of a portion of a count, making the matter appealable.
In ruling on the case, the Second Circuit will have the potential to expand or limit both the reach of the FCPA, and the power of the federal government to bring interlocutory appeals when a trial court rules against it in a criminal matter.
An mp3 of the oral arguments may be downloaded here.
DOJ Declines FCPA Action Against Oil Company
Houston-based oil company announced in a February 9, 2017 press release that the DOJ had formally closed its FCPA investigation into the company’s oil exploration operations in Angola and would not prosecute the company. The press release noted that the DOJ’s investigation “was the last remaining FCPA investigation by any U.S. regulatory agency into [the company’s Angolan operations.” The DOJ’s declination letter came more than two years after the SEC closed its own FCPA investigation and declined to bring an enforcement action.
As detailed in a previous FCPA Scorecard post, the parallel investigations began in 2011, and were prompted by allegations concerning the connection between senior Angolan government officials and a local partner in the company-led deepwater oil venture. According to the company’s 10-K filing for FY 2012, the company had voluntarily contacted the DOJ when the SEC launched its initial inquiry and “offered to respond to any requests the DOJ may have.”
OFAC Settles With Non-U.S. Company for Apparent Violation of Iran Sanctions
On January 12, Treasury’s Office of Foreign Asset Control (OFAC) announced a $17,500 settlement agreement with Aban Offshoe Limited ("Aban") of Chennai, India, in connection with an alleged violation of Iranian Transactions and Sanctions Regulations. The alleged violation arises out of events that occurred in June 2008, when Aban's Singapore subsidiary allegedly placed an order for oil rig supplies from a vendor in the United States with the intended purpose of re-exporting these supplies from the United Arab Emirates to a jack-up oil drilling rig located in the South Pars Gas Fields in Iranian territorial waters. OFAC noted, among other things, that the alleged violation constitutes a non-egregious case, but that Aban did not voluntarily self-disclose the apparent violation.
Two Additional Businessmen Plead Guilty in Venezuelan Oil Company Scheme
On January 10, it was announced that two additional defendants, owners of Florida and Texas-based energy companies, had pleaded guilty to foreign bribery charges related to a scheme to corruptly secure energy contracts from Venezuela’s state-owned oil company.
According to admissions contained here and here, they conspired with other previously charged defendants from 2008 through 2012 to pay bribes and other things of value, including recreational travel, meals, and entertainment to the company’s officials to obtain energy contracts or receive payment for previously awarded contracts. Some of the bribes were paid to the company’s official’s relative to conceal the nature, source, and ownership of the bribe.
In total, eight individuals have now pleaded guilty in cases related to the government’s investigation into bribery at the company. The government’s investigation is ongoing. Previous FCPA Scorecard coverage on the company’s investigations can be found here.
Former Oil Company Employee Admits to Paying Bribe for Libyan Government Contract
As a follow up to its March 2016 reporting involving a Monaco oil company’s bribery scandal, the Huffington Post recently published an interview with a former employee of the Monaco-based company who has admitted to paying bribes to a manager in Libya’s state-owned oil company in order to win a government contract. The individual, a former manager at the Monaco-based company, told the Huffington Post and the Australian newspaper, The Age,that in the summer of 2009 he was summoned to a meeting with a production manager from a subsidiary company of the Libyan National Oil Company. At the meeting, the Libyan company's production manager provided the individual with details relating to an upcoming bid for a $45 million Libyan government contract. Huffington Post reports that the individual contacted the father and two sons who ran the Monaco-based oil company. That afternoon, another manager from the Monaco-based company met with the individual at a company staffhouse, to deliver an envelope full of cash, which the individual delivered to the manager of the Libyan subsidiary company. A few days later, the individual who had delivered the cash resigned. It is unclear whether the Monaco-based company ever won the contract though the manager told the individual that “he expected a 5-10 percent kickback ― about $2-4 million ― if the [Monaco-based company] won the contract.” According to the interview, the individual who resigned has recently been cooperating with U.S., U.K., Australian, and Canadian law enforcement authorities. The individual’s former employer has denied his allegations and denies paying bribes to foreign officials in order to win deals for its multinational clients. For further coverage of this story, visit FCPA Scorecard Blog.
Houston-Based Company Disgorges $5 Million to Settle SEC Enforcement Action
In an SEC cease and desist order filed on August 11, Key Energy Services, Inc., a Houston-based provider of rig-based oil well services, agreed to disgorge $5 million to settle charges that the company violated the books and records and internal control provisions of the FCPA. According to the order, from August 2010 through at least April 2013, Key Energy’s Mexican subsidiary paid bribes of at least $229,000 to a contract employee at Petroleos Mexicanos (Pemex), the Mexican state-owned oil and gas company. In exchange, the subsidiary received Pemex non-public information, advice and assistance on contracts with Pemex, and lucrative amplifications or amendments to those contracts. The funds were allegedly funneled through an entity purporting to provide consulting services, but for which there was no evidence of appropriate authorization of the relationship, and no supporting documentation regarding the purported consulting work performed. According to the SEC, the subsidiary improperly recorded the transfers to the consulting firm as legitimate business expenses, which were consolidated into Key Energy’s books and records. Key Energy allegedly failed to implement and maintain sufficient internal controls, including within the subsidiary relating to interactions with Pemex officials, and failed to respond to indications that the subsidiary was improperly using consultants.
It is notable that Key Energy was not required to pay a civil fine in addition to disgorgement. The SEC identified three reasons for accepting Key Energy’s offer of settlement and not imposing a separate civil penalty. First, the SEC praised Key Energy for cooperating with and assisting in its investigation. Key Energy was first contacted by the SEC in January 2014 concerning possible FCPA violations. In April 2014, Key Energy was informed by employees of its subsidiary of possible bribes, at which time the company reported the allegations to the SEC and “undertook a broad internal investigation and risk assessment of [its] international operations.” The SEC specifically noted that, “to the extent the internal investigation identified additional issues of concern, Key Energy provided updates to the Commission staff.”
Second, the SEC considered not only the “cooperation Key Energy afforded to the Commission staff,” but also the “remedial acts undertaken by [the company].” The SEC noted that Key Energy, during its internal review, “promptly and simultaneously undertook significant remedial measures including … a renovation and enhancement of [its] compliance program.” Specific remedial measures included (i) stronger vendor oversight; (ii) enhanced financial controls; (iii) increased training of all international employees; (iv) developing and/or reviewing policies and procedures pertaining to the FCPA, codes of business conduct, and more; and (v) a coordinated wind-down and exit from all markets outside of North America, including a commitment to exit Mexico by the end of 2016.
Finally, “in determining the disgorgement amount and not to impose a penalty,” the SEC “considered Key Energy’s current financial condition and its ability to maintain necessary cash reserves to fund its operations and meet its liabilities.” This third justification indicates the SEC is not only aware of the current financial strains within the oil and gas services sector, but is uninterested in unnecessarily putting companies out of business. It is also possible that Key Energy’s cooperation and remediation, coupled with its tenuous financial condition, factored into the DOJ’s decision in April to close its investigation of the same conduct without bringing charges.
SBM Offshore Enters Into Settlement Agreement With Brazilian Authorities
On July 15, Petrobras announced that SBM Offshore NV had entered into a settlement agreement with Brazilian authorities to resolve allegations stemming from the Petrobras bribery probe. Under the terms of the agreement, the Dutch drilling company, which had been accused of paying bribes to Brazilian state-owned oil company Petrobras, will be immune to new legal actions stemming from the probe. In exchange, SBM Offshore agreed to pay approximately $342 million in fines, comprising $13.2 million to the Brazilian government and $328.2 million to Petrobras, of which $179 million “represents the nominal value to be deducted from future payments owed by Petrobras to SBM based on prevailing contracts.”
According to Petrobras, the leniency agreement is the outcome of negotiations that began in March 2015. Petrobras further stated that it will resume its normal business relationship with SBM Offshore.
The agreement is the latest settlement for SBM Offshore in connection with the Petrobras bribery probe. In 2014, SBM Offshore settled with Dutch authorities. In February 2016, SBM Offshore announced that the U.S. DOJ had re-opened its investigation into the company.