Attention to companies (and employees) operating around the world.
If you are party to a contract, and a mid-level employee at the entity receiving services under the contract holds up payment of money the company is legitimately entitled to receive, but the mid-level employee requests payment in order to release the funds, and you make the requested payment, you are violating the Foreign Corrupt Practices Act.
That at least seems to be the message the SEC is sending in the Joe Summers enforcement action made public yesterday (see here and here)>
How such payments to receive what one is owed under a contract satisfies the FCPA's "obtain or retain business" element is sure to be a question asked in light of this enforcement action.
According to the SEC complaint, Summers "was nominally employed by Pride International Personal Ltd. - a wholly owned subsidiary of Pride International Inc." and "was responsible for managing the operations of Pride Foramer de Venezuela S.A." The SEC complaint alleges however that Summer "functioned" as an employee or agent of Pride in that "Summers reported to, and was controlled by, Houston-based Pride officers" and further states that "Summers was responsible for, among other things, ensuring that Pride conducted its Venezuelan operations in compliance with the Foreign Corrupt Practices Act, that adequate controls were in place to prevent illegal payments, and that the company's books and records were accurate."
According to the SEC complaint:
"Following widespread strikes and civil unrest in Venezuela in late 2002, Pride [...] and other companies performing work for PDVSA (PDVSA is the Venezuela state-owned oil company) had difficulty collecting outstanding receivables from PDVSA. By early 2003, Pride [...] had significant unpaid receivables for services that it had provided to PDVSA. In or around March or April 2003, Pride [...] received information that a mid-level PDVSA accounts payable employee was holding up the payment of funds owed to Pride [...] and wanted a payment of approximately $30,000 in order to release the funds due. In or around March or April 2003, Summers authorized a payment of approximately $30,000 to a third party, believing that all or a portion of the funds would be offered or given by the third party to an employee of PDVSA for purposes of securing an improper advantage in receiving payment from PDVSA. Shortly thereafter, in or around April 2003, Pride [...] received overdue payments from PDVSA for work that Pride [...] had performed."
The above paragraph from the SEC complaint, while the most noteworthy, is not the only reason the SEC charged Summers with violating the FCPA's anti-bribery provisions, among other charges.
According to the SEC, Summers also authorized payments totaling approximately $120,000 through a vendor to a Miami bank account in the name of a Venezuela Intermediary who purported to represent a PDVSA official and who indicated he could assist Pride in obtaining an extension of a drilling contract.
Based on this core conduct, the SEC alleged that "Summers, by authorized or allowing his subordinates to execute the bribery scheme involving vendors, caused Pride [...] to inaccurately record those payments as payments for goods and services received from the vendors."
In addition to charging Summers with FCPA anti-bribery violations, the SEC also charged Summers with: (i) knowingly circumventing or knowingly failing to implement a system of internal accounting controls or knowingly falsifying books and records; (ii) aiding and abetting FCPA anti-bribery violations; and (iii) aiding and abetting violations of the FCPA's books and records and internal control provisions.
According to the SEC release, without admitting or denying the SEC's allegations, Summers consented to entry of a permanent injunction and agreed to pay a $25,000 civil penalty.
According to the SEC's complaint, "when subpoenaed to testify by the Commission's staff during its investigation, Summers asserted his Fifth Amendment privilege against self-incrimination."
The enforcement action was prosecuted by the SEC's Fort Worth, Texas branch office.
In December 2009, the SEC brought a related enforcement action against Bobby Benton (the former Vice President, Western Hemisphere Operations for Pride International, Inc.). See here.
For on Pride see here.
In its recent 10-Q filing, Pride had this to say regarding its FCPA exposure in connection with Venezuela and several other countries:
"We are engaged in discussions with the DOJ and the SEC regarding a potential negotiated resolution of these matters, which could be settled during 2010 and which, as described above, could involve a significant payment by us. We believe that it is likely that any settlement will include both criminal and civil sanctions. We have accrued $56.2 million in anticipation of a possible resolution with the DOJ and the SEC of potential liabilities under the FCPA."