That is the alternate title I've given to Shearman & Sterling's "Recent Trends and Patterns in FCPA Enforcement" (here).
The periodic publication is always in my "must-read" category. The author group is first-rate and includes noted FCPA practitioners Philip Urofsky (former Assistant Chief of the DOJ Fraud Section responsible for FCPA enforcement) and Danforth Newcomb (a dean of the FCPA bar).
The Shearman & Sterling piece raises particularly pointed questions as to the Panalpina-related enforcement actions and the seemingly vanishing "obtain or retain business" element of an FCPA anti-bribery violation.
I have covered these issues extensively as well - see here for several posts on the Panalpina-related enforcement actions and here (pg. 971 "Just How Was that Business Obtained or Retained") as to questions about the enforcement agencies' "obtain or retain business" allegations or interpretations.
The Shearman & Sterling piece states that "some of the government's cases appear to blur the lines or muddy the waters when it comes to the limits of the statute." The authors state as follows:
"In several cases, such as Pride International, Panalpina, and Royal Dutch Shell, the theories used to hold parents accountable for the acts of subsidiaries and vice versa appear to be unclear. In others, such as Pride International and Tidewater, the connection of the alleged conduct to “obtaining or retaining business,” a critical element of the statute was not pleaded or, worse, was pled in a way that suggests that virtually any bribe that improves a company’s profitability is sufficient – a result that is not consistent with established precedent and the language of the statute."
Under the heading "Enforcement Strategies" the authors state:
"As in years past, the enforcement actions brought in 2010 provide insight, albeit sometimes clouded, into the DOJ’s and the SEC’s views of the scope and meaning of certain aspects of the statute, as well as their enforcement priorities and strategies. In doing so they are at times helpful and at other times opaque or, even worse, disturbing. As always, however, it is important to remember that although these agreements may have been hotly negotiated, in the end each of the companies and individuals settled. Thus, none of the government’s interpretations, or its view of how the law applied to the facts, has been subjected to a searching judicial examination in the context of a contested adversary proceeding."
Under the heading "The Business Nexus" the author state:
"The Panalpina cases and certain allegations in other cases are likely to reopen the debate as to the meaning of the “obtain or retain business” element. This element is recognized as a critical factor in narrowing the scope of the FCPA. How much it does so, however, has long been a matter of debate. In its 2004 decision in U.S. v. Kay, the Fifth Circuit appeared to have ended the debate, holding that the FCPA was not limited to bribes to obtain business from a foreign government or even to bribes that led “directly to the award or renewal of contracts.” Analyzing the indictment in that case, the court held that “bribes paid to foreign officials in consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the FCPA’s proscription.” (emphasis in original). The court warned, however, that the scope of the statute was not limitless, stating, “We hasten to add, however, that this conduct does not automatically constitute a violation of the FCPA: It still must be shown that the bribery was intended to produce an effect – here, through tax savings – that would ‘assist in obtaining or retaining business.’”
Although some of the bribes in the Panalpina cases were made to obtain contracts and other specific business advantages, most of the payments were made to customs or tax officials to reduce duties and taxes, to expedite customs clearances, or to evade import regulations. In the latter cases, the government made very little effort to link such payments to obtaining or retaining business. For example, in Pride International, the DOJ alleged a number of what it termed “bribery schemes,” including payments to a Mexican Customs Official “to avoid taxes and penalties for alleged violations of Mexican customs regulations relating to a vessel leased by Pride International.” Similarly, in GlobalSantaFe, the SEC alleged that through a number of “suspicious payments” the company “avoided costs and gained revenue.” Without more explanation, such barebones allegations create the impression that the government equates gaining revenue or reducing costs generally with “obtaining or retaining business.” That, however, is the very opposite of the holding in Kay [...]."
"Reading between the lines of the pleadings, we can, in many cases, construct some theory of how certain of the payments might have fallen within the Kay rule, e.g., some payments appear to have allowed the importers to bring in equipment and rigs without which they could not perform new or existing contracts. It is even possible that, similar to the facts in Kay, the importers could not have competed for existing or new business had they paid the full duties or taxes or complied with other local requirements. The pleadings, however, for the most part only hint at such an underlying rationale, leaving us to wonder exactly what does the government think the business nexus means today?"
When an author group including a former DOJ official responsible for enforcing the FCPA (in a more measured and disciplined era) uses words such as "disturbing" and phrases such as "not consistent with established precedent and the language of the statute" - well, I think we all should take notice.
Showing posts with label Tidewater. Show all posts
Showing posts with label Tidewater. Show all posts
Monday, January 31, 2011
Tuesday, November 16, 2010
Azeri Tax Officials and More On Nigeria TIPs
Next up in the analysis of CustomsGate enforcement actions is Tidewater.
See here for the prior post on the Noble Corporation enforcement action and here for the prior post on the GlobalSantaFe enforcement action.
The Tidewater enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $15.7 million ($7.35 million criminal fine via a DOJ deferred prosecution agreement; $8.3 million in disgorgement and a civil penalty via a SEC complaint).
DOJ
The DOJ enforcement action included a criminal information (here) filed against Tidewater Marine International Inc. ("TMII), a wholly-owned subsidiary of Tidewater Inc. ("TDW") and the primary international operating entity for TDW.
TDW (see here) operates offshore service and supply vessels designed to support all phases of offshore energy exploration, development and production throughout the world. TDW is headquartered in New Orleans and has publicly traded shares on the New York Stock Exchange.
The criminal charges against TMII were resolved via a deferred prosecution agreement (here) between the DOJ and TMII and TDW "on behalf of its wholly-owned subsidiary TMII."
Criminal Information
According to the criminal information, TMII "had managerial and administrative operations in the United States, and it exercised contractual rights and control over Tidewater's vessel operations in Nigeria and Azerbaijan, among other areas."
The criminal information concerns: (1) "bribes paid to Azeri tax inspectors", and (2) "payment of bribes to Nigerian customs officials through the freight fowarding agent [Panalpina]."
Azerbaijan
According to the information, "in 2001, 2003, and 2005, the Azeri Tax Authority [a government entity responsible for administering and collecting tax assessments and duties for the Republic of Azerbaijan] initiated tax audits of TMII's business operations in Azerbaijan."
The information states that TMII employed the "Consulting Firm" [a U.S. consulting company incorporated in Texas and headquartered in Baku, Azerbaijan to provide a broad range of services including accounting services and tax advice and assistance] including the "Azerbaijan Agent" [the Managing Director of the Consulting Firm] to assit with the audits.
The information charges that "in 2001, 2003, and 2005, TMII, through its employees and agents, paid bribes to Azeri tax inspectors to improperly secure favorable tax assessments."
According to the information, TMII "caused approximately $160,000 to be paid to the Dubai Entity [an entity associated with the Consulting Firm], while knowing that some or all of the money would be paid, with the assistance of the Azerbaijan Agent to Azeri tax inspectors."
The information states that "the benefit received and the potential tax liability avoided by TMII as a result of the payment of the bribes was approximately $820,000."
Nigeria
According to the information, between January 2002 through March 2007, Tidex Nigeria Limited ("Tidex") [a Nigerian company 60% majority owned by Tidewater Marine" that "provided agency and operational support, at the direction of TMII, for all vessels that Tidewater operated in Nigeria during the relevant period"], through its employees, affiliates, and agents, authorized the payment of approximately $1.6 million to [Panalpina] as reimbursements for bribes paid by [Panalpina], made on Tidex's behalf, to Nigeria Customs Service ("NCS") employees to induce the officials to disregard certain regulatory requirements in Nigeria relating to the temporary importation of Tidewater vessles into Nigerian waters." The information charges that by August 2004, "TMII managers and employees were aware of and condoned the payments."
The regulatory requirements set forth in the information concern Nigeria's rules and regulations relating to temporarily importing vessels and the "temporary importation permit" ("TIP"). For more on the TIP process see here.
According to the information, between August 2004 and 2007, TMII employees and other Tidewater employees authorized the payment of approximately $1,089,000 to [Panalpina], on Tidex's behalf, knowing that some or all of the monies had been paid by [Panalpina] to NCS officials to induce them to disregard Nigerian regulations, to not impose fines and penalties, and to allow Tidewater vessels to operate in Nigerian waters without a valid TIP."
The information states that the "total benefit in avoided costs, duties, and penalties received by TMII in exchange for these payments was approximately $5,800,000."
Based on the above information, the information charges TMII with conspiracy to violate the FCPA's anti-bribery provisions and to knowingly falsify books and records (in connection with both the Azeri and Nigeria payments) and knowing falsification of books, records, and accounts in connection with "129 payments totaling approximately $1,089,00, as [Panalpina] costs when, in fact, the payments were, in whole or in part, paid to NCS officials."
According to the information, the following individuals "authorized the payment of bribes" or "know, or were aware of a high probability" that bribes were being paid:
Director of Tax [a U.S. citizen located in New Orleans], the Dubai Area Controller[a U.S. citizen], the Regional Finance Director [a British citizen, but described as a "employee and agent of a domestic concern], the Azerbaijan General Manager A [a U.S. citizen] and the Azerbaijan General Manager B [a U.S. citizen] (as to Azeri payments); and
the Vice President of Operations [an Australian citizen who supervised, at various times, both Azerbaijan and Nigerian operations and described as an employee an agent of a domestic concern] and the Nigeria Area Manager [a British citizen] (as to Nigeria payments).
In addition, the information charges that certain money in furtherance of the bribe payments were wired from accounts located in the U.S.
Deferred Prosecution Agreement
Pursuant to the DPA, TMII admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.
The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement "based on the individual facts and circumstances" of the case and TMII. Among the factors stated are the following.
"TMII and TDW promptly commenced an internal investigation into its dealings with [Panalpina] after becoming aware of information indicating potential issues with [Panalpina];"
"promptly after commencing its internal investigation, TMII and TDW voluntarily disclosed the conduct described in the Information to the Deparment;"
"TMII and TDW voluntarily expanded their internal investigation to numerous operations and areas of the world outside Nigeria where no misconduct had been reported or suspected, and reported all relevant findings to the Department;"
"TMII and TDW hired a General Counsel with substantial international compliance experience, appointed him the Chief Compliance Offcer, and established a Corporate Compliance Committee;"
"TMII and TDW issued an enhanced, stand-alone FCPA compliance policy, substantially revised its Code of Conduct, as well as additional relevant policies and procedures, including a vetting and approval process for third part service providers and business parners upon implementation of that policy, and instituted a worldwide training program for employees;"
"TMII and TDW expanded their internal investigation to cover additional countries and business activities;"
"TMII and TDW cooperated with the Department's investigation, including sharing all relevant investigation findings and making available numerous current and former employees;"
"TMII and TDW exhibited leadership in the oil and gas industry by leading an oil and gas industry initiative, both in the United States and abroad, to address the [Nigeria TIPs conduct];"
"TMII and TDW implemented an enhanced compliance program and have agreed to undertake further remedial measures as contemplated by this Agreement ...;"
"TDW, on behalf of TMII, agreed to provide a written report to the Deparment on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures ...;" and
"TMII and TDW agreed to continue to cooperate with the Deparment in any ongoing investigation of the conduct of TMI and its directors, employees, agents, consultants, contractors, subcontractors, subsidiaries, affiliates,
and others relating to violations of the FCPA."
As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $10.5 million - $21 million. Pursuant to the DPA, TMII and TDW agreed that TMII shall pay a monetary penalty of $7.35 million - 30% below the minimum guideline amount.
As is standard in FCPA DPAs, TMII and TDW agreed not to make any public statement "contradicting the acceptance of responsibility by TMII as set forth" in the DPA and TMII and TDW further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
SEC
The SEC's complaint (here) concerns the same core set of facts as set forth in the DOJ's DPA.
In summary fashion, the SEC alleges as to Azerbaijan conduct that "between August 2001 and November 2005, Tidewater Inc. [...] directly or through its subsidiaries, affiliates, employees and agents, violated [the FCPA's anti-bribery and books and records and internal control provisions] by paying $160,000 in bribes to foreign government officials in Azerbaijan through a third party disguised as legitimate services to influence acts and decisions by these officials to resolve local Azeri tax audits in a Company subsidiary’s favor."
According to the SEC, "these improper payments were authorized by senior employees at Tidewater and its subsidiaries while knowing, or ignoring red flags which indicated a high probability, such payments would be passed to government officials, inaccurately recorded in the Company’s or its affiliates’ books and records, and Tidewater failed to maintain sufficient internal controls to prevent such payments."
The SEC complaint alleges that the payments included: (i) "on or about August 14, 2001, Tidewater authorized and paid $50,000 to a third party that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan; (ii) "in July 2003, Tidewater authorized and paid $40,000 to a third party in two installments that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan; and (iii) "on or about November 11, 2005, a Tidewater subsidiary authorized and paid $70,000 to a third party that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan."
The SEC's complaint provides additional detail regarding the Azeri tax audits than the DOJ's criminal information. The SEC's allegations seem to suggest that the payments to the Azeri tax officials were the result of extortionate demands communicated to Tidewater entities through the Azerbaijan Agent. For instance, in connection with the 2001 tax audit, the complaint states that "Executive A [Tidewater's CFO during the relevant period] believed that the 2001 Audit was sort of a 'shakedown' that the Azerbaijan Agent created in order to collect a fee." As to this audit, the complaint further alleges that "Executive A and [another company employee] learned that the Azeri tax auditors threatened to use an accounting method that would result in a higher tax assessment because the tax auditors did not feel 'respected.'" In connection with the 2002 tax audit, the complaint alleges that the Azerbaijan Agent informed Tidewater personnel "that the Azeri tax auditors had verbally identified a potential figure of up to $600,000 to resolve the 2003 audit" but that this "amount bore no relation to any actual tax assessment or penalty."
As to Nigeria conduct, the SEC complaint alleges, in summary fashion, that "from in or about January 2002 through March 2007, Tidewater, through its subsidiaries and agents, also authorized the reimbursement of approximately $1.6 million to its customs broker in Nigeria used, in whole or in part, to make improper payments to Nigerian Customs Services (“NCS”) employees to induce them to disregard certain regulatory requirements in Nigeria relating to the temporary importation of the Company’s vessels into Nigerian waters."
According to the SEC, both the Azeri and Nigerian payments:
"[W]ere improperly recorded as legitimate expenses in the Company’s books and records and all of them, with the exception of the 2003 Azerbaijan payments, were consolidated into Tidewater’s financial statements. Tidewater’s internal controls, including at least two internal audits, failed to detect numerous red flags which should have alerted its management that the Azerbaijan agent and Nigerian customs broker were likely using funds provided by Tidewater, in whole or in part, to make improper payments to government officials."
Based on the above conduct, the SEC charged Tidewater with violating the FCPA's anti-bribery and books and records and internal control provisions.
As to the company's internal controls, the SEC specifically alleged as follows.
"Tidewater’s controls over the engagement and activities of agents operating in high-risk jurisdictions outside of the marketing and sales area were inadequate. For example, the Company’s compliance program, including training provided to its employees, did not adequately address the applicability of the FCPA to customs, tax, and similar regulatory issues in its foreign subsidiary operations until March 2007. Moreover, employees in Azerbaijan easily circumvented the Company’s internal controls by setting up small cash reserves for contingencies, dividing the improper payments into increments below their discretional financial authority and processing a payment through a Company affiliate. Some of the payments for invoices that the Nigerian Agent submitted to Tidex were authorized, processed and funded without the work order or supporting documentation necessary to verify that the service was requested and rendered. Tidewater also conducted internal audits in 2001 and 2003 of its Nigerian operations that failed to detect the improper payments even though weaknesses with invoices from, and payments to, agents and consultants were identified."
Without admitting or denying the SEC's allegations, Tidewater agreed to an injunction and the payment of $8,104,362 in disgorgement and a $217,000 penalty.
Lucinda Low (here) (Steptoe & Johnson) represented Tidewater.
See here for the prior post on the Noble Corporation enforcement action and here for the prior post on the GlobalSantaFe enforcement action.
The Tidewater enforcement action involved both a DOJ and SEC component. Total settlement amount was approximately $15.7 million ($7.35 million criminal fine via a DOJ deferred prosecution agreement; $8.3 million in disgorgement and a civil penalty via a SEC complaint).
DOJ
The DOJ enforcement action included a criminal information (here) filed against Tidewater Marine International Inc. ("TMII), a wholly-owned subsidiary of Tidewater Inc. ("TDW") and the primary international operating entity for TDW.
TDW (see here) operates offshore service and supply vessels designed to support all phases of offshore energy exploration, development and production throughout the world. TDW is headquartered in New Orleans and has publicly traded shares on the New York Stock Exchange.
The criminal charges against TMII were resolved via a deferred prosecution agreement (here) between the DOJ and TMII and TDW "on behalf of its wholly-owned subsidiary TMII."
Criminal Information
According to the criminal information, TMII "had managerial and administrative operations in the United States, and it exercised contractual rights and control over Tidewater's vessel operations in Nigeria and Azerbaijan, among other areas."
The criminal information concerns: (1) "bribes paid to Azeri tax inspectors", and (2) "payment of bribes to Nigerian customs officials through the freight fowarding agent [Panalpina]."
Azerbaijan
According to the information, "in 2001, 2003, and 2005, the Azeri Tax Authority [a government entity responsible for administering and collecting tax assessments and duties for the Republic of Azerbaijan] initiated tax audits of TMII's business operations in Azerbaijan."
The information states that TMII employed the "Consulting Firm" [a U.S. consulting company incorporated in Texas and headquartered in Baku, Azerbaijan to provide a broad range of services including accounting services and tax advice and assistance] including the "Azerbaijan Agent" [the Managing Director of the Consulting Firm] to assit with the audits.
The information charges that "in 2001, 2003, and 2005, TMII, through its employees and agents, paid bribes to Azeri tax inspectors to improperly secure favorable tax assessments."
According to the information, TMII "caused approximately $160,000 to be paid to the Dubai Entity [an entity associated with the Consulting Firm], while knowing that some or all of the money would be paid, with the assistance of the Azerbaijan Agent to Azeri tax inspectors."
The information states that "the benefit received and the potential tax liability avoided by TMII as a result of the payment of the bribes was approximately $820,000."
Nigeria
According to the information, between January 2002 through March 2007, Tidex Nigeria Limited ("Tidex") [a Nigerian company 60% majority owned by Tidewater Marine" that "provided agency and operational support, at the direction of TMII, for all vessels that Tidewater operated in Nigeria during the relevant period"], through its employees, affiliates, and agents, authorized the payment of approximately $1.6 million to [Panalpina] as reimbursements for bribes paid by [Panalpina], made on Tidex's behalf, to Nigeria Customs Service ("NCS") employees to induce the officials to disregard certain regulatory requirements in Nigeria relating to the temporary importation of Tidewater vessles into Nigerian waters." The information charges that by August 2004, "TMII managers and employees were aware of and condoned the payments."
The regulatory requirements set forth in the information concern Nigeria's rules and regulations relating to temporarily importing vessels and the "temporary importation permit" ("TIP"). For more on the TIP process see here.
According to the information, between August 2004 and 2007, TMII employees and other Tidewater employees authorized the payment of approximately $1,089,000 to [Panalpina], on Tidex's behalf, knowing that some or all of the monies had been paid by [Panalpina] to NCS officials to induce them to disregard Nigerian regulations, to not impose fines and penalties, and to allow Tidewater vessels to operate in Nigerian waters without a valid TIP."
The information states that the "total benefit in avoided costs, duties, and penalties received by TMII in exchange for these payments was approximately $5,800,000."
Based on the above information, the information charges TMII with conspiracy to violate the FCPA's anti-bribery provisions and to knowingly falsify books and records (in connection with both the Azeri and Nigeria payments) and knowing falsification of books, records, and accounts in connection with "129 payments totaling approximately $1,089,00, as [Panalpina] costs when, in fact, the payments were, in whole or in part, paid to NCS officials."
According to the information, the following individuals "authorized the payment of bribes" or "know, or were aware of a high probability" that bribes were being paid:
Director of Tax [a U.S. citizen located in New Orleans], the Dubai Area Controller[a U.S. citizen], the Regional Finance Director [a British citizen, but described as a "employee and agent of a domestic concern], the Azerbaijan General Manager A [a U.S. citizen] and the Azerbaijan General Manager B [a U.S. citizen] (as to Azeri payments); and
the Vice President of Operations [an Australian citizen who supervised, at various times, both Azerbaijan and Nigerian operations and described as an employee an agent of a domestic concern] and the Nigeria Area Manager [a British citizen] (as to Nigeria payments).
In addition, the information charges that certain money in furtherance of the bribe payments were wired from accounts located in the U.S.
Deferred Prosecution Agreement
Pursuant to the DPA, TMII admitted, accepted and acknowledged that it was responsible for the acts of its officers, employees, subsidiaries, and agents as set forth above.
The term of the DPA is three years and seven months and it states that the DOJ entered into the agreement "based on the individual facts and circumstances" of the case and TMII. Among the factors stated are the following.
"TMII and TDW promptly commenced an internal investigation into its dealings with [Panalpina] after becoming aware of information indicating potential issues with [Panalpina];"
"promptly after commencing its internal investigation, TMII and TDW voluntarily disclosed the conduct described in the Information to the Deparment;"
"TMII and TDW voluntarily expanded their internal investigation to numerous operations and areas of the world outside Nigeria where no misconduct had been reported or suspected, and reported all relevant findings to the Department;"
"TMII and TDW hired a General Counsel with substantial international compliance experience, appointed him the Chief Compliance Offcer, and established a Corporate Compliance Committee;"
"TMII and TDW issued an enhanced, stand-alone FCPA compliance policy, substantially revised its Code of Conduct, as well as additional relevant policies and procedures, including a vetting and approval process for third part service providers and business parners upon implementation of that policy, and instituted a worldwide training program for employees;"
"TMII and TDW expanded their internal investigation to cover additional countries and business activities;"
"TMII and TDW cooperated with the Department's investigation, including sharing all relevant investigation findings and making available numerous current and former employees;"
"TMII and TDW exhibited leadership in the oil and gas industry by leading an oil and gas industry initiative, both in the United States and abroad, to address the [Nigeria TIPs conduct];"
"TMII and TDW implemented an enhanced compliance program and have agreed to undertake further remedial measures as contemplated by this Agreement ...;"
"TDW, on behalf of TMII, agreed to provide a written report to the Deparment on its progress and experience in maintaining and, as appropriate, enhancing its compliance policies and procedures ...;" and
"TMII and TDW agreed to continue to cooperate with the Deparment in any ongoing investigation of the conduct of TMI and its directors, employees, agents, consultants, contractors, subcontractors, subsidiaries, affiliates,
and others relating to violations of the FCPA."
As stated in the DPA, the fine range for the above describe conduct under the U.S. Sentencing Guidelines was $10.5 million - $21 million. Pursuant to the DPA, TMII and TDW agreed that TMII shall pay a monetary penalty of $7.35 million - 30% below the minimum guideline amount.
As is standard in FCPA DPAs, TMII and TDW agreed not to make any public statement "contradicting the acceptance of responsibility by TMII as set forth" in the DPA and TMII and TDW further agreed to only issue a press release in connection with the DPA if the DOJ does not object to the release.
SEC
The SEC's complaint (here) concerns the same core set of facts as set forth in the DOJ's DPA.
In summary fashion, the SEC alleges as to Azerbaijan conduct that "between August 2001 and November 2005, Tidewater Inc. [...] directly or through its subsidiaries, affiliates, employees and agents, violated [the FCPA's anti-bribery and books and records and internal control provisions] by paying $160,000 in bribes to foreign government officials in Azerbaijan through a third party disguised as legitimate services to influence acts and decisions by these officials to resolve local Azeri tax audits in a Company subsidiary’s favor."
According to the SEC, "these improper payments were authorized by senior employees at Tidewater and its subsidiaries while knowing, or ignoring red flags which indicated a high probability, such payments would be passed to government officials, inaccurately recorded in the Company’s or its affiliates’ books and records, and Tidewater failed to maintain sufficient internal controls to prevent such payments."
The SEC complaint alleges that the payments included: (i) "on or about August 14, 2001, Tidewater authorized and paid $50,000 to a third party that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan; (ii) "in July 2003, Tidewater authorized and paid $40,000 to a third party in two installments that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan; and (iii) "on or about November 11, 2005, a Tidewater subsidiary authorized and paid $70,000 to a third party that it knew, or was reckless in not knowing, would be passed to government officials in Azerbaijan."
The SEC's complaint provides additional detail regarding the Azeri tax audits than the DOJ's criminal information. The SEC's allegations seem to suggest that the payments to the Azeri tax officials were the result of extortionate demands communicated to Tidewater entities through the Azerbaijan Agent. For instance, in connection with the 2001 tax audit, the complaint states that "Executive A [Tidewater's CFO during the relevant period] believed that the 2001 Audit was sort of a 'shakedown' that the Azerbaijan Agent created in order to collect a fee." As to this audit, the complaint further alleges that "Executive A and [another company employee] learned that the Azeri tax auditors threatened to use an accounting method that would result in a higher tax assessment because the tax auditors did not feel 'respected.'" In connection with the 2002 tax audit, the complaint alleges that the Azerbaijan Agent informed Tidewater personnel "that the Azeri tax auditors had verbally identified a potential figure of up to $600,000 to resolve the 2003 audit" but that this "amount bore no relation to any actual tax assessment or penalty."
As to Nigeria conduct, the SEC complaint alleges, in summary fashion, that "from in or about January 2002 through March 2007, Tidewater, through its subsidiaries and agents, also authorized the reimbursement of approximately $1.6 million to its customs broker in Nigeria used, in whole or in part, to make improper payments to Nigerian Customs Services (“NCS”) employees to induce them to disregard certain regulatory requirements in Nigeria relating to the temporary importation of the Company’s vessels into Nigerian waters."
According to the SEC, both the Azeri and Nigerian payments:
"[W]ere improperly recorded as legitimate expenses in the Company’s books and records and all of them, with the exception of the 2003 Azerbaijan payments, were consolidated into Tidewater’s financial statements. Tidewater’s internal controls, including at least two internal audits, failed to detect numerous red flags which should have alerted its management that the Azerbaijan agent and Nigerian customs broker were likely using funds provided by Tidewater, in whole or in part, to make improper payments to government officials."
Based on the above conduct, the SEC charged Tidewater with violating the FCPA's anti-bribery and books and records and internal control provisions.
As to the company's internal controls, the SEC specifically alleged as follows.
"Tidewater’s controls over the engagement and activities of agents operating in high-risk jurisdictions outside of the marketing and sales area were inadequate. For example, the Company’s compliance program, including training provided to its employees, did not adequately address the applicability of the FCPA to customs, tax, and similar regulatory issues in its foreign subsidiary operations until March 2007. Moreover, employees in Azerbaijan easily circumvented the Company’s internal controls by setting up small cash reserves for contingencies, dividing the improper payments into increments below their discretional financial authority and processing a payment through a Company affiliate. Some of the payments for invoices that the Nigerian Agent submitted to Tidex were authorized, processed and funded without the work order or supporting documentation necessary to verify that the service was requested and rendered. Tidewater also conducted internal audits in 2001 and 2003 of its Nigerian operations that failed to detect the improper payments even though weaknesses with invoices from, and payments to, agents and consultants were identified."
Without admitting or denying the SEC's allegations, Tidewater agreed to an injunction and the payment of $8,104,362 in disgorgement and a $217,000 penalty.
Lucinda Low (here) (Steptoe & Johnson) represented Tidewater.
Friday, November 5, 2010
Major Shipment - Customs Cases Bring In $236.5 Million
The pipeline that contains pending FCPA enforcement actions burst yesterday as the DOJ and SEC announced enforcement actions against 13 separate entities.
In enforcement actions that have long been anticipated, Panalpina entities, as well as several others, settled DOJ and SEC enforcement actions principally focused on customs and related payments in Nigeria, but also including alleged improper conduct in Angola, Brazil, Russia, Kazakhstan, Venezuela, India, Mexico, Saudi Arabia, the Republic of Congo, Libya, Azerbaijan, Turkmenistan, Gabon and Equatorial Guinea.
The combined DOJ/SEC settlement amounts total $236.5 million.
Your FCPA scorecard thus shows that since June 28th, the U.S. government has brought FCPA enforcement actions totaling approximately $1.1 billion. With numbers like these, aggressive FCPA enforcement based on, often times, dubious legal theories (more on that later) seems like the most profitable government program ever conceived.
Set forth below is a basic overview of the settlements. A more thorough review of the hundreds of pages of relevant documents will be forthcoming.
The DOJ resolution documents can be found here, the SEC resolution documents here.
Panalpina Entities
DOJ
Entities: Panalpina World Transport (Holding) Ltd. and Panalpina Inc.
Resolution Vehicles: Criminal information charging Panalpina World Transport(Holding) with conspiracy to violate and violating the FCPA's anti-bribery provisions. Charges resolved through a deferred prosecution agreement. Criminal information charging Panalpina Inc. with conspiracy to violate the FCPA's books and records provisions and aiding and abetting certain customers in violating the FCPA's books and records provisions. Charges resolved through a plea agreement.
Countries: Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan
Penalty: Combined $70.56 million
SEC
Entity: Panalpina, Inc.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, aiding and abetting FCPA anti-bribery violations, and FCPA books and records and internal controls violations.
Countries: Nigeria, Angola, Brazil, Russia, and Kazakhstan
Disgorgement: $11,329,369
Pride Entities
DOJ
Entities: Pride International Inc. and Pride Forasol S.A.S.
Resolution Vehicle: Criminal information charging Pride International with conspiracy to violate the FCPA's anti-bribery provisions and books and records provisions; violating the FCPA's anti-bribery provisions; and violating the FCPA's books and records provisions. Charges resolved through a deferred prosecution agreement. Criminal information charging Pride Forasol with conspiracy to violate the FCPA's anti-bribery provisions; violating the FCPA's anti-bribery provisions; and aidng and abetting violations of the FCPA's books and records provisions. Charges resolved through a plea agreement.
Countries: Venezuela, India and Mexico
Penalty: $32.625 million (combined)
SEC
Entity: Pride International Inc.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations.
Countries: Venezuela, India, Mexico, Kazakhstan, Nigeria, Saudi Arabia, Republic of Congo, and Libya
Disgorgement and interest: $23,529,718
Tidewater Entities
DOJ
Entities: Tidewater Marine International Inc., Tidewater Inc.
Resolution Vehicle: Criminal information charging Tidewater Marine with conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's books and records provisions. Charges resolved through a deferred prosecution agreement with Tidewater that requires, among other things, Tidewater Marine to pay a $7.35 million criminal penalty.
Countries: Azerbaijan and Nigeria
Penalty: $7.35 million
SEC
Entity: Tidewater Inc.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations
Countries: Nigeria, Azerbaijan
Disgorgement: $8,104,362
Civil Penalty: $217,000
Transocean Entities
DOJ
Entities: Transocean Inc. and Transocean Ltd.
Resolution Vehicle: Criminal information charging Transocean Inc. with conspiracy to violate the FCPA's anti-bribery and books and records provision; violating the FCPA's anti-bribery provisions; and aiding and abetting the FCPA's books and records provisions. Charges resolved through a deferred prosecution agreement with Transocean Ltd. that requires, among other things, Transocean Inc. to pay a $13.44 million criminal penalty.
Countries: Nigeria
Penalty: $13.44 million
SEC
Entity: Transocean Inc.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations
Countries: Nigeria
Disgorgement and interest: $7,265,080
GlobalSantaFe Corp.
SEC
Entity: GlobalSantaFe Corp.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery provisions, FCPA books and records and internal controls violations
Countries: Nigeria, Gabon, Angola, Equatorial Guinea
Disgorgement: $3,758,165
Civil Penalty: $2.1 million
Noble Corporation
DOJ
Entity: Noble Corporation
Resolution Vehicle: Non-proseuction agreement in which Noble Corporation: (i) acknowledged that certain of its employees knew that payments would be passed on as bribes to Nigerian customs officials; and (ii) admitted that the company falsely recorded the bribe payments as legitimate business expenses.
Countries: Nigeria
Penalty: $2.59 million
SEC
Entity: Noble Corporation
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations
Countries: Nigeria
Disgorgement and interest: $5,576,998
Royal Dutch Shell Entities
DOJ
Entities: Royal Dutch Shell plc and Shell Nigeria Exploration and Production Company Ltd. ("SNEPCO")
Resolution Vehicle: Criminal information charging SNEPCO with conspiracy to violate the FCPA's anti-bribery and books and records provisions and with aiding and abetting the FCPA's books and records provisions resolved through a deferred prosecution agreement with Royal Dutch Shell Plc requiring, among other things, SNEPCO to pay a $30 million criminal penalty
Countries: Nigeria
Penalty: $30 million
SEC
Entity: Royal Dutch Shell plc and Shell International Exploration and Production Inc ("SIEP").
Resolution Vehicle: Administrative cease and desist order finding FCPA books and records and internal control violations by Royal Dutch Shell and FCPA anti-bribery violations by SIEP
Countries: Nigeria
Disgorgement: $18,149,459
*****
According to the SEC release (here), Cheryl Scarboro, Chief of the SEC's FCPA Unit stated: "This investigation was the culmination of proactive work by the SEC and DOJ after detecting widespread corruption in the oil services industry. The FCPA Unit will continue to focus on industry-wide sweeps, and no industry is immune from investigation."
The SEC release further states: [t]his is the first sweep of a particular industrial sector in order to crack down on public companies and third parties who are paying bribes abroad."
In enforcement actions that have long been anticipated, Panalpina entities, as well as several others, settled DOJ and SEC enforcement actions principally focused on customs and related payments in Nigeria, but also including alleged improper conduct in Angola, Brazil, Russia, Kazakhstan, Venezuela, India, Mexico, Saudi Arabia, the Republic of Congo, Libya, Azerbaijan, Turkmenistan, Gabon and Equatorial Guinea.
The combined DOJ/SEC settlement amounts total $236.5 million.
Your FCPA scorecard thus shows that since June 28th, the U.S. government has brought FCPA enforcement actions totaling approximately $1.1 billion. With numbers like these, aggressive FCPA enforcement based on, often times, dubious legal theories (more on that later) seems like the most profitable government program ever conceived.
Set forth below is a basic overview of the settlements. A more thorough review of the hundreds of pages of relevant documents will be forthcoming.
The DOJ resolution documents can be found here, the SEC resolution documents here.
Panalpina Entities
DOJ
Entities: Panalpina World Transport (Holding) Ltd. and Panalpina Inc.
Resolution Vehicles: Criminal information charging Panalpina World Transport(Holding) with conspiracy to violate and violating the FCPA's anti-bribery provisions. Charges resolved through a deferred prosecution agreement. Criminal information charging Panalpina Inc. with conspiracy to violate the FCPA's books and records provisions and aiding and abetting certain customers in violating the FCPA's books and records provisions. Charges resolved through a plea agreement.
Countries: Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan
Penalty: Combined $70.56 million
SEC
Entity: Panalpina, Inc.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, aiding and abetting FCPA anti-bribery violations, and FCPA books and records and internal controls violations.
Countries: Nigeria, Angola, Brazil, Russia, and Kazakhstan
Disgorgement: $11,329,369
Pride Entities
DOJ
Entities: Pride International Inc. and Pride Forasol S.A.S.
Resolution Vehicle: Criminal information charging Pride International with conspiracy to violate the FCPA's anti-bribery provisions and books and records provisions; violating the FCPA's anti-bribery provisions; and violating the FCPA's books and records provisions. Charges resolved through a deferred prosecution agreement. Criminal information charging Pride Forasol with conspiracy to violate the FCPA's anti-bribery provisions; violating the FCPA's anti-bribery provisions; and aidng and abetting violations of the FCPA's books and records provisions. Charges resolved through a plea agreement.
Countries: Venezuela, India and Mexico
Penalty: $32.625 million (combined)
SEC
Entity: Pride International Inc.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations.
Countries: Venezuela, India, Mexico, Kazakhstan, Nigeria, Saudi Arabia, Republic of Congo, and Libya
Disgorgement and interest: $23,529,718
Tidewater Entities
DOJ
Entities: Tidewater Marine International Inc., Tidewater Inc.
Resolution Vehicle: Criminal information charging Tidewater Marine with conspiracy to violate the FCPA's anti-bribery and books and records provisions and violating the FCPA's books and records provisions. Charges resolved through a deferred prosecution agreement with Tidewater that requires, among other things, Tidewater Marine to pay a $7.35 million criminal penalty.
Countries: Azerbaijan and Nigeria
Penalty: $7.35 million
SEC
Entity: Tidewater Inc.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations
Countries: Nigeria, Azerbaijan
Disgorgement: $8,104,362
Civil Penalty: $217,000
Transocean Entities
DOJ
Entities: Transocean Inc. and Transocean Ltd.
Resolution Vehicle: Criminal information charging Transocean Inc. with conspiracy to violate the FCPA's anti-bribery and books and records provision; violating the FCPA's anti-bribery provisions; and aiding and abetting the FCPA's books and records provisions. Charges resolved through a deferred prosecution agreement with Transocean Ltd. that requires, among other things, Transocean Inc. to pay a $13.44 million criminal penalty.
Countries: Nigeria
Penalty: $13.44 million
SEC
Entity: Transocean Inc.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations
Countries: Nigeria
Disgorgement and interest: $7,265,080
GlobalSantaFe Corp.
SEC
Entity: GlobalSantaFe Corp.
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery provisions, FCPA books and records and internal controls violations
Countries: Nigeria, Gabon, Angola, Equatorial Guinea
Disgorgement: $3,758,165
Civil Penalty: $2.1 million
Noble Corporation
DOJ
Entity: Noble Corporation
Resolution Vehicle: Non-proseuction agreement in which Noble Corporation: (i) acknowledged that certain of its employees knew that payments would be passed on as bribes to Nigerian customs officials; and (ii) admitted that the company falsely recorded the bribe payments as legitimate business expenses.
Countries: Nigeria
Penalty: $2.59 million
SEC
Entity: Noble Corporation
Resolution Vehicle: Settled civil complaint charging FCPA anti-bribery violations, FCPA books and records and internal controls violations
Countries: Nigeria
Disgorgement and interest: $5,576,998
Royal Dutch Shell Entities
DOJ
Entities: Royal Dutch Shell plc and Shell Nigeria Exploration and Production Company Ltd. ("SNEPCO")
Resolution Vehicle: Criminal information charging SNEPCO with conspiracy to violate the FCPA's anti-bribery and books and records provisions and with aiding and abetting the FCPA's books and records provisions resolved through a deferred prosecution agreement with Royal Dutch Shell Plc requiring, among other things, SNEPCO to pay a $30 million criminal penalty
Countries: Nigeria
Penalty: $30 million
SEC
Entity: Royal Dutch Shell plc and Shell International Exploration and Production Inc ("SIEP").
Resolution Vehicle: Administrative cease and desist order finding FCPA books and records and internal control violations by Royal Dutch Shell and FCPA anti-bribery violations by SIEP
Countries: Nigeria
Disgorgement: $18,149,459
*****
According to the SEC release (here), Cheryl Scarboro, Chief of the SEC's FCPA Unit stated: "This investigation was the culmination of proactive work by the SEC and DOJ after detecting widespread corruption in the oil services industry. The FCPA Unit will continue to focus on industry-wide sweeps, and no industry is immune from investigation."
The SEC release further states: [t]his is the first sweep of a particular industrial sector in order to crack down on public companies and third parties who are paying bribes abroad."
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