FCPA issues surface in $622 million U.S. arbitration award against Petrobras
Tuesday, July 3, 2018 at 1:08PM
Richard L. Cassin in Petrobras, Vantage Drilling, arbitration

Vantage Drilling's Titanium ExplorerBrazil's state oil company and one of its big U.S.-based drilling contractors are locked in bitter litigation following allegations that the contractor won a disputed contract by paying bribes through a middleman.

On Monday (July 2), Vantage Drilling International said it was awarded $622 million for breach of contract in an arbitration against Petróleo Brasileiro S.A. (Petrobras).

The three-member arbitration tribunal also dismissed Petrobras' counterclaims against Vantage with prejudice, Houston-based Vantage said.

Petrobras said Tuesday (July 3) in an SEC filing that it will appeal the arbitral award against it.

Petrobras said its Petrobras America Inc. subsidiary terminated a contract with Vantage Drilling "due to material operational failures by Vantage."

Petrobras also said, "As revealed by 'Operation Car Wash,' the drilling contract was procured by corruption."

Both Vantage Drilling and Petrobras are under investigation in the United States for possible FCPA violations, according to data provided by FCPA Tracker. The investigations concern Petrobras’ and Vantage’s legacy investigations and not the arbitration award.

Arbitration proceedings are generally private, with the parties and arbitrators typically agreeing to strict confidentiality.

But in Tuesday's SEC filing, Petrobras said the grounds for its appeal are set out in the dissent to the arbitration award.

The dissenting arbitrator "specifically noted that the majority’s decision is subject to vacatur" under the U.S. Federal Arbitration Act (FAA), based on the following legal grounds:

the award was procured by corruption, fraud, or undue means; there was evident partiality and/or corruption in the arbitrators; the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; and, the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

Petrobras disclosed in a 2015 U.S. securities filing that in November 2014 it received a subpoena from the SEC. The subpoena requested "certain documents and information . . . relating to, among other things, the Lava Jato investigation and any allegations regarding a violation of the U.S. Foreign Corrupt Practices Act."

The oil giant also said the DOJ "is conducting a similar inquiry, and we are voluntarily cooperating with both investigations."

In August 2015, Vantage Drilling said in an SEC filing that its agent in Brazil had "entered into a plea arrangement with the Brazilian authorities" in connection with bribes to former Petrobras executives.

Vantage said it had "voluntarily contacted the SEC and the [DOJ]" about the "recent developments."

In more recent SEC filings, Vantage said it received a declination from the DOJ in August 2017 and had agreed in principle on an FCPA settlement with the SEC.

Vantage said it accrued $5 million for the SEC settlement, which it expected to happen in Q2 2018. The SEC and the company haven't yet formally announced a resolution.

The arbitration was administered by the International Centre for Dispute Resolution (ICDR) under the FAA.

The ICDR is part of the American Arbitration Association. It is headquartered in New York City and has offices in Mexico, Ireland, Bahrain, and Singapore.

The three-member arbitration panel made its award by majority vote, with one dissent -- presumably the arbitrator Petrobras appointed.

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Richard L. Cassin is the publisher and editor of the FCPA Blog.

Article originally appeared on The FCPA Blog (http://www.fcpablog.com/).
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