The FCPA Blog

Jack Grynberg: "I have been pursuing fraud in the energy industry for the past 15 years."Colorado-based independent oilman Jack Grynberg filed a 311-page complaint in December with the European Commission. He's asking for an investigation into alleged bribery and tax evasion in Kazakhstan by several oil companies he once partnered with. His claims relate to oil and gas developments dating back to the early 1990s -- the same ones at the center of the U.S. prosecutions of James Giffen and Brian Williams. See our post James Giffen And America's Secrets.

Grynberg, 78, who speaks six languages including Russian, is alleging "wholesale bribery and corruption of top Kazakh government officials." He claims the corruption led to his company's loss of rights in the Greater Kashagan and Karachaganak Oil Fields -- estimated to hold more than 9 billion barrels of recoverable oil and 25 trillion cubic feet of natural gas.

His complaint names BP plc, StatoilHydro A.S.A., Total S.A., Royal Dutch Shell plc, ENI S.p.A., ExxonMobil, ConocoPhillips, and Inpex.

In a release he sent to the FCPA Blog, he said:

My lawsuit in Brussels will attempt to open the window on this large scale bribery, tax evasion and corruption scheme, obtain subpoena power, and finally answer . . . questions which have remained unanswered for too long. It is unfortunate that the U.S. Department of Justice is attempting to prosecute the messengers, namely Mr. James H. Giffen and Mr. Brian J. Williams, instead of the main criminals and their cheif executives. My hope is that the European Commission will take a more balanced and assertive approach.

The complaint to the EC asserts that the alleged bribery infringed Articles 81 and 82 of the EEC Treaty (antitrust and abusive behavior).

Why the European Commission? Grynberg says he's exhausted his potential U.S. remedies and hasn't been able to subpoena the witnesses he needs (he deposed Giffen, who asserted his 5th Amendment privilege). Grynberg's civil fraud and Rico suit in the District Of Columbia against BP, Statoil, British Gas, and their top executives was bounced last year. The court ordered private arbitration in Canada under agreements Grynberg had signed for the projects.

Grynberg has a rich history of litigation, some of it productive. According to his own documents, he has been "pursuing fraud in the energy industry for the past 15 years." He cites these examples:

• In 1995, he filed one of the first False Claim Act qui tam lawsuits against 60 natural gas pipeline companies in the U.S., listing "13 ways condensate (light oil) and natural gas are stolen from federal and Native American lands."

• In 2007, Congresswoman Carolyn Maloney of New York introduced H.R. 435 (reintroduced this year as H.R. 1462), intended to stop the theft of condensate on federal and Native American lands in ways Grynberg identified.

• In September last year, he was awarded $5.66 million in a federal suit in the District of Columbia against the Central African Republic's President, Minister of Mines and Energy, and former Ambassador to the U.S. His suit claimed they demanded a $2 million bribe for an exclusive oil and gas development concession that Grynberg was ready to develop under previously signed agreements. He has also filed a complaint about the bribe demand in the International Centre for Settlement of Investment Disputes of the World Bank. A hearing is scheduled in Paris later this month.

• He's pushing amendments to the Foreign Corrupt Practices Act in Congress through H.R. 6188, which would create a private right of action under the FCPA.

Download the executive summary of Jack Grynberg's complaint to the European Commission here.

A federal lawsuit filed in Miami this week alleges that Republican fundraiser Harry Sargeant III and his company made illegal payments to Jordanian officials in exchange for an exclusive license to move military fuel through Jordan and into Iraq, according to NBC News. If the allegations are true, the payments may have violated the Foreign Corrupt Practices Act.

Harry Sargeant is the Finance Chairman of the Republican Party of Florida. He and his firm, Boca Raton-based International Oil Trading Company (IOTC), deny wrongdoing and say no bribes were paid. A spokesman for them said the allegations in the lawsuit are a "sour-grapes effort by a losing bidder, an attempt to shake down IOTC for a job well done," according to NBC News' Aram Roston.

NBC News says the Miami lawsuit was filed by a competitor of IOTC, Supreme Fuels, based in Dubai. The central allegation is a "conspiracy since 2004 to bribe key Jordanian government officials to ensure that defendants would be the sole recipients of more than one billion dollars worth of U.S. government contracts for the supply of fuels to the U.S. military in Iraq."

The suit against Sargeant and his company reportedly asks for damages under the federal RICO statute -- the Racketeer Influenced and Corrupt Organizations Act. Victims of overseas public corruption cannot bring private lawsuits under the Foreign Corrupt Practices Act. Only the Justice Department and, for public companies and their personnel, the Securities and Exchange Commission, can prosecute FCPA offenses. IOTC is privately-held. (Earlier this year, unrelated private RICO suits alleging foreign bribery were brought against BP and Alcoa.)

Sargeant was the subject last week of a letter written by U.S. Rep. Henry Waxman (D-Ca), the Chairman of the Committee on Oversight and Government Reform. The letter asked Defense Secretary Gates to investigate Sargeant and IOTC in connection with overcharges for fuel deliveries to the U.S. military in Iraq. Concerning IOTC's arrangements with Jordan, Rep. Waxman's letter said,

When the Defense Department awarded IOTC the June 2004 contract, IOTC was the highest bidder of six offers, with an initial bid over twice as high as the lowest offer. None of the five lower bidders were awarded the contract, however, because they were unable to obtain a "letter of authorization" to transport fuel from the Jordanian government. As a March 2004 "Preaward Survey" reported, IOTC's "major strength is the backing of the Royal Family." In effect, this backing gave IOTC a monopoly on the delivery of fuel through Jordan. Mr. Sargeant and IOTC appear to have taken full advantage of their ties to the Jordanian royal family. Under federal procurement law, it is illegal to award a contract to a company whose prices are not "fair and reasonable."

The 16-page letter also said,

The contract awarded to IOTC in June 2004 was rebid in March 2005 and December 2006. In neither instance was IOTC the low bidder, but the contracts were awarded to IOTC because it remained the only bidder with a letter of authorization from the Jordanian government. In April 2005, Mr. Sargeant advised a contracting official that the letter of authorization awarded to IOTC "is a sensitive issue in Jordan and they would prefer to keep it as low profile as possible."

NBC News says it received an email from a spokesman for Sargeant saying that only a legitimate fee was paid to the government of Jordan. "What Supreme [Fuels] calls a 'bribe' was a required fee for importing and transporting military fuel through Jordan," a spokesman for Sargeant and IOTC said. "The fee was paid to an official agency of the Jordanian state and thoroughly documented. This and any other related charge have been shared with the Department of Defense (and to Congress) as part of our transparent disclosure of any and all costs related to the fuel delivery process."

Payments to government agencies do not violate the Foreign Corrupt Practices Act. But payments to government officials to obtain or retain business that are made directly, or indirectly through a government agency, can violate the FCPA.

As reported by the New York Times last week, Sargeant is listed on Senator McCain’s website as having raised $500,000 or more for his presidential campaign. The campaign had to return some of Sargeant's contributions because they were improperly "bundled"to avoid contribution limits. The donations in question were solicited by Sargeant's Jordanian business partner, Mustafa Abu Naba’a, and were all returned.

Another partner, Mohammad al-Saleh, a brother-in-law of Jordan's King Abdullah II, sued Sargeant in Florida state court last year. According to the New York Times, he alleged that he "obtained special governmental authorizations [for IOTC] to transport the fuel through Jordan and was then unlawfully forced out by Mr. Sargeant, who strongly disputed those allegations."

Rep. Waxman’s letter to Secretary Gates said Sargeant’s profit from the fuel delivery contracts may have been $70 million or more.

The New York Times pointed out that there is no evidence Senator McCain or anyone connected to his campaign tried to influence the granting of the contracts to IOTC.

.

Based on total page views, here are the top five posts from the FCPA Blog so far in 2008:

1. Feeling the Heat Overseas, June 9, 2008

Foreign companies can't be blamed for wondering if they're being singled out under the Foreign Corrupt Practices Act. The names in the FCPA-related headlines alone are enough to cause high anxiety. ABB, Siemens, BAE, DaimlerChrysler, AstraZeneca and many more. But are U.S. prosecutors really focusing too much attention on U.K., European and other foreign companies instead of American firms? Probably not, at least according to the numbers. Here's the situation. . . .

2. Why We Keep Plugging, July 17, 2008

It's a familiar and unwelcome moment. Those on the other side of the table spot the FCPA compliance language for the first time:

The joint venture and all its personnel shall comply in all respects with the requirements of the United States Foreign Corrupt Practices Act.

Faces darken. The mood in the room goes sour. . . .

3. Grynberg v. BP et al, April 15, 2008

Last week we reported here about the civil suit filed in the U.S. District Court in D.C. by Colorado-based oilman Jack Grynberg, 76, against BP, Statoil and British Gas, along with some of their current or former top executives. The core allegation is that the defendants, without Grynberg's knowledge and using some of his money, bribed officials in Kazakhstan in order to win oil rights for joint ventures in which Grynberg had an interest. . . .

4. The FCPA Is No Private Matter, March 3, 2008

Last week we heard that Alba -- not the movie star Jessica but the smelter Aluminum Bahrain BSC -- had sued Alcoa for bribing Bahraini officials in exchange for supply contracts. The allegations sounded exactly like an offense under the Foreign Corrupt Practices Act. Alba's federal lawsuit, however, is based not on the FCPA but on common law fraud and RICO -- the Racketeer Influenced & Corrupt Organizations Act found at 18 U.S.C. §§1961-68. So what happened to the FCPA? . . .

5. Scandal Hits The Compliance Monitors, January 19, 2008

. . . No matter how you spin it -- and Messrs. Christie and Ashcroft have been doing plenty of that -- the appointments have the appearance of impropriety. Peel away the PR and the best you can say is that there was some obvious cronyism going on. The worst you can say is that the DOJ created a scheme by which U.S. Attorneys can extract millions of dollars from wrongdoers and funnel the money to former bosses, friends and political allies. We don't buy the sinister version for a second, but lots of people will take it as gospel. . . .

.

Last week we reported here about the civil suit filed in the U.S. District Court in D.C. by Colorado-based oilman Jack Grynberg, 76, against BP, Statoil and British Gas, along with some of their current or former top executives. The core allegation is that the defendants, without Grynberg's knowledge and using some of his money, bribed officials in Kazakhstan in order to win oil rights for joint ventures in which Grynberg had an interest.

A friend sent us a copy of Grynberg's complaint. It alleges facts which, if true, would violate the Foreign Corrupt Practices Act. Because there is no private right of action under the FCPA, we asked in our prior post whether the Department of Justice would investigate Grynberg's allegations. After reading his complaint, the answer must be yes.

What follow are excerpts from Grynberg's pleading. We've omitted the paragraph numbers that appear in the original document and we've split up some longer sections for the sake of readability. But all of the language between our lines is taken directly from the complaint.

This is a lot more text than we usually post at one go. But it's fascinating material and extremely unusual. Normally, allegations about international public corruption and violations of the FCPA come only from the Department of Justice and the Securities and Exchange Commission. This story, however, is told by an industry insider who's also an alleged victim.

____________________

COME NOW the Plaintiffs, Jack J. Grynberg (“Grynberg”), Grynberg Production Corporation, a Texas corporation (“GPC Texas”), Grynberg Production Corporation, a Colorado corporation (“GPC Colorado”) and Pricaspian Development Corporation, a Texas corporation (“PDC”), collectively, the “Grynberg Plaintiffs,” through their undersigned counsel and for their Complaint against Defendants B.P. P.L.C. (“BP”), BP Corp North America Inc., StatoilHydro ASA (“StatoilHydro”), John Browne (“Browne”), Anthony Hayward (“Hayward”), Peter Sutherland (“Sutherland”), Helge Lund (“Lund”), British Gas (“BG”) and Eivind Reiten (“Reiten”), respectfully allege as follows:

This is a case about Statoil’s, BP’s and BG’s role -- and the role of its executive leadership – in a massive scheme involving illegal bribes paid to various top officials of the Government of Kazakhstan by several oil companies, and the scheme to cover up those bribes from public disclosure through a series of misrepresentations. There have been many victims of these bribes and their cover up – beginning with the People of Kazakhstan who have been denied their right to the benefits of the resources extracted from their land and the right to the honest services of their governmental officials of the bribes and the cover-up. The Grynberg Plaintiffs are another group of victims.

The Grynberg Plaintiffs comprise a small petroleum exploration, development and production consortium, who have engaged in honest and fully transparent business dealings in Kazakhstan and elsewhere since the late 1980’s. Plaintiffs contracted with larger oil companies to help them explore and develop Kazakhstan’s vast oil and natural gas potential. But some of the larger oil companies cut their own deal with the Kazakhstan Government to squeeze the Grynberg Plaintiffs out of Kazakhstan, using the Grynberg Plaintiffs’ confidential, proprietary, and extremely valuable, geological and geophysical information.

Settlement agreements were ultimately reached between Plaintiffs and the larger companies, whereby the larger companies bore express duties to account for net profits in the Pricaspian Sedimentary Basin of offshore and onshore northwestern Kazakhstan, also known as the Area of Mutual Interest (“AMI”), and pay Plaintiffs a portion of those net profits, and implied duties to engage honest business practices including transparent accounting and refraining from foreign corrupt practices.

This lawsuit arises from the Grynberg Plaintiffs’ discovery that Defendants have engaged in criminal bribery schemes, and in attempting to cover up those bribes, have lied to the Plaintiffs, withheld evidence, with trickery have attempted to force Plaintiffs, without their knowledge, consent or approval, to pay a portion of those illegal bribes out of the profits that the corporate Plaintiffs should have shared in, thereby harming Plaintiffs’ hard-earned and well-justified reputation as a crusader against bribery and other corruption within the petroleum industry.

Grynberg has a long history of resisting and exposing the corruption in the petroleum industry. In April of 1995, Grynberg filed a series of False Claims Act qui tam lawsuits in his capacity as a Realtor for the United States and Native Americans, including Civ. No. 95-725 (TFH), District Court, District of Columbia, U.S. ex rel. Jack J. Grynberg v. Alaska Pipeline Co. et al., and Case No. 1999MDL1293, U.S. District Court, Casper, Wyoming, Natural Gas Royalties Qui Tam Litigation. Both were filed in accordance with the False Claims Act, 18 U.S.C. § 3729 et seq. In all, Grynberg has expended in excess of twenty million dollars ($20,000,000.00) on attorney’s fees, court costs and expenses.

The above mentioned qui tam lawsuits, against 66 and subsequently enlarged to 305 corporate Defendants in the natural gas industry, challenged the mismeasurement of the volume and wrongful analysis of the heating content of natural gas causing substantial underpayments of royalties to the United States and Native Americans. Grynberg’s lawsuits allege that those Defendants are responsible for under-measuring the volume and wrongly analyzing the heating content of natural gas produced from mineral property interests owned by the United States and Native Americans, and artificially inflating net-back charges using improper valuation and transactions with non-arm’s length affiliates, to reduce royalties owed to the United States and to Native Americans.

The consolidated qui tam actions are currently before the U.S. Tenth Circuit Court of Appeals. Several “copy-cat” qui tam actions against the oil and natural gas industry have been filed by other whistleblowers and are progressing through the courts as well. . . .

Mr. Grynberg speaks, reads and writes fluent Russian, and was a scientific analyst in the United States Army Research and Development Command working on Soviet radioactive warfare in 1956-57. . . .

Plaintiffs Grynberg [and his companies] have engaged in the international petroleum exploration, development and production for over forty (40) years.

In the late-1980’s Grynberg, using his knowledge of Russian, personally began establishing relationships with key individuals and decision makers in the oil, natural gas and mineral exploration and production industries in the former Soviet Union, including the satellite states of Eastern Europe, and the future Caspian Sea republics, including and especially Kazakhstan. . . .

James H. Giffen (“Giffen”) was the principal and CEO of Mercator Corporation (“Mercator”), a New York corporation owned by Mr. Giffen, who had been advising the Republic of Kazakhstan throughout the 1990’s and early 2000’s in connection with various transactions related to the sale by Kazakhstan of portions of its oil and natural gas wealth.

On March 30, 2003, Giffen was arrested at Newark Airport attempting to flee the United States, served with a criminal grand jury indictment, and is now awaiting trial after posting $10,000,000.00 bail, in U.S. v. Giffen, 03-MJ-663, S.D.N.Y. (March 2003). . . . Giffen was notorious for his part of a scheme to pay off high Kazakh government officials to smooth the way for the original KCS Concession Agreement and subsequent Kazakh Government approval for the BPX/Statoil assignment of its interests to other OKIOC Concessionaires. No payment to Giffen, by any person engaged in GKOF activities, could have been for other than criminally-tainted purposes.

The Defendants BP/Statoil and BG paid their share, amounting to at least 1/7th of $84 million or $12 million of the illicit bribes attributed to Giffen’ s activities with respect to GKOF.

One prominent American oil company, Chevron, which did not participate in OKIOC consortium appears to be the exception that proves the rule. Chevron did not pay the $40 million “entrance fee,” as it has been confided by a confidential source to Plaintiff Grynberg, precisely because it was seen as an illegal bribery. Plaintiff Grynberg has signed a verification of this Complaint to confirm this information.

The Foreign Corrupt Practices Act, 15 U.S.C. §§ 78a, 78dd-1 to 78dd-3, 78ff, the Interstate and Foreign Travel to Aid Racketeering, 18 U.S.C. § 1952, and Engaging in Monetary Transactions in Proceeds from Specified Unlawful Activities, 18 U.S.C. § 1957, not only bar this type of conduct directly but at the same time compel both the corporate Plaintiffs and Jack J. Grynberg to take independent action to disassociate themselves, in their contractual capacity, from these illegal acts by the BPX/Statoil, BG, and the individual defendants.

As a forced and innocent victim in the payment of approximately $40,500,000.00 of illegal payments to foreign government officials (a percentage of which was charged to Plaintiffs), failure to take the necessary steps to seek immediate return of these funds and disavowal in such practices might potentially expose Plaintiffs to risk and costs associated with the ongoing DOJ criminal investigations against each of the oil and gas company Defendants.

Following Giffen’s criminal indictment, Grynberg sought to obtain information concerning the details of Giffen’s arrangements with various oil companies within Kazakhstan, including BP, Statoil, BG, ENI and Chevron, both informally and in the context of settlement negotiations. Defendants have asserted attorney-client privileged information, trade secrets, contractual obligations or proprietary information for BP/Statoil and BG or other consortium members and ultimately demanding the return of documents, which, more likely than not, establish unlawful, potentially criminal conduct. Defendants will also seek to use the confidentiality agreement from the Arbitration to shield information and documents relating to their activity.

Plaintiffs have nevertheless uncovered documentary evidence that at least $500,000 has been paid by BP to Giffen for so-called “expenses” believed to constitute illegal bribe payments.

Defendants BP/Statoil, moreover, have classified approximately $40 million in unspecified expenses as “production sharing fees,” while BG has denied Plaintiffs access to audit its books where similar hidden, so-called “production sharing fees” are to be found. Standard international production sharing contracts pay production sharing fees only from actual petroleum production and not before any oil and natural gas production begins. The so-called “production sharing fees” of approximately $40 million are, more likely than not, illegal bribe payments.

Given Defendants’ intransigence and misuse of confidentiality provisions, the corporate Plaintiffs and Jack J. Grynberg are compelled to take independent action, through this Complaint and to the extent confidential as detailed in the Affidavit of Jack J. Grynberg (filed under seal).

_________________

The British press is reporting (here and here) that oil giant BP and its current and former CEOs, Tony Hayward and Lord Browne, as well as Norway's Statoil and its CEO, are among the defendants named in a civil lawsuit involving allegations of bribery of government officials in Kazakhstan.

The suit was filed in the U.S. District Court for the District of Columbia by Grynberg Production Corporation, a Denver-based oil company owned and run by chairman Jack Grynberg. According to one report, "The 27-page lawsuit, a copy of which has been seen by The Daily Telegraph, accuses the defendants of violating the United States' Racketeer Influenced and Corrupt Organisations (RICO) Act, of conspiring to break the RICO Act, of common law fraud, of theft, and breaching constructive trust. . . . . The core allegation is that the defendants, without Grynberg's knowledge, bribed officials in Kazakhstan to win oil rights from joint ventures in which Grynberg had an interest."

Private parties, as we have said, have no right of action under the Foreign Corrupt Practices Act. Only the Department of Justice and the Securities and Exchange Commission can enforce it. But this is the second civil suit filed in U.S. federal district court recently that involves allegations of behavior that, if true, would constitute violations of the FCPA. Last month, Bahrain-owned Alba filed a civil suit against Alcoa and its agent alleging bribery of Bahraini officials. That suit also included causes of action based on RICO and common-law fraud. The suit was stayed after just three weeks at the request of the Department of Justice, while it conducts its own investigation whether the FCPA and other criminal laws were violated. The DOJ has not indicated whether it will also launch a criminal investigation into Mr. Grynberg's allegations against BP, Statoil and their leaders.

According to one British press report, "Mr. Grynberg began working in the Kazakh region in November 1990, signing partnership agreements with the defendants in a bid to take advantage of the untapped resources onshore and offshore in the north-west of the former Soviet state. However, Mr Grynberg claims that he did not know that the defendants were involved in allegedly channelling some of his money from the various joint ventures to bribe Kazakh officials in order to win specific licences."

The case is related to the smoldering controversy involving American businessman James Giffen. He was arrested in New York in 2003 for allegedly paying or offering $78 million in bribes to an advisor of Kazakhstan's president and its former oil and gas minister. Giffen was charged with violating the FCPA but has not been brought to trial. When arrested he was carrying a Kazakhstani diplomatic passport. His lawyers say he was acting in Kazahkstan with the full knowledge and approval of the U.S. government.

Mr. Grynberg alleges in his civil suit that BP, Statoil and the other defendants paid about $12 million among them of the alleged bribes in Kazakhstan that the U.S. government says are attributed to Mr Giffen. Mr Grynberg apparently told The Daily Telegraph he was bringing the civil suit to protect himself against FCPA charges. "Unless I assert that I was an unwilling participant in this, my neck could be on the line. I'm too old to go to prison," said 76-year-old Mr Grynberg. He has also recently sued BP and its former CEO Lord Browne based on bribery allegations involving government officials in Grenada.

The British press reports say BP declined to comment on the case and that a spokesman for Statoil said the suit was completely unfounded.