Entries in Exxon (6)
Doping in sport, like graft in business, skews the rules of the game.
A story in the Financial Times (here) earlier this year said authorities in the U.S. and Ghana are investigating corruption allegations involving a privately held Texas oil company, Kosmos Energy. It controls a large share of the 1.8 billion barrel Jubilee field, one of Africa's biggest recent oil finds.
The paper said Ghanian prosecutors are preparing criminal charges against Kosmos' local partner, EO. It said EO was formed by two allies of John Kufuor, Ghana's president until last year. One of EO's founders was Houston-based businessman George Owusu, who was Kosmos’ representative in Accra. The other was Kwame Bawuah Edusei, later appointed Ghana's ambassador to the U.S.
The report said the U.S. Justice Department "is also understood to be probing the relationship between EO and Kosmos, although the department on Thursday declined to confirm or deny this."
Kosmos' local partner, EO, reportedly holds a 3.5 percent stake in the offshore oil block found to be commercial in 2007. In October last year, Kosmos announced the sale of all its interests in Ghana, including the Jubilee field assets, to Exxon Mobil Corporation for $4 billion. EO's stake, the Financial Times said, could be worth more than $200 million.
The Financial Times said EO brought Kosmos into Ghana three years ago. In exchange, Kosmos gave EO the 3.5 percent interest and paid EO's "share of exploration and development costs, according to an agreement between the two companies obtained by the Financial Times."
Kosmos is mainly owned by private equity firms Warburg Pincus and Blackstone Capital Partners.
The charges in Ghana against EO, according to the Financial Times, would include causing a financial loss to the state, money laundering, and making false declarations to public agencies. Both EO and Kosmos have denied any wrongdoing.
Kosmos told the Financial Times that "Ghana now wants to secure a share of the profits by forcing Kosmos to sell itself at a knock-down price to GNPC, the state oil group, which could then sell it to the highest bidder."
A few days ago, a Ghanian website reported that Ato Ahwoi, Board Chairman of GNPC -- the Ghana National Petroleum Corporation -- and other key government officials with diplomatic passports were initially "refused visas to travel to the U.S. for no specific reason, sparking huge diplomatic controversy." The officials, later granted visas, were reportedly traveling to attend meetings with Kosmos' owners Warburg Pincus and Blackstone Capital Partners.
The Wall Street Journal said last month: "The fiasco has become an embarrassment for the Obama Administration, which singled out Ghana as an example of good governance during the President's trip to Africa last year. The State Department has lately stepped up criticism of the country, suggesting that future aid and investment will be contingent on the country's behavior, noting that the resolution of the Kosmos issue 'reflects on Ghana's reputation as an investment destination.'"
The New York Times reported in October last year that Kosmos' sale to Exxon Mobil requires approval by Ghana’s government, which is itself interested in buying the assets. Ghanian sources have also said the government opposes Kosmos' sale to Exxon Mobil and is "considering cutting a deal with a leading Chinese oil company for the stake."
The Financial Times reported that Duke Amaniampong, a California-based lawyer working for the Ghanaian investigation, said Ghana’s attorney general had accumulated “enough evidence of criminal culpability to bring charges against the EO group and its directors." A website called Modern Ghana said Amaniampong was appointed to help Ghana's attorney general prosecute “Kufuor's men." It said he is a graduate of Santa Clara University law school and was admitted to the State Bar of California in 1996.
When production begins later this year from the Jubilee field -- expected to be 120,000 barrels a day -- Ghana will become an oil exporting country.
[Editor's note: A version of this post originally appeared on the Global Graft Report, a site not currently available to the public. It is republished here with updates by special request.]
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.
George Terwilliger -- formerly of the DOJ and now in private practice -- had some wise words about decisions to launch internal investigations. His article in law.com included this tightly packed and well-mannered exhortation:
Most corporate decision-makers do not have the experience necessary to anticipate the judgments and proclivities of enforcement officials. Understanding how prosecutors think and what factors are important to them is essential to deciding whether and to what extent to conduct an internal investigation. Animated discussion, in the confines of privilege, with professionals who understand what prosecutors expect and why, is essential to sound analysis of an investigation's results and good decisions based on its results. This kind of analysis also is best broadened -- within the confines of privilege -- to include in-house personnel with financial, public relations and investor-relations expertise, as the decisions made will significantly affect the portfolios of each.
Great advice, with a serious reminder about the attorney-client privilege. It protects the normal give-and-take that's essential for sound decision-making.
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Who are we fighting for? Yemen's executive, judicial, and legislative accountability mechanisms are among the worst assessed in 2008. Although there are strong anti-corruption laws on the books, the anti-corruption agency is ineffective. Furthermore, political financing is generally unregulated, while civil society organizations are ineffective in fighting corruption. The media, which is subject to political interference, also receives poor ratings. Several journalists have been arrested, harassed, or imprisoned for their corruption-related investigative stories. Government control over private radio is among the most draconian in the world.
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Kosmos Energy, Exxon Mobil, and Ghana. A huge oil find, a struggle for control, corruption allegations, and a Chinese subplot. Here.
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Words we like. From Justice Louis Brandeis, concurring in Charlotte Anna Whitney v. California, 274 U.S. 357 (1927) at 375:
Those who won our independence believed that the final end of the state was to make men free to develop their faculties, and that in its government the deliberative forces should prevail over the arbitrary. They valued liberty both as an end and as a means. They believed liberty to be the secret of happiness and courage to be the secret of liberty. They believed that freedom to think as you will and to speak as you think are means indispensable to the discovery and spread of political truth; that without free speech and assembly discussion would be futile; that with them, discussion affords ordinarily adequate protection against the dissemination of noxious doctrine; that the greatest menace to freedom is an inert people; that public discussion is a political duty; and that this should be a fundamental principle of the American government.
Aside from the villa on Lake Como and the Aston Martin in the garage, the greatest perk that comes from tending this garden is hearing from so many talented experts in the field of the Foreign Corrupt Practices Act. Last week, for example, a generous reader shared with us a soon-to-be published paper about Facilitating Payments. Seeing our favorite FCPA topic treated with such thorough scholarship, and wrapped in a truly eloquent presentation, was genuinely exciting. It made our day.
We mention the incident, first, to express our gratitude to that particular reader and to all who contribute to the FCPA Blog in so many ways. We also mention it because the paper in question made copious use of the FCPA's rich legislative history -- stimulating us to revisit some of Washington's original debate about the law. Indeed, the Congressional record is still a deep well of meaning and inspiration for FCPA practitioners, judges and scholars.
Among the goodies in the legislative history are the reasons given in 1977 for why the country needed the FCPA. Thirty years on, we think those reasons still ring true.
Here's what the House Committee on Interstate and Foreign Commerce said:
More than 400 corporations have admitted making questionable or illegal payments. The companies, most of them voluntarily, have reported paying out well in excess of $300 million in corporate funds to foreign government officials, politicians, and political parties. These corporations have included some of the largest and most widely held public companies in the United States; over 117 of them rank in the top Fortune 500 industries.
The abuses disclosed run the gamut from bribery of high foreign officials in order to secure some type of favorable action by a foreign government to so-called facilitating payments that allegedly were made to ensure that government functionaries discharge certain ministrial [sic] or clerical duties. Sectors of industry typically involved are: drugs and health care; oil and gas production and services; food products; aerospace, airlines and air services; and chemicals.
The payment of bribes to influence the acts or decisions of foreign officials, foreign political parties or candidates for foreign political office is unethical. It is counter to the moral expectations and values of the American public. But not only is it unethical, it is bad business as well. It erodes public confidence in the integrity of the free market system. It short-circuits the marketplace by directing business to those companies too inefficient to compete in terms of price, quality or service, or too lazy to engage in honest salesmanship, or too intent upon unloading marginal products. In short, it rewards corruption instead of efficiency and puts pressure on ethical enterprises to lower their standards or risk losing business.
Bribery of foreign officials by some American companies casts a shadow on all U.S. companies. The exposure of such activity can damage a company's image, lead to costly lawsuits, cause the cancellation of contracts, and result in the appropriation of valuable assets overseas.
Corporate bribery is also unnecessary. The Secretary of Treasury testified before the Subcommittee on Consumer Protection and Finance: Paying bribes. . . is simply not necessary to the successful conduct of business in the United States or overseas. My own experience as Chairman of the Bendix Corp. was that it was not necessary to pay bribes to have a successful export sales program.
Nor is Secretary Blumenthal's experience unique. Former SEC Chairman Hills testified: Indeed, we find in every industry where bribes have been revealed that companies of equal size are proclaiming that they see no need to engage in such practices.
Despite the fact that the payments which this bill would prohibit are made to foreign officials, in many cases the resulting adverse competitive affects are entirely domestic. Former Secretary of Commerce Richardson pointed out that in a number of instances, "payments have been made not to "outcompete" foreign competitors, but rather to gain an edge over other U.S. manufacturers."
Corporate bribery also creates severe foreign policy problems for the United States. The revelation of improper payments invariably tends to embarrass friendly governments, lower the esteem for the United States among the citizens of foreign nations, and lend credence to the suspicions sown by foreign opponents of the United States that American enterprises exert a corrupting influence on the political processes of their nations. For example, in 1976, the Lockheed scandal shook the Government of Japan to its political foundation and gave opponents of close ties between the United States and Japan an effective weapon with which to drive a wedge between the two nations. In another instance, Prince Bernhardt of the Netherlands was forced to resign from his official position as a result of an inquiry into allegations that he received $1 million in pay-offs from Lockheed. In Italy, alleged payments by Lockheed, Exxon, Mobil Oil, and other corporations to officials of the Italian Government eroded public support for that Government and jeopardized U.S. foreign policy, not only with respect to Italy and the Mediterranean area, but with respect to the entire NATO alliance as well.
Finally, a strong antibribery statute would actually help U.S. corporations resist corrupt demands. According to former Gulf Oil Co., Chairman Bob Dorsey: If we could cite our law which says we just may not do it, we would be in a better position to resist these pressures and refuse those requests.
On the Senate side of the Hill in 1977, the problem of improper payments to foreign officials by American corporations was on the agenda of the Committee on Banking, Housing and Urban Affairs. Its final report contained a more concise although no less articulate (and even passionate) description of the need for the legislation. By the way, the working title of the bill, before it became the FCPA, was the "Unlawful Corporate Payments Act of 1977."
Here are the Senate's words:
Recent investigations by the SEC have revealed corrupt foreign payments by over 300 U.S. companies involving hundreds of millions of dollars. These revelations have had severe adverse effects. Foreign governments friendly to the United States in Japan, Italy, and the Netherlands have come under intense pressure from their own people. The image of American democracy abroad has been tarnished. Confidence in the financial integrity of our corporations has been impaired. The efficient functioning of our capital markets has been hampered.
Corporate bribery is bad business. In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate bribery is fundamentally destructive of this basic tenet. Corporate bribery of foreign officials takes place primarily to assist corporations in gaining business. Thus foreign corporate bribery affects the very stability of overseas business. Foreign corporate bribes also affect our domestic competitive climate when domestic firms engage in such practices as a substitute for healthy competition for foreign business.
Managements which resort to corporate bribery and the falsification of records to enhance their business reveal a lack of confidence about themselves. Secretary of the Treasury Blumenthal, in appearing before the committee in support of the criminalization of foreign corporate bribery testified that: "Paying bribes - apart from being morally repugnant and illegal in most countries - is simply not necessary for the successful conduct of business here or overseas.''
The committee concurs in Secretary Blumenthal's judgment. Many U.S. firms have taken a strong stand against paying foreign bribes and are still able to compete in international trade. Unfortunately, the reputation and image of all U.S. businessmen has been tarnished by the activities of a sizable number, but by no means a majority of American firms. A strong antibribery law is urgently needed to bring these corrupt practices to a halt and to restore public confidence in the integrity of the American business system.
View House Report No. 95-640 (September 28, 1977 - Ordered to be printed) here.
View Senate Report No. 95-114 (May 2 (legislative day, March 28), 1977 - Ordered to be printed) here.