The FCPA Blog

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.]

Director Richard Alderman says, "The Serious Fraud Office has changed significantly over the past year. We have become much more proactive and innovative in our approach to combating serious fraud and corruption." The Financial Times reported Thursday that David Mabey, the former head of British construction firm Mabey & Johnson Ltd, will be charged by the Serious Fraud Office with false accounting and breaching the United Nations' sanctions on Iraq.

Mabey & Johnson was sentenced in September last year by an English court for overseas corruption and violating the U.N.'s oil-for-food program. The bridge-building specialist paid £6.6 million in criminal fines and related assessments. It had pleaded guilty to bribing officials in Jamaica and Ghana to win public contracts, and paying more than £123,000 to the pre-war Iraqi regime in violation of U.N. sanctions. The privately-held company was also required to retain and pay for an SFO-approved compliance monitor.

The press report said David Mabey is scheduled to appear at the City of Westminster Magistrates' Court on February 2. It said,

The prosecution of Mr Mabey highlights a new potential legal pitfall facing existing directors and those aiming for boardroom jobs. Follow-on criminal cases against individual directors in corrupt businesses are common in the U.S., where prosecutors have for many years successfully used companies' confessions as platforms to pick off executives allegedly involved.

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In December, the SFO charged a former executive of a Johnson & Johnson subsidiary with overseas corruption. Robert John Dougall, 44, an ex-vice president of DePuy International Limited, was accused of making corrupt payments to medical professionals in the Greek public healthcare system in order to sell orthopaedic products. A copy of the SFO's December 1 announcement is here.

In February 2007, Johnson & Johnson said it had "voluntarily disclosed to the U.S. Department of Justice and the U.S. Securities and Exchange Commission that subsidiaries outside the United States are believed to have made improper payments in connection with the sale of medical devices in two small-market countries. "

DePuy and four other orthopedic device makers -- Biomet, Zimmer, Smith & Nephew and Stryker -- agreed in September 2007 to pay $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Since the U.S. settlement, the four companies, along with Medtronic Inc. and Wright Medical Group, have disclosed DOJ and SEC Foreign Corrupt Practices Act investigations. 

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The SFO's website says the agency is "an independent Government department that investigates and prosecutes serious or complex fraud and corruption." It's part of the U.K. criminal justice system with jurisdiction in England, Wales and Northern Ireland but not in Scotland, the Isle of Man or the Channel Islands. The director (Richard Alderman, above) is appointed by and accountable to the attorney general (Baroness Scotland).

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The SFO now has about 80 ongoing cases and is pushing for enactment of the new Bribery Bill. In November the bill was sent to the House of Lords. The Ministry of Justice says the legislation would replace the "fragmented and complex offences at common law and in the Prevention of Corruption Acts 1889-191." It would also create two general offences -- paying or offering bribes, and asking for or receiving bribes. Like the FCPA, it would create a separate offence of bribery of a foreign public official, and add a new corporate offence of failing to prevent a bribe being paid on the company's behalf. See our post 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.

~ From a comment to Yemen's Grand Corruption on the Global Graft Report left by Jonathan Eyler-Werve at Global Integrity

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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.

British firm Mabey & Johnson Ltd was sentenced last week by an English court for overseas corruption and violations of the U.N.'s oil-for-food program. The bridge-building specialist will pay £6.6 million in criminal fines and related assessments. It pleaded guilty in July to bribing officials in Jamaica and Ghana to win public contracts, and paying more than £123,000 to the pre-war Iraqi regime in violation of U.N. sanctions. As part of its sentence, the privately-held company is also required to retain and pay for an SFO-approved monitor to review its internal compliance program.

The SFO's director Richard Alderman said: “This is a landmark outcome. The first conviction in this country of a company for overseas corruption and for breaking the U.N. Iraq sanctions and, satisfyingly, achieved quickly. . . . I urge other companies who might see some parallels for them, to come and talk to us and have the matter dealt with quickly and fairly."

Mabey & Johnson self-disclosed its illegal overseas conduct to the SFO in 2008. It said the bribery occurred between 1993 and 2001. In Jamaica and Ghana, the prosecution said, Mabey & Johnson "knew that its agents were involved in corrupt relationships with public officials with influence over M&J’s affairs in those jurisdictions. M&J accept that they agreed with their agents to pay bribes directly to public servants in those jurisdictions. Those bribes were deducted from the overall commission due to the agents."

The company's guilty plea has led to the resignation of Jamaica's junior minister of transport and works after he was linked to the corrupt business practices.

In its submission to the sentencing court, the SFO's statement about Mabey & Johnson included this message on the nature of public bribery:

The SFO is committed to the interests of the victims of overseas corporate corruption. Overseas corruption is not a “victimless crime." As the present case demonstrates only too well, the victims are all or any of the proper interests of the governments of the countries where such practices are carried out, the integrity of their civil services and public officials, and - more generally - the peoples of those countries, particularly the poorer and poorest sectors of those populations.

The Serious Fraud Office was lambasted after its 2006 decision to drop the investigation of BAE Systems for bribery. It said then it had no choice because Saudi Arabia threatened not to buy Typhoon aircraft or continue sharing anti-terrorism intelligence. The High Court in London called the episode an outrage, an abject surrender to threats, and a capitulation. On the government's appeal to the House of Lords, five law lords decided the SFO's action was legal but "extremely distasteful." Former SFO director Robert Wardle left his post in April 2008.

View the Serious Fraud Office's September 25, 2009 release regarding the sentencing of Mabey & Johnson here.

Download the text of the prosecution's opening statements for (a) the corruption offenses in relation to Jamaica and Ghana and (b) breaching U.N. sanctions in the oil-for-food program here.
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The last time we had a serious discussion about the U.K.'s Serious Fraud Office was to report its thrashing in June 2008 by a former American prosecutor. Jessica de Grazia, who'd been an assistant district attorney in Manhattan for 13 years, was hired by the U.K.'s then-attorney general to find out why the SFO couldn't get it right. As the U.K. Times said, her arrival at the SFO sparked panic.

But times change and even the SFO gets a second chance. Earlier this month it brought what may be the first of several cases against British firms for overseas corruption.

Mabey & Johnson pleaded guilty this month to violating the U.N.'s old Iraq sanctions and to an additional ten charges of overseas graft. The BBC reported that the company, which specializes in making temporary bridges, admitted at the Westminster Magistrates Court that it tried to influence officials in Jamaica and Ghana to award it public contracts. It also admitted paying more than £123,000 to the pre-war Iraqi regime in violation of the U.N. sanctions. The company hasn't been sentenced yet.

Reuters said Mabey & Johnson's admissions let to the resignation of Jamaica's junior minister of transport and works after he was linked to the U.K. company's corrupt business practices.

The emergence of an energized Serious Fraud Office, if that's what we're seeing, could mean the start of a lot more anti-corruption enforcement from London. According to the Telegraph, the SFO has spent £22 million investigating breaches by British firms of the oil-for-food program and more prosecutions could follow.

Former SFO director Robert Wardle left his post in April 2008, two months before de Grazia released her report. The U.K. Times' story about de Grazia was called "She came, she saw, she scythed through the SFO." The paper quoted an ex-staffer at the SFO as saying, “She caused chaos. She called meetings of case controllers and asked them to identify the crap assistant directors. Then she went to the investigators and asked them who was a crap case controller.”

The SFO had often been in hot water because of blown prosecutions. The worst trouble, though, came after its 2006 decision to drop the high-profile investigation of BAE Systems for bribery. It said it had no choice because Saudi Arabia threatened not to buy Typhoon aircraft or continue sharing anti-terrorism intelligence. The High Court in London called the episode an outrage, an abject surrender to threats, and a capitulation. On the government's appeal to the House of Lords, five law lords decided the SFO's action was legal but "extremely distasteful."

In de Grazia's 157-page report, she compared prosecution rates for the Serious Fraud Office with those of her former employer, the New York District Attorney's Office. In 2007, she said, the SFO had about three times more lawyers than the Frauds Bureau at the Manhattan District Attorney's Office. The New York DA's 19 lawyers -- with virtually no outside help -- managed to conclude the prosecution of 124 white collar defendants from 2003 to 2007. During the same period, the SFO's 56 staff lawyers concluded 166 prosecutions, and spent more than £4 million on external counsel. That means the per-lawyer prosecution rate in the New York DA's office was at least double and maybe triple that of the SFO.

Britain's Sunday Times reported that after release of de Grazia's report, dozens of lawyers, accountants and investigators were offered large severance packages to leave the agency.

Download a copy of Jessica de Grazia's June 2008 report here.

Coming up: The SFO meets the DOJ.
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