Africa's Oil And Gas Corruption In The Spotlight

The NGO Global Witness has published a new report that says governments in Africa are awarding concessions and production contracts to shell companies that may have ties to government officials.

"Rigged: The Scramble for Africa's Oil, Gas and Minerals" describes how joint ventures between international oil and gas firms and shell companies may be hiding corruption and helping fund crooked regimes.

Global Witness said its research revealed two major problems in the allocation of oil contracts:

• Governments aren't making clear the grounds for why a particular company is given a contract. In certain cases, companies with no real asset base or expertice appear to receive special or preferential access to oil licences, leading to doubts about the integrity of the process.

• And governments are awarding production rights to companies whose beneficial owners remain undisclosed. In some cases, there are grounds to suspect the shell companies may be owned or controlled by government officials or their private sector proxies.

Global Witness said oil and gas deals in Angola and Nigeria, among others, are complex and potentially corrupt. In the Democratic Republic of Congo, it expressed 'major concerns over opaque sales of mining assets' to offshore companies.

The 44-page report is available here.

Stanley, Tesler, and Chodan Sentencings Postposed

Sentencing of the three individual defendants in the TSKJ Nigeria case has been delayed again.

Jack Stanley, 66, is now set to be sentenced by Judge Keith P. Ellison in Houston on February 23 instead of February 3. The former CEO of KBR pleaded guilty three years ago to helping KBR and its partners pay more than $180 million in bribes to Nigerian officials. The companies won contracts worth $6 billion to build LNG facilities on Bonny Island, Nigeria.

Jeffrey Tesler, 62, a London lawyer who handled $130 million of the bribes, is scheduled to be sentenced in Houston on February 22. After his extradition from the U.K., he pleaded guilty last year to an FCPA conspiracy and a substantive FCPA count. As part of his plea, Tesler already forfeited $149 million to the U.S. Treasury. The money was in about a dozen bank accounts around the world.

The third individual defendant, Wojciech Chodan, 72, was a KBR manager in the U.K. He pleaded guilty in December 2010 to one count of conspiracy to violate the FCPA. He's also set to be sentenced on February 22.

Tesler and Chodan were supposed to be sentenced on February 2.

Stanley received a preliminary sentence of 84 months in prison and was ordered to make a restitution payment of $10.8 million. His jail term hasn't started yet and is subject to review based on his cooperation in the case.

With Stanley's help, enforcement actions against the four TSKJ partners resulted in settlements of $1.65 billion. Those settlements now make up four of the six biggest FCPA cases of all time.

KBR and its one-time parent Halliburton paid $579 million in 2009 to resolve criminal and civil FCPA charges. In 2010, Italy's Snamprogetti paid $365 million to U.S. enforcement agencies, and France's Technip paid $338 million. Then in 2011, JGC paid $218.8 million.

Stanley and Chodan have objected to the government's presentence reports.

Sentencing of the three individual defendants was reset numerous times while the government completed its prosecution of the TSKJ partners.

Reducing C-Level Risk In Compliance Land

By David Riker

The CEOs, CFOs, COOs and Chief Compliance Officers we meet with are well aware of the FCPA and are working to put in place compliance programs to keep their companies on the right side of the law, but they are not terribly concerned about their own personal exposures. Their logic: If I’m not physically handing over a bag of money to a corrupt government official, I’m clean.

This, of course, is not true. According to this great analysis from Chadbourne & Parke (in pdf here), 53 of the 61 individuals charged with violating the FCPA over the past six years were senior corporate officers, not bag men. Moreover, 8 of these individuals were charged despite committing no direct action in the corrupt act.

Based on our own analysis of hundreds of FCPA cases, meetings with C-level managers and FCPA screening programs implemented around the world, we’ve come up with a five question reality check for senior execs who don’t think they need to worry about their personal exposure to the FCPA:

Is your company doing business in Mexico, Nigeria, Brazil, China or India?

Operations in countries with less mature corporate governance laws/regulations are more likely to create a compliance breach for a multinational firm. It is critical to segment vendors, suppliers and marketing partners on a continuum of high-to-low risk based on their country of origin. China, for example, has seen a 50% increase in vendor, supplier and procurement fraud between 2010 and 2011 according to our annual Global Fraud Report.

Are you in the energy, manufacturing, pharmaceutical, defense or telecom sectors?

Based on total fines and recent enforcement trends, these are the highest risk industries. Since the FCPA was passed in 1977, companies in the Energy sector have been fined $2 billion; Defense and Aerospace contractors have been fined $443 million; Manufacturing firms have been fined $225 million;and Telecom companies have been fined $218 million. The DOJ has also been vocal about its plans to target more Pharmaceutical companies, which currently account for $84 million in total fines.

Do I know what I need to know about who I know?

The nature of emerging market expansion is such that multinationals typically assemble networks of vendors and agents to rapidly put boots on the ground in these regions. Perhaps not surprisingly, subsidiaries, agents and vendors are often a corporation’s weakest link in foreign corruption cases. These corporate outsiders, most of whom were probably not screened or background-checked like full-time employees, need to be vetted.

How can I standardize the process of compliance-checking everyone everywhere all at once?

As every 21st century CEO knows, good systems make good managers. Unfortunately, the process of vetting compliance measures in fast-moving emerging markets has historically been done in an ad-hoc, incomplete fashion with some regions collecting some data on vendors and partners, others collecting altogether different information and others collecting none. To avoid data overload, it is critical to build a systemic approach to fraud risk analysis.

What do I do when I find a violation?

We see this most commonly in the mergers and acquisition process: due diligence will reveal a series of inappropriate payments or other questionable accounting that raises serious red flags.  What managers do with this information can be the difference between a reputation for courageous leadership and potential personal liability. History has proven again and again that companies who spot a problem early and self-report it are far less likely to find themselves tangled in a long, painful investigation and, if they do, they are much more likely to avoid major sanctions.

________________

David Riker is Managing Director, Third Party Screening at Kroll. He blogs about corporate compliance risk at www.fcpalert.com. He can be contacted here.

'It's A Growth Industry, Isn't It?'

Jack Stanley's admissions when he pleaded guilty three years ago to conspiracy to violate the FCPA and commit mail and wire fraud were staggering.

The former CEO of KBR helped funnel $182 million in bribes to government officials in Nigeria. 

Judge Keith P. Ellison gave Stanley a preliminary sentence of 84 months in prison (subject to final review after his cooperation) and ordered a $10.8 million restitution payment.

On February 3, Stanley is set to appear again before the judge to learn his final sentence.

Here's a look at what happened during Stanley's initial appearance, arraignment, and plea before Judge Ellison on September 3, 2008. William Stuckwisch was the prosecutor.

*      *      *

THE COURT: Unless I have forgotten how to do multiplication, six and a half years would be what, 78 months?

MR. STUCKWISCH: That's correct, Your Honor. The [Federal Sentencing] Guidelines range calculated by the Government for Count Two would be 78 to 97 months.

THE COURT: So it is within that Guideline range?

MR. STUCKWISCH: It would be within the Guideline range on Count Two, and then --

THE COURT: I know, Count One would be a lot higher.

MR. STUCKWISCH: Correct.

THE COURT: And in terms of the purposes of punishment, do you think this is primarily as a matter of
general deterrence? I doubt he's a continuing risk, is he?

MR. STUCKWISCH: No, Your Honor, we don't believe he's a continuing risk. It's both -- it's general deterrence in the area of enforcement of the Foreign Corrupt Practices Act. A sentence such as this would send a message to other executives that foreign bribery is taken very seriously and penalties will be paid for violators of the Act. In terms of Mr. Stanley himself, I should note that his conduct here was egregious.

THE COURT: I'm concerned about the conduct. I'm concerned about it.

MR. STUCKWISCH: Yes, Your Honor.

THE COURT: Is this comparable to other sentences that have been imposed pursuant to the Foreign Corrupt Practices Act?

MR. STUCKWISCH: This would be the longest sentence to date in a Foreign Corrupt Practices Act.

THE COURT: That's what I wondered about. I know it's a growth industry, isn't it, the Foreign Corrupt Practices Act? It's keeping a lot of white collar lawyers busy; is that fair?

MR. STUCKWISCH: I think that's fair. I believe the previous longest sentence of an individual in an FCPA case was I believe 60-odd months here in Houston. [Editor's note: sentence of Douglas Murphy, American Rice Inc., 63 months.]

THE COURT: The distinguishing aspects of this one are the dollar volume and the far-ranging nature of the conspiracy?

MR. STUCKWISCH: Those are distinguishing factors, and Mr. Stanley's position at the company. He was the CEO and chairman of his company.

THE COURT: Was it a Halliburton subsidiary; is that right?

MR. STUCKWISCH: We haven't identified the company in the public papers, Your Honor, because of Justice Department Guidelines about identifying uncharged wrongdoers.

THE COURT: Okay.

MR. STUCKWISCH: But if that's important to your consideration --

THE COURT: No, no. I know something about that corporation. He wasn't the chairman of the corporation. It's set forth in the Pretrial Report he was chairman of some subsidiary, I have to believe.

MR. STUCKWISCH: That's right, Your Honor, he was the chairman of a major global engineering and construction services company, business around the world, constructing, among other things, large liquefied natural gas plants, which were at issue in these projects. This case is distinguishable also because of the wide range and high level of the officials, the foreign government officials whom were to be bribed. This scheme is distinguish able from previous cases by the sophistication of the scheme, funneling the bribes through agents and Swiss bank accounts, other foreign bank accounts, shell companies, nominee accounts. I think it's fair to say that this is the largest FCPA prosecution to date.

THE COURT: Well, I'm not trying to play defense counsel, I'm really not, but I'm concerned about this proceeding, as I am about all proceedings. But it appears Mr. Stanley was dealing with a substantial physical dependency during much of this time. Was that factored in?

MR. STUCKWISCH: Yes, Your Honor.

THE COURT: I know the Guidelines don't allow you to, but --

MR. STUCKWISCH: No, it was factored in, Your Honor. We considered not only his conduct here, but his personal circumstances, including his alcoholism and his current health. We've also considered our ongoing investigations and the needs of our investigation and our desire that Mr. Stanley cooperate --

THE COURT: All right. Do you think a 5K [downward sentencing departure based on Substantial Assistance to Authorities] is realistic?

MR. STUCKWISCH: If Mr. Stanley provides substantial assistance, I think a 5K is realistic, yes, Your Honor. And we have every expectation that Mr. Stanley is going to provide substantial assistance, to be perfectly honest. We wouldn't be doing the deal unless we believed that.

TSKJ: The FCPA's Whale

In April this year, the final TSKJ partner, Japan's JGC, paid $218.8 million in a plea deal with the DOJ. It was the biggest FCPA case in 2011 (so far) and landed sixth on our all-time top ten list.

The TSKJ settlements now make up four of the six biggest FCPA cases of all time. Together, they're twice the size of Siemens' $800 million settlement, still the biggest single-company FCPA enforcement action.

In March, Jeffrey Tesler, an agent who delivered TSKJ's bribes to Nigerian officials, pleaded guilty to an FCPA conspiracy and a substantive count. As part of his plea, Tesler paid $149 million, the biggest FCPA forfeiture by an individual.

The TSKJ enforcement action started in September 2008. Jack Stanley, KBR's former CEO, pleaded guilty in Houston to a two-count criminal information charging him with conspiracy to violate the Foreign Corrupt Practices Act and to commit mail and wire fraud.

Stanley cooperated with prosecutors. Over the next three years, four companies and two more individuals pleaded guilty, eventually paying $1.65 billion in criminal and civil penalties and forfeited assets.

Stanley and KBR had led the TSKJ joint venture. Between 1995 and 2004, it paid $182 million in bribes to Nigerian government officials, winning four contracts to build liquefied natural gas facilities on Bonny Island, Nigeria worth more than $6 billion.

After Stanley's guilty plea, KBR and its one-time parent Halliburton paid $579 million in 2009 to resolve criminal and civil FCPA charges. In 2010, Italy's Snamprogetti paid $365 million to U.S. enforcement agencies, and France's Technip paid $338 million. Then in 2011, JGC paid $218.8 million.

Stanley, 66, received a preliminary sentence of 84 months in prison and was ordered to make a restitution payment of $10.8 million. His jail term hasn't started yet and is subject to review based on his cooperation. Final sentencing is set for February 3. The feds' $1.65 billion payday is sure to help him.

The agent Tesler, 62, is scheduled to be sentenced on February 2.

Wojciech Chodan, 72, a former KBR manager in the U.K. who pleaded guilty in December 2010 to one count of conspiracy to violate the FCPA, is also set to be sentenced on February 2.