The FCPA Blog

Tidewater Inc., one of about a dozen oil-and-gas-services companies dragged into FCPA compliance problems a few years ago by Swiss logistics giant Panalpina, said in its latest annual report that it expects a settlement soon with the SEC and possibly the DOJ.

The company said its SEC settlement would require a total payment of about $11.4 million, consisting of $8.4 million in disgorgement and prejudgment interest, and a contingent civil penalty of $3 million. The disgorgement would be payable right away, while the contingent civil penalty would be due within 18 months, but only to the extent Tidewater has not paid a penalty to the DOJ for the same FCPA offenses.

So whatever Tidewater pays to the DOJ in penalties will be deducted from the SEC's penalties (that's why it's a contingent civil penalty). That doesn't mean Tidewater won't pay more than $3 million in penalties to the DOJ. But it does mean it might pay the SEC $3 million less, depending on how things work out with the DOJ.

Why the special deal?

Usually the DOJ and SEC walk hand-in-hand in FCPA settlements with issuers. For some reason -- maybe the DOJ's limited FCPA bandwidth these days because of the shot-show prosecutions, or the backlog caused by this summer's time-consuming OECD review -- the SEC has taken the lead with Tidewater while the DOJ, according to the company's disclosure, isn't yet ready to settle. But to help Tidewater out, the SEC is giving the company a way to budget for a settlement, reserve the money, and partly limit its financial exposure.

The process of making financial arrangements for FCPA-related settlements among defendants, the DOJ, and SEC is usually completely opaque. This time, however, we're glimpsing the work in progress. The only similar deal we've seen involved ABB in 2004. The company was hit with an SEC disgorgement and interest payment of about $6 million and a civil penalty of $10.5 million. That civil penalty, however, was to be "deemed paid" by amounts ABB later paid in criminal fines to the DOJ (it eventually paid about $5.2 million in criminal fines).

Back to today's news, Panalpina itself has reserved about $110 million for an expected FCPA settlement with the DOJ and SEC, and a separate antitrust resolution. In April it said the settlements should happen "in the near future."

The DOJ and SEC since 2007 have been investigating whether Pananlpina, on behalf of several customers including Tidewater, paid bribes in Nigeria for customs clearance and licensing. About a dozen leading oil and gas-related companies received letters from the DOJ and SEC asking them to "detail their relationship with Panalpina." Shell, Schlumberger, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Pride International were also involved.

Pride said in February this year it has set aside $56.2 million for an expected FCPA settlement with the DOJ and SEC. The Houston-based oil rig operator first disclosed potential FCPA compliance issues in 2006.

Tidewater said its tolling agreement with the SEC expired on June 15 this year. It hasn't said if the settlement deadline was extended.

The company's disclosure was reported yesterday by Main Justice.

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Here's the complete FCPA discussion in Tidewater Inc.'s Form 10-K for the year ended March 31, 2010:

Foreign Corrupt Practices Internal Investigation

The company has previously reported that special counsel engaged by the company’s Audit Committee had completed an internal investigation into certain FCPA matters and reported its findings to the Audit Committee. The substantive areas of the internal investigation have been reported publicly by the company in prior filings.

Special counsel has reported to the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) the results of the investigation, and has engaged in a series of cooperative discussions with the two federal agencies as to the potential legal ramifications of those findings. The following reflects the status of those discussions:

Securities and Exchange Commission

The company has reached an agreement in principle with the staff of the SEC to resolve its previously disclosed investigation of possible violations of the FCPA. Under the proposed resolution, the company would consent to the filing in federal district court of a complaint (“Complaint”) by the SEC, without admitting or denying the allegations in the Complaint, and to the imposition by the court of a final judgment against the company, including a permanent injunction against us. The Complaint would allege civil violations of the FCPA’s anti-bribery and accounting provisions with respect to certain previously discussed conduct involving tax authorities in Azerbaijan, and the FCPA’s accounting provisions with respect to amounts paid by a subsidiary of the company to a third party customs broker to procure certain permits necessary for the company’s vessels to operate in Nigeria. The final judgment would not take effect until it is confirmed by the court, and would permanently enjoin the company from future violations of those provisions.

The agreement in principle would require the company to pay a total of approximately $11.4 million, consisting of the sum of $8.4 million (principally representing disgorgement of profits and prejudgment interest) payable at the time of settlement and a contingent civil penalty of $3.0 million. The contingent civil penalty would be payable to the SEC in 18 months, to the extent that the company had not agreed to pay fines or penalties of at least that amount to another government authority (or authorities) in connection with the matters covered by the internal investigation. The financial charge associated with the proposed settlement with the SEC was recorded in the fourth quarter of fiscal 2010 and is included in general and administrative expenses.

The agreement in principle is contingent upon the parties’ agreement on the terms of the relevant documents, approval by the Securities and Exchange Commission, and confirmation by a federal district
court. There can be no assurance that this settlement will be finalized, or finalized on the terms set forth above. If the settlement is not finalized, the SEC may bring an enforcement action against the company. The company’s current tolling arrangements with the SEC extend through June 15, 2010.

Department of Justice

To date, the company has not reached any agreement with the DOJ regarding a negotiated resolution of the previously disclosed internal investigation. Based on discussions with the DOJ regarding the possible disposition of this matter, it appears likely that any negotiated disposition would involve charges and sanctions imposed by the DOJ, although the company is unable to predict at this time the nature and scope of such charges and sanctions and upon whom they would be imposed. The timeframe for resolution of these matters is also uncertain. Given these uncertainties, the company is unable at this time to estimate the range of any monetary exposure that might arise from such a settlement. As a result, no accrual for potential additional liabilities associated with a negotiated resolution with the DOJ has been recorded as of March 31, 2010. Any fines or penalties paid to the DOJ would reduce the balance of the SEC contingent penalty referenced above under the company’s agreement in principle with the SEC. Should additional information be obtained that any potential liability in connection with the resolution of these matters with the DOJ is probable and reasonably estimable, the company will record such liability at that time. While uncertain, ultimate resolution with the DOJ could have a material adverse effect on the company’s results of operations or cash flows. It is possible that if agreement is not reached, the DOJ may bring enforcement action against the company.

Jack Stanley: The most important cooperating witness in FCPA history. There's never been a cooperating witness in FCPA history quite like him. A former corporate top gun, a global player, a captain of industry who once led the dark side and now sits with the prosecution, helping nail industry giants and along the way putting more than a billion dollars -- a billion dollars -- into the U.S. Treasury.

Make that $1.28 billion and counting. That's how much the DOJ and SEC have recovered in penalties and disgorgement so far from the TSKJ consortium members: $579 million from KBR / Halliburton, $365 million from Snamprogetti / ENI, and $338 million from Technip, with more to come from the final JV partner, JGC.

The man who helped make it all possible is Albert "Jack" Stanley. He was chairman and CEO of KBR and headed the TSKJ consortium. For ten years starting in 1995, he organized about $180 million in bribes to Nigerian leaders in return for $6 billion in contracts.

But in 2008 his life came crashing down. After pleading guilty to conspiring to violate the FCPA, he was sentenced to seven years in prison. That sentence, however, is subject to court review based on his cooperation in related prosecutions. Is he cooperating? Big time.

He knows dates, places, times, amounts, and names. He knows offshore companies and bank accounts, circuitous money flows, and black-bag exchanges. He's free on bail and he's talking. As each TSKJ member falls before the DOJ and SEC, the details of what they did pile up, and Stanley's shadow is always there.

So how much of his seven-year sentence will the 66-year-old Stanley serve? Our guess is not much. He is, after all, the billion dollar man. 

The fourth member of the TSKJ consortium -- JGC Corporation of Japan -- and the only one that hasn't settled Foreign Corrupt Practices Act charges with the U.S. government, disclosed in its latest annual report that it's in talks with the DOJ "about a potential resolution" of FCPA-related charges.

The company did not say how much it has reserved, if anything, for a settlement with the DOJ.

Last week, Snamprogetti and its parent company ENI of Italy agreed to pay $365 million to resolve FCPA-related charges for Snamprogetti's role in the TSKJ joint venture. The financial penalties included a $240 million criminal fine to the DOJ and $125 million in disgorgement to the SEC.

Two weeks ago, Paris-based TSKJ member Technip resolved FCPA-related charges with the DOJ and SEC for $338 million --  a $240 million criminal penalty and $98 million in disgorgement.

And in February 2009, consortium leader KBR and its former parent Halliburton paid $579 million to settle FCPA-related charges, including a $402 million criminal penalty and $177 million in disgorgement.

Technip, Snamprogetti, KBR, and JGC won contracts through the TSKJ joint venture from Nigeria LNG Ltd. between 1995 and 2004 to design and build LNG facilities on Bonny Island. The contracts were worth more than $6 billion. The joint venture bribed Nigerian government officials to win the work, including "top-level executive branch officials." The DOJ alleges TSKJ paid about $132 million to a Gibraltar corporation controlled by London lawyer Jeffrey Tesler and more than $50 million to a Japanese trading company, intending to use some of the money as bribes.

JGC, formerly Japan Gasoline Co., Ltd., was founded in 1928. It specializes in engineering projects related to refining and natural gas processing. Its shares trade in Tokyo but not the U.S., making it the only TSKJ partner that's not an "issuer" and not subject to the FCPA's books and records and internal controls provisions.

JGC did not disclose whether it is under investigation in Japan for the Nigeria bribery.

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Here's the complete disclosure from JGC's annual report for the year ended March 31, 2010. It was released on May 10, a month before the Technip and Snamprogetti settlements. JGC provided the English translation:

In or around 1995, JGC joined a consortium formed by M.W. Kellogg Company (a U.S. company that later became KBR), Technip (a French company), and Snamprogetti (an Italian company) in order to i) bid for the construction of liquefied natural gas plant in Bonny Island, Nigeria (“Project”) and ii) implement the Project if awarded. The consortium was called “TSJK”. TSKJ was awarded the contract for the first staged of the Project (trains 1 & 2) in 1995, and thereafter up to 2004 three additional contracts to build additional 4 trains.
               
In or around 2002, French authority initiated investigations into TSKJ after allegations that in relation to the Project bribery payments were made to Nigerian government officials, and, in 2004, U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) initiated investigations in respect of the alleged breach of the U.S. Foreign Corrupt Practices Act.
               
As publicly reported, in 2009, KBR reached settlements with DOJ and SEC as a result of the aforesaid investigations. Technip and ENI (the parent company of Snamprogetti) announced in their recent disclosure that they have created accounting reserves or a potential settlement of the U.S. investigation.
               
We hereby report that DOJ has been in contact with JGC regarding their investigation of the TSKJ matter and JGC and DOJ are engaged in discussions about a potential resolution of that investigation relating to JGC.
               
Under the current circumstances, the impact of the ongoing discussions with DOJ on JGC’s operations cannot be estimated.

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Special thanks to a reader in the U.S. who provided the research for this post.

Former Congressman William Jefferson's chances of winning his appeal got a big boost from the Supreme Court two weeks ago.

In Skilling v. United States, the justices narrowed the reach of the honest services statute. That law was behind most of the 11 counts Jefferson was convicted on. He was acquitted of the single substantive FCPA charge he faced but was found guilty on a conspiracy count that included both an FCPA and an honest-services element.

Jefferson, 63, was sentenced in November to 13 years in prison. He's free pending appeal.

The former nine-term Congressman from New Orleans was the first and only U.S. public official to be charged under the FCPA since it was enacted in 1977. His case will always be remembered for the $90,000 in cash found in his freezer. The money was part of $100,000 given to him by government informant Lori Mody. Prosecutors said Jefferson planned to use it to bribe Nigeria's then vice president, Atiku Abubakar.

According to a report in the Times Picayune, Judge T.S. Ellis III included in his definition of honest services fraud "concealed conflicts of interest." The Supreme Court ruling narrows the statute's use to exclude conflicts of interest. Jefferson's lawyers are saying there's no way to determine what role the conflicts allegations played in the honest-services guilty verdicts or other fraud counts, which should all be thrown out.

The honest-services object probably also dooms Count 1 of the indictment. It alleged three separate illegal conspiracies -- to solicit bribes, deprive citizens of honest services, and violate the FCPA. We argued before the Skilling ruling that the FCPA-related conspiracy count against Jefferson should be tossed. The jury's verdict form did not require it to specify which of the three illegal conspiracies the panel believed he engaged in. So his conviction on Count 1 may or may not have included a finding that he conspired to violate the FCPA. Jury accountability was lacking, and Judge Ellis himself said after the trial he regretted the way the verdict form was written.

The 4th Circuit Court of Appeals will now decide what to do with Jefferson's case. The most likely scenario is a remand to Judge Ellis, for him to decide how to apply the Supreme Court's ruling and perhaps to modify Jefferson's sentence. The ex-Congressman's lawyers are unlikely to be satisfied with anything less than a new trial. 

Snamprogetti Netherlands B.V. and its parent company ENI S.p.A of Italy will pay $365 million to resolve FCPA-related charges for Snamprogetti's role in the TSKJ-Nigeria joint venture.

Dutch-based Snamprogetti was charged by the DOJ in a criminal information with one count of conspiracy and one count of aiding and abetting violations of the FCPA. It will pay a $240 million criminal penalty.

Snamprogetti and ENI also entered into a two-year deferred prosecution agreement with the DOJ. The agreement doesn't require appointment of a compliance monitor.

To resolve the SEC's charges that Snamprogetti and ENI violated the anti-bribery and recordkeeping and internal controls provisions in Sections 30A and 13(b)(5) of the Securities Exchange Act of 1934 and Rule 13b2-1, the companies are jointly and severally liable to pay $125 million in disgorgement.

Snamprogetti, Kellogg Brown & Root Inc. (KBR), Technip S.A., and JGC of Japan were part of a four-company joint venture called TSKJ. It won four contracts from Nigeria LNG Ltd. between 1995 and 2004 to build LNG facilities on Bonny Island. The contracts were worth more than $6 billion.

Snamprogetti authorized the joint venture to hire two agents, London-lawyer Jeffrey Tesler and a Japanese trading company, to pay bribes to Nigerian government officials, including "top-level executive branch officials," to help win the Bonny Island contracts. The DOJ charged that TSKJ paid about $132 million to a Gibraltar corporation controlled by Tesler and more than $50 million to the Japanese trading company. Some of the money, prosecutors alleged, was intended to be used as bribes.

Ten days ago, Paris-based Technip resolved FCPA-related charges with the DOJ and SEC for $338 million --  a $240 million criminal penalty and $98 million in disgorgement.

In February 2009, KBR and its former parent Halliburton paid $579 million to settle FCPA-related charges, including a $402 million criminal penalty and $177 million in disgorgement.

KBR's former boss Jack Stanley pleaded guilty in September 2008 to conspiring to violate the FCPA. He was sentenced to seven years in prison. His sentence is subject to court review based on his cooperation in the related prosecutions.

Jeffrey Tesler and Wojciech Chodan, both U.K. citizens, were indicted in February 2009 by a federal grand jury in Houston. They were charged with helping KBR and its partners arrange the bribes to the Nigerian officials. Earlier this year, judges in London ruled that both should be extradited to the U.S. to face trial. Their appeals could take up to a year.

In March this year, ENI disclosed a provision for €250 million, "reflecting the estimated cost of resolution" with U.S. prosecutors for the Nigeria bribe case.

With today's settlement, the DOJ and SEC said $1.28 billion has been assessed in penalties for the TSKJ bribery.

View the DOJ's July 7, 2010 release here.

Download the July 7, 2010 criminal information in U.S. v. Snamprogetti Netherlands B.V. here.

Download Snamprogetti's July 7, 2010 deferred prosecution agreement here.

View SEC Litigation Release No. 21588 and Accounting and Auditing Enforcement Release No. 3149 (both dated July 7, 2010) in Securities and Exchange Commission v. ENI, S.p.A. and Snamprogetti Netherlands, B.V., Case No. 4:10-cv-02424, S.D. Tex (Houston) here.