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Entries in Panalpina (59)

Thursday
Jun102010

Plaintiffs Keep Trying

Parker Drilling's directors are facing a shareholder suit that was brought after the company's detailed disclosure earlier this month that it is being investigated by the Justice Department and Securities and Exchange Commission for compliance problems in Nigeria and Kazakhstan.

Courthouse News said the derivative suit was filed in Harris County Court in Texas.

The suit alleges breach of fiduciary duty, abuse of control, gross mismanagement and wasting corporate assets. It named Robert Parker Jr., Robert Parker, John Gibson, Roger Plank, Robert McKee, George Donnelly, Robert Goldman, Gary King, Rudolph Reinfrank and David Mannon.

As we've reported, Parker is one of the dozen or so oil and gas-related companies dragged into FCPA compliance problems by Panalpina, the Swiss logistics firm that allegedly bribed overseas customs and licensing officials on behalf of its clients. Among those investigated by the DOJ and SEC in addition to Parker are Schlumberger, Shell, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., ENSCO, Cameron, Noble Corp., and Pride International. Panalpina itself was hit with a shareholder derivative suit in federal court in Texas last year. 

There's no private right of action under the FCPA. So private litigants have to resort to other causes of action -- such as common law fraud, RICO, securities law violations, or breach of fiduciary duties. But private litigants haven't done well with FCPA-related claims. BAE directors this year won dismissal of a bribe-related case, as did Dow Chemical's.

In 2008, the Ninth Circuit in Glazer Capital Management v. Magistri put an obstacle in the path of plaintiffs. The court raised the "scienter" bar for FCPA-related claims against officers and directors under the federal securities laws. Since then, plaintiffs have filed FCPA-based derivative claims in state court, including one in Texas a year ago against some of the officers and directors of Halliburton and its one-time subsidiary, KBR

Thursday
May202010

Feds Call Time Out

There hasn't been a new FCPA enforcement action from the DOJ since Daimler's on April 1 and only Dimon's from the SEC. That's strange. The first three months of this year were the busiest in FCPA history. But since then, hardly a peep.

With around 150 cases pending and pressure building to resolve long-standing actions involving Panalpina, Technip, ENI, ABB, Alcatel-Lucent, Pride International, Inc., Alcoa, the medical device makers, and pharmas, you have to ask: Where are the enforcement actions for April and May?

In a typical year, we'd expect a couple of actions a month; this year, we'd expect more. So what's happening?

Here are a few guesses:

  • Changing horses. Mark Mendelsohn, head of the DOJ's FCPA unit, left government service in mid-April. His departure would be a natural time for those still there or newly arrived to take inventory -- to use the white board to plot their present location and itinerary for the coming year.
  • Resources are stretched. With all the pending prosecutions, including the 22-defendant shot-show case, the DOJ's FCPA group has to be stretched. Maybe they're taking a couple of months to catch their breath, bring in reinforcements, and lift their eyes above the trenches to make sure they aren't about to make any big mistakes.
  • A new strategy. Could the DOJ be assessing its overall enforcement approach? Looking, perhaps, at how decisions are made to prosecute corporations (which are defenseless because of respondeat superior)? Or whether financial penalties that punish innocent stakeholders make sense? Or if enforcement should zero in on individuals, or find new ways to spotlight foreign officials who demand bribes . . . ?

There's precedent for the current FCPA moratorium. In February and March 2008, the DOJ also came to a dead stop. The reason was never announced but it could have been the controversy over the unregulated appointment of compliance monitors. Former Attorney General John Ashcroft's $52 million gig with Zimmer in a domestic kickback case threw Washington into a spin. The storm blew over and the DOJ was back in the FCPA business after about two months.

Monday
May102010

Why So Many Words?

Parker Drilling is one of the dozen or so oil and gas-related companies dragged into FCPA compliance problems by Panalpina, the Swiss logistics firm that allegedly bribed overseas customs and licensing officials on behalf of its clients. Among those investigated by the DOJ and SEC in addition to Parker are Schlumberger, Shell, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., ENSCO, Cameron, Noble Corp., and Pride International.

In its latest quarterly report, Houston-based Parker, which trades on the New York Stock Exchange under the symbol PKD, disclosed details of the investigation, including potential compliance problems in Nigeria and, unexpectedly, Kazakhstan. Some might argue the amount of Parker's disclosure goes beyond the technical requirements of the securities laws. If that's true, why so many words?

First, there's really no downside risk in disclosing more instead of less. We've been debating this point for years with securities lawyers, who often ask us why there's so much voluntary FCPA disclosure when it may not be legally required. We in turn ask what's to be gained by not disclosing an internal investigation?

Second, there are two men named Parker on the board of directors -- Robert L. Parker, the Chairman Emeritus who bought the company from his father in 1957, and Robert L. Parker Jr., who now leads the firm. So although it's a public company, Parker Drilling retains a family-owned aspect. With their name on the door, the Parkers are probably more sensitive than most professional managers to reputational risks. No doubt they want to put the FCPA troubles in the rear-view mirror as soon as possible. One strategy for doing that is to disclose everything -- dissipate the news by releasing it to the public and the press in one go. Don't leave shareholders, bankers, customers, and other stakeholders guessing.

Finally, a detailed disclosure can reduce the chances of future compliance problems. It educates everyone inside the company about FCPA risks, especially in challenging places where oil drillers often find themselves. We think Parker's disclosure reads in some ways like an FCPA compliance manual, full of real-life warnings about what can go wrong, the damage caused, and the way to fix things.

*   *   *

Here's the full text of the FCPA disclosure from Parker Drilling Company's Form 10-Q dated May 7, 2010:

Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation
 
As previously disclosed, we received requests from the United States Department of Justice (DOJ) in July 2007 and the United States Securities and Exchange Commission (SEC) in January 2008 relating to our utilization of the services of a customs agent. The DOJ and the SEC are conducting parallel investigations into possible violations of U.S. law by us, including the FCPA. In particular, the DOJ and the SEC are investigating our use of customs agents in certain countries in which we currently operate or formerly operated, including Kazakhstan and Nigeria. We are fully cooperating with the DOJ and SEC investigations and are conducting an internal investigation into potential customs and other issues in Kazakhstan and Nigeria. The internal investigation has identified issues relating to potential non-compliance with applicable laws and regulations, including the FCPA with respect to operations in Kazakhstan and Nigeria. At this point, we are unable to predict the duration, scope or result of the DOJ or the SEC investigation or whether either agency will commence any legal action.
 
Further, in connection with our internal investigation, we also have learned that an individual who may be considered a foreign official under the FCPA owns in trust a substantial stake in a foreign subcontractor with whom we do business through a joint venture relationship in Kazakhstan. We are currently engaged in efforts to evaluate and implement alternatives to restructure or end the relationship with the subcontractor. At this point, we are unable to predict the outcome of our restructuring efforts or whether termination will result, either of which could negatively impact some of our operations in Kazakhstan and potentially have a material adverse impact on our business, results of operations, financial condition and liquidity.
 
The DOJ and the SEC have a broad range of civil and criminal sanctions under the FCPA and other laws and regulations, which they may seek to impose against corporations and individuals in appropriate circumstances including, but not limited to, injunctive relief, disgorgement, fines, penalties and modifications to business practices and compliance programs. These authorities have entered into agreements with, and obtained a range of sanctions against, several public corporations and individuals arising from allegations of improper payments and deficiencies in books and records and internal controls, whereby civil and criminal penalties were imposed. Recent civil and criminal settlements have included multi-million dollar fines, deferred prosecution agreements, guilty pleas, and other sanctions, including the requirement that the relevant corporation retain a monitor to oversee its compliance with the FCPA. In addition, corporations may have to end or modify existing business relationships. Any of these remedial measures, if applicable to us, could have a material adverse impact on our business, results of operations, financial condition and liquidity.
 
We have taken certain steps to enhance our anti-bribery compliance efforts, including retaining a full-time Chief Compliance Officer who reports to the Chief Executive Officer and Audit Committee, and implementing efforts for the adoption of revised FCPA policies, procedures, and controls; increased training and testing requirements; contractual provisions for our service providers that interface with foreign government officials; due diligence and continuing oversight procedures for the review and selection of such service providers; and a compliance awareness improvement initiative that includes issuance of periodic anti-bribery compliance alerts.
 
Demand Letter
 
In April 2010, we received a demand letter from a law firm representing Ernest Maresca. The letter states that Mr. Maresca is one of our stockholders and that he believes that certain of our current and former officers and directors violated their fiduciary duties related to the issues described above under “Customs Agent and Foreign Corrupt Practices Act (FCPA) Investigation.” The letter requests that our Board of Directors take action against the individuals in question. In response to this letter, the Board has formed a special committee to evaluate the issues raised by the letter and determine a course of action for the Company.

Friday
Apr302010

Panalpina Expects Settlement Soon

Swiss logistics giant Panalpina said yesterday it has reserved about $110 million for an expected FCPA settlement with the Justice Department and Securities and Exchange Commission and a seperate antitrust resolution. It said the settlements should happen "in the near future."

The corruption investigation dates back to at least early February 2007. The DOJ noted then in connection with Vetco's FCPA settlement that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .”

In the following months, 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, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Pride International were among those involved.

In July 2007, Panalpina disclosed that some customers of its U.S. subsidiary had “been requested by U.S. authorities to produce documents related to the provision of its services to Nigeria for a specific customer and its contractor. This request was triggered by the plea agreement of such customer with the U.S. authorities for allegedly making improper payments to Nigerian officials to secure preferential customs treatment. . . . U.S. authorities have extended the scope of their review to Panalpina’s documents related to services into Nigeria, Kazakhstan and Saudi Arabia for a limited number of customers.”

In August 2008, Panalpina said compliance concerns had forced it to withdraw completely from the Nigerian domestic market. It had already suspended domestic logistics and freight forwarding services there in September 2007 for all oil and gas-related customers. It said then it was cooperating with the DOJ and SEC in a Foreign Corrupt Practices Act investigation.

Yesterday's full announcement, available here, said:

In view of the advanced stage of the settlement negotiations with the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC), Panalpina has decided to reserve CHF 120 million, an amount anticipated to cover fines, other penalties and legal expenses relating to the settlement of both the U.S. Foreign Corrupt Practices Act (FCPA) and the U.S. antitrust investigations. This amount will be reflected accordingly in the company's 2010 half year financial statements. The finalization of the settlement with the U.S. authorities is expected in the near future. The above reserve does not cover other ongoing, non-U.S. antitrust investigations against the international freight forwarding industry in particular the proceeding launched by the European Commission as Panalpina is unable to predict the amount of any potential fine with certainty.

The company operates through 500 branches in 80 countries with about 13,500 employees worldwide. It serves the rest of the world through local partners.

Panalpina Welttransport (Holding) AG trades on various European exchanges, and in the U.S. OTC pink sheets under the symbol PLWTF.PK.

Special thanks to Marc Alain Bohn for help with this post.

Friday
Mar052010

To Readers, Leaders, and Hosts

Georgetown Law: Eric E. Hotung International Law BuildingThanks to those who helped with our post Where The Money Is. One reader mentioned two more pending investigations likely to result in big-money enforcement actions: Panalpina and Alcoa. Panalpina's compliance problems have been in the news for nearly three years, and Alcoa's for two. Settlements soon? Could be.

*     *     *

We also want to thank the folks at the Georgetown Journal of International Law for the invitation to their 2010 Symposium: Combating Global Corruption. It's happening March 22nd from 8am to 5pm at the Hart Auditorium at Georgetown Law (600 New Jersey Avenue, NW, Washington, D.C. 20001). Admission is free. Panel topics include Origins of International Anticorruption: Policy Formation, Enforcement by U.S. Government Agencies, Quasi-Enforcement Agencies and Alternative Enforcement Channels, and East Asia: A Case Study. Mike Koehler (the FCPA Professor) and Elizabeth Spahn are among the panelists. Download the brochure here.

*     *     *

And finally, we're grateful to our hosts this week who arranged the visit to the National Museum of the Marine Corps at Quantico, Virginia (here). There wasn't much discussion inside; it's hard to talk with that lump in your throat. The museum is unforgettable and the sacrifice it represents is beyond description.

Monday
Aug032009

Panalpina Hit With FCPA-Related Shareholder Suit

An investment fund that owns about 5% of Panalpina World Transport (Holding) Ltd. filed a federal civil suit last month in Texas against the company, some current and former officers and directors, and its owner before its 2005 IPO in Switzerland.

The complaint seeks to recover damages caused by the logistics company's withdrawal from Nigeria after it disclosed a pattern of illegal payments there. Since the disclosure (and during the global financial crisis), the price of its common stock has dropped 78%. There's no private right of action under the Foreign Corrupt Practices Act, however, so private litigants seeking relief have to resort to other claims. In this case, the plaintiffs allege violations of Sections 10(b) and 20 of the Securities Act, common law fraud, aiding and abetting common law fraud, and negligent misrepresentation.

In its account of the suit, the D & O Diary (here) points out that "the complaint does not appear to be brought as a class action lawsuit. Rather, the action appears to have been brought solely on behalf of four apparently related investment partnerships, based in Connecticut and in the Cayman Islands." And concerning the plaintiffs' jurisdictional burden, the post says:

Not only is the company foreign [Swiss] domiciled, and not only are its shares traded elsewhere, but the supposed bribery took place outside the U.S. And, without plumbing the depths of the factual allegations, it would seem that many of the alleged misrepresentations took place outside the U.S., notwithstanding the fact that the company may have substantial U.S. operations.

Panalpina has been making FCPA news for more than two years. In February 2007, the Justice Department said in connection with the resolution of a case involving Vetco that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .”

Since then about a dozen leading oil and gas-related companies have said they received letters from the DOJ and SEC asking them to "detail their relationship with Panalpina . . ." Included are Schlumberger, Shell, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., ENSCO, Cameron, Noble Corp., Pride International, Global Industries and Parker Drilling.

Panalpina said in its 2008 half-yearly report that for compliance reasons it was divesting its domestic operations in Nigeria to a local investment group and retaining no ownership or operating interest. It completed the transaction in November 2008. It also said it was cooperating with an investigation by the DOJ and SEC and that its U.S. subsidiary in Houston had been instructed to produce documents and other information about services to certain customers in Nigeria, Kazakhstan and Saudi Arabia (see our post here).

Panalpina World Transport (Holding) Ltd. trades on the SIX Swiss Exchange under the symbol PWTN.

Download the July 23, 2009 complaint in Deccan Value Advisors Fund L.P. et al v. Panalpina World Transport (Holding) Ltd. et al here.

Monday
Mar232009

Unfinished Business

We don't know how many of the 50 or so disclosed and pending Foreign Corrupt Practices Act investigations will be resolved this year. But here are some we're watching:

Alcoa. In February 2008, government-owned Aluminum Bahrain BSC (Alba) accused its long-time U.S. supplier of overcharging for raw materials during a 15-year period, and using some of the money to bribe Alba's executives for more contracts. Alcoa's conspiracy, Alba said in a federal civil complaint filed in Pittsburgh, "succeeded in exacting hundreds of millions of dollars in over payments, which continue to accumulate to this day. Among other things, Plaintiff seeks damages in excess of $1 billion, including punitive damages, for this massive, outrageous fraud."

The Justice Department quickly intervened, asking the court to stay all discovery. It said the facts of Alba's allegations, if true, might violate the FCPA and mail and wire fraud statutes. Therefore, the DOJ said, it wanted to conduct a criminal investigation into Alcoa and its executives. That investigation is pending and the civil suit is still on hold.

Aon. The giant Chicago-based insurance broker disclosed in November 2007 an internal investigation into possible violations of the FCPA and non-U.S. anti-corruption laws. It said it had self-reported the investigation to the Justice Department, the Securities and Exchange Commission and others, and that it had already agreed with U.S. prosecutors to toll any applicable statute of limitations. Meanwhile, in January this year, the U.K.'s Financial Services Authority (FSA) fined Aon's U.K. subsidiary £5.25 million for failing to recognize and control the risks of overseas payments being used as bribes. The fine was the largest the FSA had ever levied for financial crimes.

Avon. It said in October 2008 that it had launched an internal investigation into possible FCPA violations in China. The global beauty-products retailer didn't release details. The investigation may be linked to the payment to regulators of improper promotional expenses. China imposed restrictions on direct selling in the late 1990s that forced Avon to market its products through shops and boutiques. Two years ago, the company convinced China's regulators to allow its traditional door-to-door sales model. Avon's FCPA disclosure referred to "certain travel, entertainment and other expenses."

BAE. The case is about alleged secret payments of £1 billion to the former Saudi ambassador to the United States, Prince Bandar bin-Sultan. The payments were allegedly made when U.K.-based BAE was trying to sell jet fighters to the Saudi government. Britain's Serious Fraud Office opened, then closed, an examination into the allegations. But the DOJ is conducting its own investigation of possible violations of the FCPA and anti-money laundering laws. In May 2008, BAE's chief executive Mike Turner and director Nigel Rudd were detained at U.S. airports. Authorities apparently copied information from their laptop computers, cell phones, and papers before letting them leave.

The DOJ has also reportedly served subpoenas on other BAE employees in the U.S. And in November 2007, according to the U.K.'s Guardian, the DOJ obtained Swiss banking records and evidence from a U.K. businessman who was part of the deal. The paper reported that Peter Gardiner had boxes of invoices allegedly detailing payments made by BAE to members of the Saudi royal family. Gardiner was flown by FBI agents to Washington in August 2007 to give testimony there, the paper said.

BAE apparently stonewalled the U.S. investigation at first but has since begun cooperating.

Medical Device Makers. Their overseas sales practices probably came under scrutiny in early 2007. That's when Johnson & Johnson (which owns device-maker Depuy) said it voluntarily disclosed to the DOJ and SEC 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. " In September 2007, Depuy and four other device makers paid $310 million to settle charges they paid kickbacks to induce U.S. doctors to buy their products. Now the SEC and DOJ want to know whether the companies bribed overseas doctors employed by government-owned hospitals to use their products. Biomet Inc., Stryker Corp., Zimmer Holdings Inc., Smith & Nephew plc and Medtronic Inc. disclosed FCPA investigations during 2007 and Wright Medical reported a similar investigation in June 2008.

Panalpina. In February 2007, the Justice Department said in connection with the resolution of Vetco's FCPA case that bribes in Nigeria "were paid through a major international freight forwarding and customs clearance company to employees of the Nigerian Customs Service . . .” Since then about a dozen leading oil and gas-related companies received letters from the DOJ and SEC asking them to "detail their relationship with Panalpina . . ." Among those involved are Schlumberger, Shell, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., ENSCO, Cameron, Noble Corp., Pride International, Global Industries and Parker Drilling.

Swiss-based Panalpina said in its 2008 half-yearly report that it would divest its domestic operations in Nigeria to a local investment group and retain no ownership or operating interest. It completed the transaction in November. It also said it was cooperating with an investigation by the DOJ and SEC and that its U.S. subsidiary in Houston had been instructed to produce documents and other information about services to certain customers in Nigeria, Kazakhstan and Saudi Arabia.

* * *
And a long-standing prosecution that isn't mentioned much these days but should be watched is US v. Giffen. It's in the U.S. District Court for the Southern District of New York (Foley Square). American businessman James H. Giffen was arrested in New York in March 2003 for allegedly paying or offering $78 million in bribes to an advisor of Kazakhstan's president and its former oil and gas minister. He was charged with violating the FCPA, mail and wire fraud, false statements and money laundering.

When arrested, Giffen was carrying a Kazakhstan diplomatic passport. His lawyers have said he was acting in Kazakhstan with the full knowledge and approval of the U.S. government. Most of the court record is sealed, apparently because it contains classified documents. After nearly six years of little activity (raising speedy-trial issues, no doubt), there's more going on in the case now. A pre-trial conference was held this month and the next one is scheduled for June. Giffen is free on $10,000,000 bail.
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Thursday
Feb262009

Pride's Disclosure Tells The Story

We admire Pride International, Inc.'s approach to its Foreign Corrupt Practices Act disclosures. The company talks about the serious problems it had for years with sensitive payments, and how it's been dealing with them. The countries involved included Venezuela and Mexico, India and Malaysia, Saudi Arabia, Kazakhstan, Brazil, Nigeria, Libya, Angola and the Republic of the Congo, among others. Bribes apparently were paid directly or by intermediaries to clear rigs and equipment through customs, and to help solve problems with immigration, tax, and licensing authorities. Some of the payments in question involved global logistics firm Panalpina and other third parties.

Sadly, people near the top of the company probably knew what was going on. The ex-chief operating officer resigned his position in mid-2006 but has stayed as an employee during the FCPA investigation. If the audit committee or the board of directors think there's "cause" under his employment agreement to terminate his services, he could lose retirement benefits and maybe a lot more. Other senior people have already been fired or placed on administrative leave, and some resigned because of the FCPA investigation. The company says it has "taken and will continue to take disciplinary actions where appropriate and various other corrective action to reinforce our commitment to conducting our business ethically and legally and to instill in our employees our expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law."

Who is Pride? It's a can-do Houston-based drilling contractor for the oil and gas industry. It has over 7,000 employees working around the world. "We have positioned our fleet," its website says, "in some of the world's largest and most active exploration and production areas, with a market presence in West Africa (Angola), Latin America (Brazil), the Gulf of Mexico, the Mediterranean and Middle East. Today, we operate a total of 45 rigs."

As we did a year ago here, we're reprinting below Pride International's FCPA disclosure from its annual report (Form 10-K), this one for the period ending December 31, 2008. Pride filed it with the Securities and Exchange Commission this week. It's a long read (for a blog post, anyway). But it's filled with details and admissions not usually found in similar disclosures. We think it also gives fair warning to shareholders and other stakeholders that an eventual resolution with the Justice Department and SEC could be expensive and disruptive.

Pride International, Inc. trades on the New York Stock Exchange under the symbol PDE.

Download Pride's February 25, 2009 Form 10K (annual report) here.
___________

During the course of an internal audit and investigation relating to certain of our Latin American operations, our management and internal audit department received allegations of improper payments to foreign government officials. In February 2006, the Audit Committee of our Board of Directors assumed direct responsibility over the investigation and retained independent outside counsel to investigate the allegations, as well as corresponding accounting entries and internal control issues, and to advise the Audit Committee.

The investigation, which is continuing, has found evidence suggesting that payments, which may violate the U.S. Foreign Corrupt Practices Act, were made to government officials in Venezuela and Mexico aggregating less than $1 million. The evidence to date regarding these payments suggests that payments were made beginning in early 2003 through 2005 (a) to vendors with the intent that they would be transferred to government officials for the purpose of extending drilling contracts for two jackup rigs and one semisubmersible rig operating offshore Venezuela; and (b) to one or more government officials, or to vendors with the intent that they would be transferred to government officials, for the purpose of collecting payment for work completed in connection with offshore drilling contracts in Venezuela. In addition, the evidence suggests that other payments were made beginning in 2002 through early 2006 (a) to one or more government officials in Mexico in connection with the clearing of a jackup rig and equipment through customs, the movement of personnel through immigration or the acceptance of a jackup rig under a drilling contract; and (b) with respect to the potentially improper entertainment of government officials in Mexico.

The Audit Committee, through independent outside counsel, has undertaken a review of our compliance with the FCPA in certain of our other international operations. In addition, the U.S. Department of Justice has asked us to provide information with respect to (a) our relationships with a freight and customs agent and (b) our importation of rigs into Nigeria. The Audit Committee is reviewing the issues raised by the request, and we are cooperating with the DOJ in connection with its request.

This review has found evidence suggesting that during the period from 2001 through 2006 payments were made directly or indirectly to government officials in Saudi Arabia, Kazakhstan, Brazil, Nigeria, Libya, Angola, and the Republic of the Congo in connection with clearing rigs or equipment through customs or resolving outstanding issues with customs, immigration, tax, licensing or merchant marine authorities in those countries. In addition, this review has found evidence suggesting that in 2003 payments were made to one or more third parties with the intent that they would be transferred to a government official in India for the purpose of resolving a customs dispute related to the importation of one of our jackup rigs. The evidence suggests that the aggregate amount of payments referred to in this paragraph is less than $2.5 million. We are also reviewing certain agent payments related to Malaysia.

The investigation of the matters described in the prior paragraph and the Audit Committee’s compliance review are ongoing. Accordingly, there can be no assurances that evidence of additional potential FCPA violations may not be uncovered in those or other countries.

Our management and the Audit Committee of our Board of Directors believe it likely that then members of our senior operations management either were aware, or should have been aware, that improper payments to foreign government officials were made or proposed to be made. Our former Chief Operating Officer resigned as Chief Operating Officer effective on May 31, 2006 and has elected to retire from the company, although he will remain an employee, but not an officer, during the pendency of the investigation to assist us with the investigation and to be available for consultation and to answer questions relating to our business. His retirement benefits will be subject to the determination by our Audit Committee or our Board of Directors that it does not have cause (as defined in his retirement agreement with us) to terminate his employment. Other personnel, including officers, have been terminated or placed on administrative leave or have resigned in connection with the investigation. We have taken and will continue to take disciplinary actions where appropriate and various other corrective action to reinforce our commitment to conducting our business ethically and legally and to instill in our employees our expectation that they uphold the highest levels of honesty, integrity, ethical standards and compliance with the law.

We voluntarily disclosed information relating to the initial allegations and other information found in the investigation and compliance review to the DOJ and the Securities and Exchange Commission and are cooperating with these authorities as the investigation and compliance reviews continue and as they review the matter. If violations of the FCPA occurred, we could be subject to fines, civil and criminal penalties, equitable remedies, including profit disgorgement, and injunctive relief. Civil penalties under the antibribery provisions of the FCPA could range up to $10,000 per violation, with a criminal fine up to the greater of $2 million per violation or twice the gross pecuniary gain to us or twice the gross pecuniary loss to others, if larger. Civil penalties under the accounting provisions of the FCPA can range up to $500,000 and a company that knowingly commits a violation can be fined up to $25 million. In addition, both the SEC and the DOJ could assert that conduct extending over a period of time may constitute multiple violations for purposes of assessing the penalty amounts. Often, dispositions for these types of matters result in modifications to business practices and compliance programs and possibly a monitor being appointed to review future business and practices with the goal of ensuring compliance with the FCPA.

We could also face fines, sanctions and other penalties from authorities in the relevant foreign jurisdictions, including prohibition of our participating in or curtailment of business operations in those jurisdictions and the seizure of rigs or other assets. Our customers in those jurisdictions could seek to impose penalties or take other actions adverse to our interests. We could also face other third-party claims by directors, officers, employees, affiliates, advisors, attorneys, agents, stockholders, debt holders, or other interest holders or constituents of our company. In addition, disclosure of the subject matter of the investigation could adversely affect our reputation and our ability to obtain new business or retain existing business from our current clients and potential clients, to attract and retain employees and to access the capital markets. No amounts have been accrued related to any potential fines, sanctions, claims or other penalties, which could be material individually or in the aggregate.

We cannot currently predict what, if any, actions may be taken by the DOJ, the SEC, any other applicable government or other authorities or our customers or other third parties or the effect the actions may have on our results of operations, financial condition or cash flows, on our consolidated financial statements or on our business in the countries at issue and other jurisdictions.
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Thursday
Dec182008

Foreign Affairs

Our singular focus over the past week moved our spouse to ask whether we also plan to redo the walls in Siemens Blue. We're considering it. But what really comes to mind after the biggest FCPA enforcement action in history is that it involves not a U.S. company -- not a Boeing or an Exxon or a GE -- but "a corporation organized under the laws of Germany with its principal offices in Berlin and Munich." It was snared by the FCPA because, as the Justice Department's Information put it: "As of March 12, 2001, Siemens was listed on the New York Stock Exchange and was an 'issuer' as that term is used in the FCPA. 15 U.S.C. § 78dd-1(a). By virtue of its status as an issuer, Siemens was required to comply with the provisions of the FCPA."

We shouldn't be too surprised that the big hammer fell on a foreign company. Since 1998, the pace of investigations and enforcement actions involving foreign companies has accelerated. In addition to Siemens, overseas names in the FCPA news include ABB Ltd (Switzerland), Vetco Gray UK Ltd, Akzo Nobel, NV (the Netherlands), Statoil ASA (Norway), AstraZeneca (UK-Sweden), BAE Systems (UK), DaimlerChrysler (Germany), Innospec (UK), Magyar Telekom (Hungary), Norsk Hydro (Norway), Novo Nordisk (Denmark), Panalpina (Switzerland), Smith & Nephew (UK) and Total (France), among others.

Outside America's borders, its globo-cop role may not sit well with everyone (it makes a lot of Americans uneasy, too). But the FCPA's long reach and sharp teeth are changing global business practices. Our favorite pundit said it was probably the threat of criminal prosecution under the FCPA that finally scared Siemens enough to come clean. That's what Congress had in mind in 1998 when it expanded the FCPA to cover foreign companies that weren't issuers when they act unlawfully while within the territory of the U.S. ; American businesses needed a more level playing field.

But fighting public graft is also the right thing to do. A. A. Sommer, Jr., a commissioner of the SEC, said in 1976, a year before enactment of the FCPA, that "there are moral problems as well as legal problems that go far beyond simply the question of illegal payoffs to foreign officials. There are questions concerning the role of multi­national corporations, the extent to which they have obligations to the countries in which they conduct their business, the extent to which they should seek to raise the standards of conduct there, the respect which they should show the laws of other countries." Thirty-two years later the Wall Street Journal could say that the quixotic Foreign Corrupt Practices Act had turned into one of Congress's finer moments.

The DOJ's Matthew Friedrich summed up the case this week with these words:

For let there be no doubt that corruption is not a victimless offense. Corruption is not a gentlemen's agreement where no one gets hurt. People do get hurt. And the people who are hurt the worst are often residents of the poorest countries on the face of the earth, especially where it occurs in the context of government infrastructure projects, contracts in which crucial development decisions are made, in which a country will live by those decisions for good or for bad for years down the road, and where those decisions are made using precious and scarce national resources.
That's why the fight against international public corruption is worthwhile, and why the FCPA makes sense.
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Friday
Nov212008

Aibel Pleads Guilty

Aibel Group Ltd. of the United Kingdom pleaded guilty yesterday to violating the antibribery provisions of the Foreign Corrupt Practices Act and failing to comply with the terms of its prior deferred prosecution agreement. It admitted making previously undisclosed illegal payments to Nigerian customs officials through its freight forwarder in return for preferential treatment.

From 2002 to 2005, Aibel arranged at least 378 corrupt payments to Nigerian officials totaling about $2.1 million. The payments were coordinated largely through an affiliate's office in Houston and were paid through a freight forwarding company. Aibel's work in Nigeria involved a deepwater oil drilling operation known as the Bonga Project, for which the company provided engineering, procurement and subsea construction equipment.

At a hearing yesterday in the Southern District of Texas, Aibel pleaded guilty to single conspiracy and substantive counts of violating the FCPA. Aibel also admitted that it had not complied with a deferred prosecution agreement it had entered into with the Justice Department in February 2007 regarding the same underlying conduct. As part of the plea agreement, it will pay a $4.2 million criminal fine and serve two years on organizational probation. Among other things, it is required to report periodically its progress in implementing antibribery compliance measures.

Aibel is owned by Herkules Private Equity Fund and Ferd Capital, both of Norway. They acquired the company in June 2007 from a private equity group led by Candover, 3i and JPMorgan Partners, which bought Vetco Gray UK Ltd. and its affiliate Aibel in July 2004 from ABB Oil & Gas. When its current Norwegian owners acquired Aibel, it was already subject to the January 2007 deferred prosecution agreement. The new owners were required by the DOJ to ensure the company's compliance with the terms of the deferred prosecution agreement after the acquisition.

The Justice Department's release didn't name the "major international freight forwarding and customs clearance company" Aibel used to make the illegal payments. But it explained that this is the third time since July 2004 that entities affiliated with Aibel have pleaded guilty to violating the FCPA. On July 6, 2004, Vetco Gray UK Ltd. pleaded guilty to violating the FCPA's antibribery provisions by paying more than $1 million in bribes to officials of the National Petroleum Investment Management Services, a Nigerian government agency. And in February 2007, three wholly-owned subsidiaries of Vetco pleaded guilty to violating the antibribery provisions of the FCPA. As part of the February 2007 plea, the Vetco companies agreed to pay a combined $26 million criminal fine. Although Aibel, which was then also wholly-owned by Vetco, was not fined, it was required to enter into a deferred prosecution agreement whereby it accepted responsibility for similar conduct by its employees. It admtted Friday that it was not in compliance with the deferred prosecution agreement.

The DOJ said in February 2007 that Vetco's bribes in Nigeria were paid to customs officials through a "major international freight forwarding and customs clearance company," the same description used in the DOJ's release yesterday. Since February 2007, about a dozen leading oil and gas-related companies have received letters from the DOJ and SEC asking for details about their relationship with Swiss logistics giant, Panalpina. Companies that have said they received requests include Shell, Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp., Pride International and Global Industries.

Panalpina said in its 2008 half-yearly report (available here) that it would divest its domestic operations in Nigeria to a local investment group and retain no ownership or operating interest. It completed the transaction earlier this month. It also said it was cooperating with an investigation by the DOJ and SEC and that its U.S. subsidiary had been instructed to produce documents and other information about services to certain customers in Nigeria, Kazakhstan and Saudi Arabia.

Regarding yesterday's plea, the DOJ said Aibel self-disclosed the current FCPA violations as well as those in February 2007 and agreed to take significant remedial steps.

View the DOJ's November 21, 2008 release here.

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