The Wall Street Journal has reported that Panalpina and its customer Shell may be close to settling FCPA-related charges with the DOJ and SEC.
Entries in Panalpina (63)
The DOJ is investigating potential bribery in Yemen by oil field services company Schlumberger Ltd., according to the Wall Street Journal.
ABB joins the list of top ten FCPA settlements of all time, and Titan Corporation drops to number eleven. Here's the latest list, with a few candidates that may join soon.
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.
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.
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.
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.
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.
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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.
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.
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.
Thanks 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.
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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.
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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.
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.