Innovative uses of anti-corruption laws to fight terrorists and tyrants and companies that help them is the subject of a breakthrough article published this week by the Wharton School of the University of Pennsylvania.
Entries in Statoil (10)
Iran has all the ingredients to be an FCPA minefield. It's big -- 66 million people in an area about the size of Alaska -- and it's the world's 6th largest oil producer. On top of that, it has a corruption problem, ranking near the bottom of the latest Corruption Perception Index -- 168th, tied with Burundi, Equatorial Guinea, Haiti, and Turkmenistan.
But although the country routinely makes world headlines, it's hardly mentioned on the FCPA Blog. Why not?
Iran has been off limits to U.S. companies from around the time the FCPA became law in 1977. The U.S. first imposed sanctions on Iran in 1979. After the takeover of the American embassy in Teheran, President Carter banned imports of Iranian oil and blocked all transfers of property in the U.S. owned by the Central Bank and Government of Iran. In 1980, he embargoed all U.S. exports to and imports from Iran, and stopped U.S. citizens from traveling or conducting financial transactions there.
Some of those sanctions were loosened after the U.S. hostages were released. But in 1987, President Reagan imposed a new embargo on Iranian-origin goods and services. And in 1995, after Iran was labelled a sponsor of international terrorism, President Clinton again banned U.S. involvement with Iran's oil and gas development. He later confirmed that "virtually all trade and investment activities with Iran by U.S. persons, wherever located, are prohibited," according to the Treasury Department. With some small adjustments, that's how things stand today.
Criminal penalties for violating the U.S. sanctions are stiff -- fines up to $1,000,000 and prison for up to 20 years, four times harsher than the FCPA's penalties.
Even without America's business, Iran was the focus of an important FCPA case. In 2006 the Norwegian company Statoil was hit with DOJ and SEC enforcement actions for bribery and books and records violations. Statoil in 2002 had paid $5.2 million in bribes to a modern-day prince of Persia -- the son of a former president of Iran, and promised to pay $20 million more for access to the giant Pars oil field. The company eventually self-disclosed the payments and paid $3 million to Norwegian prosecutors and $21 million in penalties and disgorgement to the DOJ and SEC (with credit for the $3 million it paid back home).
That was the first FCPA criminal enforcement action against a foreign company -- Statoil is an "issuer," trading on the NYSE under the symbol STO. Its three-year deferred prosecution agreement with the DOJ expired in November 2009.
We could be hearing more FCPA news involving Iran. Last week the Wall Street Journal said the SEC's enforcement and corporation finance divisions have sent letters to several pharmaceutical and energy companies that work in Iran, as well as in Cuba, Sudan, and Syria -- which all appear on the State Department's list of countries that sponsor terrorism. (Some medicines and medical devices are licensed for export from the U.S. to Iran.) The letters reportedly asked the companies, which haven't been named, what they are doing in the four countries to ensure compliance with the FCPA.
Colorado-based independent oilman Jack Grynberg filed a 311-page complaint in December with the European Commission. He's asking for an investigation into alleged bribery and tax evasion in Kazakhstan by several oil companies he once partnered with. His claims relate to oil and gas developments dating back to the early 1990s -- the same ones at the center of the U.S. prosecutions of James Giffen and Brian Williams. See our post James Giffen And America's Secrets.
Grynberg, 78, who speaks six languages including Russian, is alleging "wholesale bribery and corruption of top Kazakh government officials." He claims the corruption led to his company's loss of rights in the Greater Kashagan and Karachaganak Oil Fields -- estimated to hold more than 9 billion barrels of recoverable oil and 25 trillion cubic feet of natural gas.
His complaint names BP plc, StatoilHydro A.S.A., Total S.A., Royal Dutch Shell plc, ENI S.p.A., ExxonMobil, ConocoPhillips, and Inpex.
In a release he sent to the FCPA Blog, he said:
My lawsuit in Brussels will attempt to open the window on this large scale bribery, tax evasion and corruption scheme, obtain subpoena power, and finally answer . . . questions which have remained unanswered for too long. It is unfortunate that the U.S. Department of Justice is attempting to prosecute the messengers, namely Mr. James H. Giffen and Mr. Brian J. Williams, instead of the main criminals and their cheif executives. My hope is that the European Commission will take a more balanced and assertive approach.
The complaint to the EC asserts that the alleged bribery infringed Articles 81 and 82 of the EEC Treaty (antitrust and abusive behavior).
Why the European Commission? Grynberg says he's exhausted his potential U.S. remedies and hasn't been able to subpoena the witnesses he needs (he deposed Giffen, who asserted his 5th Amendment privilege). Grynberg's civil fraud and Rico suit in the District Of Columbia against BP, Statoil, British Gas, and their top executives was bounced last year. The court ordered private arbitration in Canada under agreements Grynberg had signed for the projects.
Grynberg has a rich history of litigation, some of it productive. According to his own documents, he has been "pursuing fraud in the energy industry for the past 15 years." He cites these examples:
- In 1995, he filed one of the first False Claim Act qui tam lawsuits against 60 natural gas pipeline companies in the U.S., listing "13 ways condensate (light oil) and natural gas are stolen from federal and Native American lands."
- In 2007, Congresswoman Carolyn Maloney of New York introduced H.R. 435 (reintroduced this year as H.R. 1462), intended to stop the theft of condensate on federal and Native American lands in ways Grynberg identified.
- In September last year, he was awarded $5.66 million in a federal suit in the District of Columbia against the Central African Republic's President, Minister of Mines and Energy, and former Ambassador to the U.S. His suit claimed they demanded a $2 million bribe for an exclusive oil and gas development concession that Grynberg was ready to develop under previously signed agreements. He has also filed a complaint about the bribe demand in the International Centre for Settlement of Investment Disputes of the World Bank. A hearing is scheduled in Paris later this month.
- He's pushing amendments to the Foreign Corrupt Practices Act in Congress through H.R. 6188, which would create a private right of action under the FCPA.
Download the executive summary of Jack Grynberg's complaint to the European Commission here.
During this season of Thanksgiving, the folks at Norway's Statoil ASA will be celebrating the end of the company's three-year deferred prosecution agreement -- and the Justice Department's public announcement about it here. In 2006, Statoil (which trades on the NYSE under the symbol STO) was charged with violating the anti-bribery and accounting provisions of the Foreign Corrupt Practices Act. It had paid more than $5 million through a middleman to an Iranian official for access to the South Pars natural gas field, one of the world’s largest. In settling with the DOJ, it agreed to pay a $10.5 million penalty and enter into the three-year deferred prosecution agreement. It also agreed with the SEC to pay $10.5 million in disgorgement and retain a monitor.
The case made waves in '06. Statoil's was the earliest criminal enforcement action against a foreign company. The financial penalties the DOJ and SEC imposed set that year's record for an FCPA case. And Statoil had already been punished in Norway for the bribery and fined about $3 million. The U.S. government evidently deemed that inadequate but, in an act of comity, allowed Statoil to deduct the Norwegian fine from the U.S. criminal penalty.
U.S. Attorney Prett Bharara got it right when he said yesterday: "This case shows that deferred prosecution agreements against corporations can work as an important middle ground between declining prosecution and obtaining the conviction of a corporation. The deferred prosecution agreement . . . helped restore the integrity of Statoil's operations and preserve its financial viability while at the same time ensuring that it improved what was obviously a failed compliance and anti-corruption program."
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Frederic Bourke and William Jefferson will be thankful to be out on bail pending their appeals. The DOJ may have put too much zeal into Bourke's prosecution, and may have botched part of Jefferson's trial. But both men will have second chances on appeal. Bourke to argue that he never intended to break the law, and that being a criminal in the United States still requires some mens rea. And Jefferson that he was convicted for private acts under a law governing public acts, that he never had a chance to confront the main witness against him -- the government's informant, that her relationship with an FBI agent working on his investigation was evidence the jury should have heard, that the "honest services" statute he was convicted under is too vague to understand, and that the jury's verdict on the conspiracy count should have been tossed.
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We're thankful, as always, for the rule of law. Our system of justice isn't perfect. It can't be. But as we said a few weeks ago, when it works as it should, the guilty are usually punished and the innocent usually go free. And that's a rare blessing at any time and place. We're thankful too for the freedom we and others have to praise the system when it works and criticize it when it doesn't.
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We're thankful so many people are at work right now trying to spread the rule of law around the world. People in governments, in NGOs, in universities and private institutions, and on their own. Wherever it goes, the rule of law helps people escape from fear and poverty.
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We're thankful for everyone who supported the FCPA Blog during the past year -- our readers, sponsors, contributors, fellow bloggers, and kibitzers. They all help keep us honest and cheerful.
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Finally, we give thanks for these words from Walden, written in 1854 by Henry David Thoreau, one of the most thankful and sanest Americans who ever lived:
At length the winter set in good earnest, just as I had finished plastering, and the wind began to howl around the house as if it had not had permission to do so till then. Night after night the geese came lumbering in the dark with a clangor and a whistling of wings, even after the ground was covered with snow, some to alight in Walden, and some flying low over the woods toward Fair Haven, bound for Mexico. . . . The snow had already covered the ground since the 25th of November, and surrounded me suddenly with the scenery of winter. I withdrew yet farther into my shell, and endeavored to keep a bright fire both within my house and within my breast.
Disgorging profits is a common and prominent feature these days in Foreign Corrupt Practices Act settlements with the Securities and Exchange Commission. Last year Siemens disgorged $350 million and this year KBR paid $177 million. Maybe because disgorgements now happen so often, or because the payments have become so enormous, we automatically accept them as a suitable remedy. We don't question why the SEC uses disgorgement, where the remedy came from, or where it's going.
But at least one person has asked those questions. He's David C. Weiss (Dartmouth College, Michigan Law School), student-author of an extended note in the January 17, 2009 edition of the Michigan Journal of International Law.
According to Weiss, disgorgement never appeared in an FCPA enforcement action until just five years ago. That's right -- 27 years passed without a single FCPA-related disgorgement order. Then, in 2004, ABB Vetco Gray, Inc. paid $16.4 million in disgorgement and prejudgment interest. Next came Titan Corp. in 2005, paying $15.5 million. That same year, Diagnostics Products Corp. disgorged $2.8 million and DPC (Tianjin) Co. Ltd. $2.8 million. In 2006, Schnitzer Steel Industries, Inc. disgorged $7.7 million and Statoil $10.5 million. In 2007, Baker Hughes Inc. disgorged $23 million, El Paso Corp. $5.5 million, and York International $10 million.
Want to hear the rest? In 2008, Fiat disgorged $7.2 million, Siemens $350 million, Faro Technologies $1.8 million, Willbros $10.3 million, AB Volvo $19.6 million, Flowserve $3.2 million, and Westinghouse Air Brake Technologies Corp. $289,000. And so far this year, ITT Corporation has disgorged $1.4 million, and KBR $177 million.
Disgorgement, then, has a short but intense history in FCPA enforcement actions, and it seems to have appeared out of the blue. As Weiss puts it, "The SEC has developed the 'law' of disgorgement with neither the input, contemplation, nor blessing of Congress, and it is for this reason that one should ask normative questions about the role of disgorgement in the future enforcement of the prohibition on foreign bribery."
He points out that the SEC began requiring disgorgement just when other countries (with U.S. encouragement) started enacting their own extra-territorial anti-corruption laws. So here's the question: When more than one country enforces antibribery laws against a single company, which jurisdictions, if any, should use disgorgement as a remedy? Who decides, for example, if Siemens should forfeit ill-gotten gains to the United States Treasury or the German Chancellery? How about Italy or Norway, Greece or Argentina?
Weiss looks at laws around the world aimed at punishing foreign public bribery, and particularly those with disgorgement-like remedies. "The penal codes of at least twenty-one countries," he says, "include provisions for 'forfeiture' or 'confiscation' of the proceeds of a crime, or they base the amount of a fine on such proceeds." His survey shows just how new most of the laws are -- the majority coming into force either following enactment of the OECD anti-corruption convention in 1998 or after the events of 9/11 in 2001.
There's no evidence, Weiss says, that "Congress intended that the SEC pursue disgorgement as it has done since 2004. This fact alone should at least make one question the normative function of disgorgement." Disgorgement, he says, wasn't mentioned when the FCPA was first debated and adopted in 1977, nor when Congress amended the law in 1988 or 1998. Weiss himself doesn't say the SEC lacks the legal mandate to pursue disgorgement or that the remedy is somehow improper. But he does point out that the "lack of any statement that disgorgement should be part of the SEC’s enforcement arsenal, and the rarity of the remedy at the time that Congress passed the FCPA and its amendments, are reasons that some commentators have used to question the impropriety of the remedy."
It's great to see the Foreign Corrupt Practices Act as the object of some fresh research and scholarship. And at 47 pages and 238 footnotes (a couple of which mention the FCPA Blog), Weiss' work is thorough and thoughtful.
The cite for the note is: Weiss, David C.,The Foreign Corrupt Practices Act, SEC Disgorgement of Profits, and the Evolving International Bribery Regime: Weighing Proportionality, Retribution, and Deterrence, Michigan Journal of International Law, Vol. 30, No. 2 (January 17, 2009).
It's available from SSRN here.
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.
Bob Beamon's long jump of 29 feet 2½ inches in Mexico City in the 1968 Olympics broke the world record by an astounding 21¾ inches. With that one jump Beamon became the first man to reach both 28 and 29 feet, and the word Beamonesque was born -- meaning a spectacular event. We'd describe Siemens' $800 million settlement on Monday of Foreign Corrupt Practices Act violations as Beamonesque, considering that it surpassed the existing FCPA settlement record by $755.9 million.
Before Siemens, Baker Hughes' April 2007 payment of $44.1 million (including penalties and disgorgement) was the biggest in an FCPA case. Baker Hughes, we think, won't be sorry to relinquish the top spot on the settlement list since being there gets you mentioned in the press about as often as Madonna.
Among other notable settlements, Willbros paid $32.3 million in May this year and Chevron's violations related to the U.N.'s oil for food program cost it $30 million last year. Titan Corporation held the record after it paid $28.5 million in 2005 for its FCPA settlement. Vetco's resolution cost it $26 million in 2007 and Lockheed paid $24.8 million in 1994, the biggest case of its time. York International spent $22 million last year to end its enforcement action. Statoil was close behind in 2006, paying $21 million. AB Volvo's 2008 case settled for $19.6 million, and ABB's violations cost it $16.4 million in 2004. Schnitzer Steel agreed to pay $15.2 million in 2006 and Flowserve $10.5 million this year.
Bob Beamon's great leap stood as a world record for 23 years and earned him a postage stamp in Burundi (pictured above). We're fairly sure Siemens won't be appearing soon on any postage stamps, but it could hold the FCPA settlement record for a very long time.
Our thanks to Joe Hixson for helping assemble the settlement data in this post. He's with the strategic communications firm The Abernathy MacGregor Group Inc., which has represented some very well-known companies in connection with FCPA enforcement actions. Despite Joe's help, any mistakes in what's written above are all ours.
Based on total page views, here are the top five posts from the FCPA Blog so far in 2008:
1. Feeling the Heat Overseas, June 9, 2008
Foreign companies can't be blamed for wondering if they're being singled out under the Foreign Corrupt Practices Act. The names in the FCPA-related headlines alone are enough to cause high anxiety. ABB, Siemens, BAE, DaimlerChrysler, AstraZeneca and many more. But are U.S. prosecutors really focusing too much attention on U.K., European and other foreign companies instead of American firms? Probably not, at least according to the numbers. Here's the situation. . . .2. Why We Keep Plugging, July 17, 2008
It's a familiar and unwelcome moment. Those on the other side of the table spot the FCPA compliance language for the first time:3. Grynberg v. BP et al, April 15, 2008
The joint venture and all its personnel shall comply in all respects with the requirements of the United States Foreign Corrupt Practices Act.
Faces darken. The mood in the room goes sour. . . .
Last week we reported here about the civil suit filed in the U.S. District Court in D.C. by Colorado-based oilman Jack Grynberg, 76, against BP, Statoil and British Gas, along with some of their current or former top executives. The core allegation is that the defendants, without Grynberg's knowledge and using some of his money, bribed officials in Kazakhstan in order to win oil rights for joint ventures in which Grynberg had an interest. . . .4. The FCPA Is No Private Matter, March 3, 2008
Last week we heard that Alba -- not the movie star Jessica but the smelter Aluminum Bahrain BSC -- had sued Alcoa for bribing Bahraini officials in exchange for supply contracts. The allegations sounded exactly like an offense under the Foreign Corrupt Practices Act. Alba's federal lawsuit, however, is based not on the FCPA but on common law fraud and RICO -- the Racketeer Influenced & Corrupt Organizations Act found at 18 U.S.C. §§1961-68. So what happened to the FCPA? . . .5. Scandal Hits The Compliance Monitors, January 19, 2008
. . . No matter how you spin it -- and Messrs. Christie and Ashcroft have been doing plenty of that -- the appointments have the appearance of impropriety. Peel away the PR and the best you can say is that there was some obvious cronyism going on. The worst you can say is that the DOJ created a scheme by which U.S. Attorneys can extract millions of dollars from wrongdoers and funnel the money to former bosses, friends and political allies. We don't buy the sinister version for a second, but lots of people will take it as gospel. . . ..
Last week we reported here about the civil suit filed in the U.S. District Court in D.C. by Colorado-based oilman Jack Grynberg, 76, against BP, Statoil and British Gas, along with some of their current or former top executives. The core allegation is that the defendants, without Grynberg's knowledge and using some of his money, bribed officials in Kazakhstan in order to win oil rights for joint ventures in which Grynberg had an interest.
A friend sent us a copy of Grynberg's complaint. It alleges facts which, if true, would violate the Foreign Corrupt Practices Act. Because there is no private right of action under the FCPA, we asked in our prior post whether the Department of Justice would investigate Grynberg's allegations. After reading his complaint, the answer must be yes.
What follow are excerpts from Grynberg's pleading. We've omitted the paragraph numbers that appear in the original document and we've split up some longer sections for the sake of readability. But all of the language between our lines is taken directly from the complaint.
This is a lot more text than we usually post at one go. But it's fascinating material and extremely unusual. Normally, allegations about international public corruption and violations of the FCPA come only from the Department of Justice and the Securities and Exchange Commission. This story, however, is told by an industry insider who's also an alleged victim.
COME NOW the Plaintiffs, Jack J. Grynberg (“Grynberg”), Grynberg Production Corporation, a Texas corporation (“GPC Texas”), Grynberg Production Corporation, a Colorado corporation (“GPC Colorado”) and Pricaspian Development Corporation, a Texas corporation (“PDC”), collectively, the “Grynberg Plaintiffs,” through their undersigned counsel and for their Complaint against Defendants B.P. P.L.C. (“BP”), BP Corp North America Inc., StatoilHydro ASA (“StatoilHydro”), John Browne (“Browne”), Anthony Hayward (“Hayward”), Peter Sutherland (“Sutherland”), Helge Lund (“Lund”), British Gas (“BG”) and Eivind Reiten (“Reiten”), respectfully allege as follows:
This is a case about Statoil’s, BP’s and BG’s role -- and the role of its executive leadership – in a massive scheme involving illegal bribes paid to various top officials of the Government of Kazakhstan by several oil companies, and the scheme to cover up those bribes from public disclosure through a series of misrepresentations. There have been many victims of these bribes and their cover up – beginning with the People of Kazakhstan who have been denied their right to the benefits of the resources extracted from their land and the right to the honest services of their governmental officials of the bribes and the cover-up. The Grynberg Plaintiffs are another group of victims.
The Grynberg Plaintiffs comprise a small petroleum exploration, development and production consortium, who have engaged in honest and fully transparent business dealings in Kazakhstan and elsewhere since the late 1980’s. Plaintiffs contracted with larger oil companies to help them explore and develop Kazakhstan’s vast oil and natural gas potential. But some of the larger oil companies cut their own deal with the Kazakhstan Government to squeeze the Grynberg Plaintiffs out of Kazakhstan, using the Grynberg Plaintiffs’ confidential, proprietary, and extremely valuable, geological and geophysical information.
Settlement agreements were ultimately reached between Plaintiffs and the larger companies, whereby the larger companies bore express duties to account for net profits in the Pricaspian Sedimentary Basin of offshore and onshore northwestern Kazakhstan, also known as the Area of Mutual Interest (“AMI”), and pay Plaintiffs a portion of those net profits, and implied duties to engage honest business practices including transparent accounting and refraining from foreign corrupt practices.
This lawsuit arises from the Grynberg Plaintiffs’ discovery that Defendants have engaged in criminal bribery schemes, and in attempting to cover up those bribes, have lied to the Plaintiffs, withheld evidence, with trickery have attempted to force Plaintiffs, without their knowledge, consent or approval, to pay a portion of those illegal bribes out of the profits that the corporate Plaintiffs should have shared in, thereby harming Plaintiffs’ hard-earned and well-justified reputation as a crusader against bribery and other corruption within the petroleum industry.
Grynberg has a long history of resisting and exposing the corruption in the petroleum industry. In April of 1995, Grynberg filed a series of False Claims Act qui tam lawsuits in his capacity as a Realtor for the United States and Native Americans, including Civ. No. 95-725 (TFH), District Court, District of Columbia, U.S. ex rel. Jack J. Grynberg v. Alaska Pipeline Co. et al., and Case No. 1999MDL1293, U.S. District Court, Casper, Wyoming, Natural Gas Royalties Qui Tam Litigation. Both were filed in accordance with the False Claims Act, 18 U.S.C. § 3729 et seq. In all, Grynberg has expended in excess of twenty million dollars ($20,000,000.00) on attorney’s fees, court costs and expenses.
The above mentioned qui tam lawsuits, against 66 and subsequently enlarged to 305 corporate Defendants in the natural gas industry, challenged the mismeasurement of the volume and wrongful analysis of the heating content of natural gas causing substantial underpayments of royalties to the United States and Native Americans. Grynberg’s lawsuits allege that those Defendants are responsible for under-measuring the volume and wrongly analyzing the heating content of natural gas produced from mineral property interests owned by the United States and Native Americans, and artificially inflating net-back charges using improper valuation and transactions with non-arm’s length affiliates, to reduce royalties owed to the United States and to Native Americans.
The consolidated qui tam actions are currently before the U.S. Tenth Circuit Court of Appeals. Several “copy-cat” qui tam actions against the oil and natural gas industry have been filed by other whistleblowers and are progressing through the courts as well. . . .
Mr. Grynberg speaks, reads and writes fluent Russian, and was a scientific analyst in the United States Army Research and Development Command working on Soviet radioactive warfare in 1956-57. . . .
Plaintiffs Grynberg [and his companies] have engaged in the international petroleum exploration, development and production for over forty (40) years.
In the late-1980’s Grynberg, using his knowledge of Russian, personally began establishing relationships with key individuals and decision makers in the oil, natural gas and mineral exploration and production industries in the former Soviet Union, including the satellite states of Eastern Europe, and the future Caspian Sea republics, including and especially Kazakhstan. . . .
James H. Giffen (“Giffen”) was the principal and CEO of Mercator Corporation (“Mercator”), a New York corporation owned by Mr. Giffen, who had been advising the Republic of Kazakhstan throughout the 1990’s and early 2000’s in connection with various transactions related to the sale by Kazakhstan of portions of its oil and natural gas wealth.
On March 30, 2003, Giffen was arrested at Newark Airport attempting to flee the United States, served with a criminal grand jury indictment, and is now awaiting trial after posting $10,000,000.00 bail, in U.S. v. Giffen, 03-MJ-663, S.D.N.Y. (March 2003). . . . Giffen was notorious for his part of a scheme to pay off high Kazakh government officials to smooth the way for the original KCS Concession Agreement and subsequent Kazakh Government approval for the BPX/Statoil assignment of its interests to other OKIOC Concessionaires. No payment to Giffen, by any person engaged in GKOF activities, could have been for other than criminally-tainted purposes.
The Defendants BP/Statoil and BG paid their share, amounting to at least 1/7th of $84 million or $12 million of the illicit bribes attributed to Giffen’ s activities with respect to GKOF.
One prominent American oil company, Chevron, which did not participate in OKIOC consortium appears to be the exception that proves the rule. Chevron did not pay the $40 million “entrance fee,” as it has been confided by a confidential source to Plaintiff Grynberg, precisely because it was seen as an illegal bribery. Plaintiff Grynberg has signed a verification of this Complaint to confirm this information.
The Foreign Corrupt Practices Act, 15 U.S.C. §§ 78a, 78dd-1 to 78dd-3, 78ff, the Interstate and Foreign Travel to Aid Racketeering, 18 U.S.C. § 1952, and Engaging in Monetary Transactions in Proceeds from Specified Unlawful Activities, 18 U.S.C. § 1957, not only bar this type of conduct directly but at the same time compel both the corporate Plaintiffs and Jack J. Grynberg to take independent action to disassociate themselves, in their contractual capacity, from these illegal acts by the BPX/Statoil, BG, and the individual defendants.
As a forced and innocent victim in the payment of approximately $40,500,000.00 of illegal payments to foreign government officials (a percentage of which was charged to Plaintiffs), failure to take the necessary steps to seek immediate return of these funds and disavowal in such practices might potentially expose Plaintiffs to risk and costs associated with the ongoing DOJ criminal investigations against each of the oil and gas company Defendants.
Following Giffen’s criminal indictment, Grynberg sought to obtain information concerning the details of Giffen’s arrangements with various oil companies within Kazakhstan, including BP, Statoil, BG, ENI and Chevron, both informally and in the context of settlement negotiations. Defendants have asserted attorney-client privileged information, trade secrets, contractual obligations or proprietary information for BP/Statoil and BG or other consortium members and ultimately demanding the return of documents, which, more likely than not, establish unlawful, potentially criminal conduct. Defendants will also seek to use the confidentiality agreement from the Arbitration to shield information and documents relating to their activity.
Plaintiffs have nevertheless uncovered documentary evidence that at least $500,000 has been paid by BP to Giffen for so-called “expenses” believed to constitute illegal bribe payments.
Defendants BP/Statoil, moreover, have classified approximately $40 million in unspecified expenses as “production sharing fees,” while BG has denied Plaintiffs access to audit its books where similar hidden, so-called “production sharing fees” are to be found. Standard international production sharing contracts pay production sharing fees only from actual petroleum production and not before any oil and natural gas production begins. The so-called “production sharing fees” of approximately $40 million are, more likely than not, illegal bribe payments.
Given Defendants’ intransigence and misuse of confidentiality provisions, the corporate Plaintiffs and Jack J. Grynberg are compelled to take independent action, through this Complaint and to the extent confidential as detailed in the Affidavit of Jack J. Grynberg (filed under seal).
The British press is reporting (here and here) that oil giant BP and its current and former CEOs, Tony Hayward and Lord Browne, as well as Norway's Statoil and its CEO, are among the defendants named in a civil lawsuit involving allegations of bribery of government officials in Kazakhstan.
The suit was filed in the U.S. District Court for the District of Columbia by Grynberg Production Corporation, a Denver-based oil company owned and run by chairman Jack Grynberg. According to one report, "The 27-page lawsuit, a copy of which has been seen by The Daily Telegraph, accuses the defendants of violating the United States' Racketeer Influenced and Corrupt Organisations (RICO) Act, of conspiring to break the RICO Act, of common law fraud, of theft, and breaching constructive trust. . . . . The core allegation is that the defendants, without Grynberg's knowledge, bribed officials in Kazakhstan to win oil rights from joint ventures in which Grynberg had an interest."
Private parties, as we have said, have no right of action under the Foreign Corrupt Practices Act. Only the Department of Justice and the Securities and Exchange Commission can enforce it. But this is the second civil suit filed in U.S. federal district court recently that involves allegations of behavior that, if true, would constitute violations of the FCPA. Last month, Bahrain-owned Alba filed a civil suit against Alcoa and its agent alleging bribery of Bahraini officials. That suit also included causes of action based on RICO and common-law fraud. The suit was stayed after just three weeks at the request of the Department of Justice, while it conducts its own investigation whether the FCPA and other criminal laws were violated. The DOJ has not indicated whether it will also launch a criminal investigation into Mr. Grynberg's allegations against BP, Statoil and their leaders.
According to one British press report, "Mr. Grynberg began working in the Kazakh region in November 1990, signing partnership agreements with the defendants in a bid to take advantage of the untapped resources onshore and offshore in the north-west of the former Soviet state. However, Mr Grynberg claims that he did not know that the defendants were involved in allegedly channelling some of his money from the various joint ventures to bribe Kazakh officials in order to win specific licences."
The case is related to the smoldering controversy involving American businessman James Giffen. He was arrested in New York in 2003 for allegedly paying or offering $78 million in bribes to an advisor of Kazakhstan's president and its former oil and gas minister. Giffen was charged with violating the FCPA but has not been brought to trial. When arrested he was carrying a Kazakhstani diplomatic passport. His lawyers say he was acting in Kazahkstan with the full knowledge and approval of the U.S. government.
Mr. Grynberg alleges in his civil suit that BP, Statoil and the other defendants paid about $12 million among them of the alleged bribes in Kazakhstan that the U.S. government says are attributed to Mr Giffen. Mr Grynberg apparently told The Daily Telegraph he was bringing the civil suit to protect himself against FCPA charges. "Unless I assert that I was an unwilling participant in this, my neck could be on the line. I'm too old to go to prison," said 76-year-old Mr Grynberg. He has also recently sued BP and its former CEO Lord Browne based on bribery allegations involving government officials in Grenada.
The British press reports say BP declined to comment on the case and that a spokesman for Statoil said the suit was completely unfounded.