The SEC's Office of the Whistleblower (yes, it's real) published its first list of enforcement actions that might be eligible for whistleblower rewards. It includes FCPA-related cases.
Entries in Tidewater Inc. (16)
Here's a list of fines paid overseas for bribery by companies that have settled FCPA enforcement actions.
The penalty for paying bribes in Nigeria may increase following demands from a Nigerian NGO that the Nigerian government seek its share of the recent anti-graft bounty. Maybe…
Why did one company escape prosecution in the Panalpina case when most of its peers did not? Here's the story.
Global logistics firm Panalpina and six of its oil-and-gas services customers settled FCPA-related charges today with DOJ and SEC.
Tidewater Inc. on Monday announced a $4.35 million after-tax charge for a DOJ settlement. Earlier this year, it said it had about $11 million for an expected FCPA settlement. Why the different numbers?
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.
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.
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.
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.
Compliance concerns have forced Swiss logistics giant Panalpina to withdraw completely from the Nigerian domestic market. It said in its 2008 half-yearly report (available here) that it will sell its local operations to a Nigerian group and retain no ownership or operating interest.
The exit from Nigeria follows Panalpina's announcement in September 2007 that it would suspend domestic logistics and freight forwarding services there for all oil and gas-related customers. That earlier announcement was part of Panalpina's statement that it was cooperating with the U.S. Justice Department and the Securities and Exchange Commission in a Foreign Corrupt Practices Act investigation.
As a refresher, in February 2007, the DOJ noted 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 . . . ." Shell, Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp., Pride International and Global Industries are among those involved.
As we've said, with crude prices above $100 and global supplies tight, the U.S. government wants to avoid impairing output anywhere. So to protect production in Nigeria but ensure FCPA compliance, the DOJ may have made special arrangements directly with the Nigerian government for customs clearance and permitting on behalf of U.S. producers and services companies.
Here's the full text of Panalpina's recent announcement:
View our prior posts about Panalpina here.Withdrawal from Nigeria and discontinuation of inland servicesThe Board of Directors and the Executive Board of Panalpina have decided to withdraw from the domestic business in Nigeria by the end of 2008. The company will continue to offer transportation services up to arrival port / airport Nigeria, including flight operations and coastal shipping services but will terminate all local and domestic services. In the meantime, Nigerian investors have shown interest in taking over Panalpina’s local service portfolio. They intend to acquire some of Panalpina’s assets and resources for their own company and they also plan to recruit employees from the current Panalpina Nigeria staff. This company will operate completely independently from Panalpina and the Panalpina Group will not have any equity stake in this new company.[CEO] Monika Ribar explains, “In view of the Group’s future development, the withdrawal from Nigeria is in the company’s best interest”. She emphasizes that it has not been an easy decision to make. “Admittedly foreign companies operate in an ongoing uncertain and hard to assess legal environment in Nigeria. This makes it difficult for Panalpina to offer both a comprehensive service portfolio and at the same time meet the high ethical standards as outlined in Panalpina’s Code of Business Conduct”, she continues to explain. With the emerging solution customer demands can be fulfilled even after Panalpina’s withdrawal from the domestic and local business.
In its Annual Report and Form 20-F for the year ended December 31, 2007, Royal Dutch Shell plc includes a Foreign Corrupt Practices Act disclosure. It relates to the Department of Justice's ongoing investigation of Panalpina. Shell says,
"In July 2007, Shell’s US subsidiary, Shell Oil, was contacted by the US Department of Justice regarding Shell’s use of the freight forwarding firm Panalpina, Inc and potential violations of the US Foreign Corrupt Practices Act (FCPA) as a result of such use. Shell has started an internal investigation and is cooperating with the US Department of Justice and the United States Securities and Exchange Commission investigations. While these investigations are ongoing, Shell may face fines and additional costs."
Shell's Annual Report can be downloaded here. Warning -- it's a 224 page pdf file.
Shell is the first major oil and gas producer we know of to be named in the Panalpina investigation. Before this, oil and gas services firms were disclosed as targets, but not producers. For those unfamiliar with the Panalpina investigation, here's some background:
In February 2007, the DOJ said in connection with the Vetco 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 services companies have announced FCPA investigations resulting from their relationship with logistics leader Panalpina.
By mid 2007, the DOJ and SEC had extended the investigation into Panalpina's activities in Nigeria, Kazakhstan and Saudi Arabia, and had sent letters to its customers, “asking them to detail their relationship with Panalpina . . . ." Schlumberger, Tidewater, Nabors Industries, Transocean, GlobalSantaFe Corp., Noble Corp. and Global Industries are among those involved. In September 2007, Panalpina said it is cooperating with U.S. prosecutors and exiting the Nigeria logistics and freight forwarding market for all oil and gas services customers.
We commented earlier that with crude prices at triple digits, can the U.S. government afford to cripple output anywhere in the name of FCPA enforcement? Probably not. But in addition to encouraging Panalpina to stop doing business in Nigeria for oil and gas services firms, the DOJ may have made special arrangements directly with the Nigerian government for customs clearance and permitting on behalf of Panalpina's former customers. That will allow them to keep working in Nigeria but still comply with the FCPA.
View prior posts about Panalpina here.