SEC Charges Second Pride Exec

The former country manager in Venezuela for Pride International, Inc. last week settled civil FCPA charges with the SEC.

Joe Summers, a U.S. citizen who lives in John Day, Oregon, agreed to pay a civil penalty of $25,000.

From 2003 to 2005, Summers arranged payments of about $384,000 to third-party companies, "believing that all or a portion of the funds would be given to an official of Venezuela's state-owned oil company in order to secure extensions of three drilling contracts." Summers also approved a $30,000 payment through an intermediary to an employee of Venezuela's state-owned oil company to obtain the payment of receivables.

Summers' former employer, Pride International, said in February this year it has set aside $56.2 million for an expected settlement with the DOJ and SEC of FCPA offenses. The Houston-based oil-rig operator first disclosed potential compliance problems in 2006.

In December last year, the SEC accused a former Pride vice president, Bobby Benton, of violating the FCPA. The civil complaint against Benton alleged among other things that he deleted references in Pride's audits to about $384,000 in payments made by “the manager of the Venezuelan branch of a French subsidiary of Pride” to third-party companies. Pride self-disclosed the payments and cover-up after it learned about them through its internal investigation. The SEC's complaint against Summers included details about the Venezuelan bribes.

Pride has also disclosed that it found evidence of illegal payments from 2001 through 2006 directly or indirectly to government officials in Saudi Arabia, Kazakhstan, Brazil, India, Nigeria, Libya, Angola, and the Republic of the Congo. The payments related to clearing rigs and equipment through customs, resolving customs disputes, immigration, tax, licensing, and merchant marine issues.

The SEC's complaint against Summers charged him with violating Sections 13(b)(5) and 30A of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78m(b)(5) and 78dd-1] and Rule 13b2-1 [17 C.F.R. § 240.13b2-1], and aiding and abetting Pride's violations of Sections 13(b)(2)(A), 13(b)(2)(B), and 30A of the Securities Exchange Act of 1934 [15 U.S.C. §§ 78m(b)(2)(B), and 78dd-1].

Pride International, Inc. trades on the NYSE under the symbol PDE.

View the SEC's Litigation Release No. 21617 and Accounting and Auditing Enforcement Release No. 3169 (both dated August 5, 2010) in SEC v. Joe Summers, Civil Action No. 4:10-cv-02786 (S.D. Texas, August 5, 2010) here.

Download the SEC's civil complaint against Summers here.

Code Named Ruthenium

The U.K.'s Serious Fraud Office today reported in dramatic fashion the arrest of three top executives of French industrial giant Alstom's British unit. They're suspected of paying bribes overseas to win contracts.

After today's arrests, the company said:

Several Alstom offices in the United Kingdom have been raided on Wednesday 24 March by police officers and some of its local managers are being questioned. The police apparently executed search warrants upon the request of the Swiss Federal justice. Alstom has been investigated by the Swiss justice for more than 3 years on the motive of alleged bribery issues. Within this frame, Alstom’s offices in Switzerland and France have already been searched in the past years. Alstom is cooperating with the British authorities.

In August 2008, we reported that Swiss police had arrested a former Alstom manager and searched for evidence as part of a corruption and money-laundering investigation. Offices near Zurich and in Baden were raided, as were homes in several cantons.

Another international investigation of Alstrom involving suspected corrupt payments in Asia and South America between 1995 and 2003 has been ongoing. Reports in May 2008 said Swiss authorities found evidence Alstom paid around €20 million via shell companies to agents and others in Singapore, Indonesia, Venezuela and Brazil. Reports also mentioned payments of $6.8 million in connection with a $45 million contract for the Sao Paolo subway and a Brazilian energy plant.

The press said in June 2008 that French judges had charged a former Alstom consultant for his role in suspected overseas bribes. The company apparently appeared as a civil plaintiff in that case, claiming it may have been a victim of embezzlement.

Paris-based Alstom is a global leader in equipment and services for power generation and high-speed rail transport. It operates in more than 70 countries with about 80,000 employees. Revenues last year were €18.7 billion. It has an office in Windsor, Connecticut and its securities trade in the pink sheets (Other OTC: AOMFF.PK).

Here's the full text of the today's SFO release:

Three members of the Board of Alstom in the U.K. have been arrested on suspicion of bribery and corruption, conspiracy to pay bribes, money laundering and false accounting, and have been taken to police stations to be interviewed by the Serious Fraud Office.

Earlier this morning search warrants were executed at Alstom business premises and residential addresses at locations in Warwickshire, Leicestershire, Cheshire, Shropshire, Derbyshire, Staffordshire and London. This operation has involved 109 SFO staff and 44 police officers and Accredited Financial Investigators from Warwickshire, Leicestershire, Cheshire, West Mercia and Staffordshire Police Forces and the Metropolitan Police Service. The three men arrested during this operation are aged 52, 51 and 44.

Code-named Operation Ruthenium, the investigation by the SFO is into the suspected payment of bribes by companies within the Alstom group in the U.K. It is suspected that bribes have been paid in order to win contracts overseas, and that this has involved associated money laundering and other offences. The SFO has been working closely with the Office of the Attorney General and Federal Police in Switzerland and a number of Police Forces in the U.K.

Commenting on today's action, SFO Director Richard Alderman said, "The SFO is committed to tackling corruption. We are working closely with other criminal justice organisations across the world and are taking steps to encourage companies to report any suspicions of corruption, either within their own business or by other companies or individuals."

SEC Charges Ex-Pride VP

The Securities and Exchange Commission accused Bobby Benton, a former vice president of offshore drill rig operator Pride International, of violating the Foreign Corrupt Practices Act. He allegedly bribed Mexican officials in 2004 and altered the company's accounts to hide the payments. The SEC's December 10 civil complaint (below) was filed in federal court in Houston.

The SEC accused Benton of authorizing a third party to pay off Mexican customs officials and concealing bribes to Mexican and Venezuelan officials between 2003 and 2005. Benton allegedly deleted references in the audits to about $384,000 in payments made by “the manager of the Venezuelan branch of a French subsidiary of Pride” to third-party companies. The SEC said the alleged bribes went to a Venezuelan state-owned oil company official to extend three drilling contracts.

Pride disclosed in SEC filings including its latest quarterly report (here) an internal investigation into the company's Latin America operations that began in February 2006. It said possible FCPA violations were found, including payments of less than $1 million to government officials in Venezuela and Mexico. 

Benton is accused of authorizing a $10,000 bribe in 2004 to ensure a Mexican customs official would overlook deficiencies in a Pride supply boat. He's also accused of redacting references to another $15,000 bribe paid by an agent of Pride's Mexican subsidiary to keep a Mexican customs official from delaying a drilling rig for customs violations, according to the complaint.

The SEC is seeking a civil penalty and disgorgement from Benton, as well as an injunction against future violations.

Pride's internal investigation also found evidence of illegal payments of less than $2.5 million from 2001 through 2006 directly or indirectly to government officials in Saudi Arabia, Kazakhstan, Brazil, India, Nigeria, Libya, Angola and the Republic of the Congo. The payments related to clearing rigs and equipment through customs, resolving customs disputes, immigration, tax, licensing and merchant marine issues. 

The company self-disclosed the results of its investigation. It said it is in talks with the DOJ and SEC "regarding a potential negotiated resolution of these matters, which could be settled during 2009 and which . . . could involve a significant payment by us." It said a settlement is likely to "include both criminal and civil sanctions." The DOJ hasn't yet announced any enforcement actions involving Benton or the company.

View the Securities and Exchange Commission's December 14, 2009 Litigation Release No. 21335 in SEC v. Bobby Benton here.

Download the civil complaint in SEC v. Bobby Benton, Civil Action No. 4:09-CV-03963 (S.D. Texas, December 11, 2009) here.

Driller Resolves FCPA Charges

Oil and gas driller Helmerich & Payne Inc. (H&P) will pay a $1 million criminal penalty to the Justice Department to settle Foreign Corrupt Practices Act violations related to improper payments to government officials in Argentina and Venezuela. It will also disgorge to the Securities and Exchange Commission $320,604 plus prejudgment interest of $55,077.22.

H&P, a Delaware corporation headquartered in Tulsa, Oklahoma, paid bribes to customs officials of about $185,673 from 2003 through 2008. The payments by subsidiaries in Argentina and Venezuela were made directly or through third-party customs brokers to clear imports of drilling equipment. H&P avoided costs of about $320,604 by the improper payments.

The Justice Department gave H&P and its subsidiaries a two-year deferred or non-prosecution agreement. In addition to imposing the criminal penalty, it requires the company to implement internal controls and cooperate with prosecutors. The DOJ recognized "H&P’s voluntary disclosure and thorough self-investigation of the underlying conduct, the cooperation provided by the company to the Department, and the extensive remedial efforts undertaken by the company."

The SEC said none of the bribes were accurately reflected in H&P’s books and records, and its system of internal accounting controls was not adequate to prevent and detect the illegal payments. As a result, H&P violated Exchange Act Section 13(b)(2)(A) and Section 13(b)(2)(B).

The SEC's cease and desist order said that in early 2008, as part of an effort to improve compliance, H&P "designed and implemented a stand-alone set of FCPA policies and procedures." It also began worldwide FCPA training for key employees.

At one such training session in May 2008, an employee voluntarily disclosed that potentially improper payments had been made by H&P Argentina, through a customs broker, to Argentine customs officials. This information was relayed to H&P’s corporate headquarters in Oklahoma, and came to the attention of H&P’s general counsel in July 2008. In response, H&P hired outside FCPA counsel and independent forensic accountants to conduct an internal investigation of its subsidiaries’ customs payment practices in a number of Latin American countries.

Eventually the internal investigation uncovered fifty improper payments to customs officials in Argentina and Venezuela. The payments were disguised in invoices as “additional assessments,” “extra costs,” and “extraordinary expenses,” “urgent processing,” “urgent dispatch,” or “customs processing.” H&P self-reported its compliance problems in October 2008.

Helmerich & Payne Inc. trades on the New York Stock Exchange under the symbol HP.

Download the Justice Department's July 30, 2009 release here.

Download the SEC's Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order under Release No. 60400 and Accounting and Auditing Enforcement Release No. 3026 (both dated July 30, 2009) in Administrative Proceeding File No. 3-13565 In the Matter of Helmerich & Payne, Inc. here.
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Right Issue, Wrong Side?

When graft-busting becomes a political weapon, the rule of law grows weaker and corruption generally flourishes. Is that what's happening in Venezuela? Maybe. For sure the number of high-profile opposition leaders accused of bribery and corruption is growing.

• The latest is the mayor of Maracaibo, Manuel Rosales, 56. He ran against President Hugo Chavez in 2006 and lost. A Bloomberg report said authorities claim he "could not explain some $60,000 of income while he was governor of the oil-rich state of Zulia." This week he fled to Peru instead of facing trial.

• Leopoldo Lopez, 37, was a popular opposition mayor of Caracas' Chacao Municipality. Based on accusations of corruption, the comptroller general banned him from ever running again for public office.

• An opposition governor from Yaracuy state, Eduardo Lapi, was convicted of corruption and jailed. He escaped two years ago and fled to Peru, which granted him political asylum.

• Venezuelan authorities used a corruption investigation to arrest former Defense Minister Raul Baduel, who joined the opposition two years ago.

Bloomberg quoted former mayor Lopez as saying, “The fundamental problem is that there’s no credibility in the judicial system, which is a system that’s been completely politicized. This is retaliation and selective repression.”

Venezuela's 27 million people need a sincere anti-corruption campaign. Here's why. The country ranked 158 out of 180 on the 2008 Corruption Perception Index, tied with Angola, Azerbaijan, Burundi, Congo, Gambia, Guinea-Bissau and Sierra Leone. That's a rough crowd.

On the World Bank's 2009 Doing Business Index, Venezuela ranked 174. The only countries below it were Chad, São Tomé and Principe, Burundi, Congo, Guinea-Bissau, the Central African Republic and the Democratic Republic of the Congo. One symptom of Venezuela's condition is red tape, corruption's constant companion. The permits needed to build a warehouse there, for example, take 395 days to obtain and cost 344% of per capita income ($11,600). The OECD averages are 161.5 days and 56.7% of per capita income.

The Heritage Foundation's 2009 Index of Economic Freedom ranked Venezuela 174, followed only by Eritrea, Burma, Cuba, Zimbabwe and North Korea. It said, "Corruption pervades civil society and the judiciary; contracts and property rights are not well protected. Government tenders are vulnerable because the process frequently lacks transparency. Critics allege that price and exchange controls, involvement by government and military officials in narcotics trafficking, and kickbacks on major weapons purchases are sources of corruption in Venezuela."

Venezuelan oil revenues, according to the CIA World Factbook, account for roughly 90% of export earnings, about 50% of the federal budget revenues, and around 30% of GDP. It's the fourth-biggest supplier of foreign crude oil to the U.S.

In Pride International's latest Foreign Corrupt Practices Act disclosure, the oil services company said it has identified potentially corrupt payment practices in Venezuela.This year, Siemens admitted paying $16.7 million in bribes there, and former Bridgestone manager Misao Hioki said he negotiated corrupt payments with Venezuelan officials. Earlier FCPA enforcement actions involving Venezuela were Oil States International, Inc. (2007) and BellSouth Corp. (2002). In an ongoing European investigation, Swiss authorities reportedly found evidence that French engineering firm Alstom paid bribes to Venezuelan government officials.

The U.S. administration has a new narrative and looks ready to engage President Chavez. At the top of the agenda should be ways to promote sincere, non-political anti-corruption initiatives. How else will Venezuelans be able to sort their honest public servants from the crooked ones?
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