Uncle Sam Stretches Its Long Arm to Enforce The Foreign Corrupt Practices Act
Friday the 13th is considered unlucky in the United States, something Norway's state-controlled oil company, Statoil ASA, will not soon forget after settling charges under the Foreign Corrupt Practices Act last Friday for a whopping $21 million. This is the second recent settlement in actions brought by U.S. authorities in cases involving only limited contacts with the United States. Last July, the Securities & Exchange Commission (SEC) obtained consent judgments (including fines and disgorgement of profits) from three UK citizens who were former employees of various UK and Nigerian subsidiaries of ABB Ltd., a Swiss corporation whose American Depository Receipts (ADRs) are traded on the NY Stock Exchange. In that case, the UK citizens were allegedly involved in a bribery scheme in connection with seeking a contract to provide equipment for an oil drilling project in Nigeria with some of the cash involved in the scheme – including a kickback to one of the UK citizens – going through U.S. banks.
According to the SEC's Administrative Order, the Statoil case involved payments – disguised as fees to an offshore company for vaguely described consulting services – to an Iranian Government official in connection with Statoil's efforts to participate in the South Pars oil and gas fields in Iran. Despite being aware of publicly reported accusations of corruption against this official's family, Statoil failed to perform any due diligence to investigate the accusations. Ultimately, through the Iranian Official, Statoil obtained non-public information concerning Iranian projects as well as copies of bid documents submitted by competing companies. Exacerbating the situation, Statoil's internal audit department questioned the consultant agreement and Statoil's security group subsequently discovered through investigation the Iranian Official was in fact the consultant although nowhere named in the agreement. Upon being presented with these findings, Statoil's Chairman of the Board failed to act and referred the issue to the then-CEO who agreed to suspend further payments but refused to terminate the agreement or further address the security group's concerns.
Statoil's settlement provides for $10.5 million to go to the SEC and another $10.5 million to the U.S. Department of Justice under a deferred prosecution agreement. As has become typical in such settlements, the agreements require Statoil to appoint an independent compliance monitor to review and periodically report on the company's FCPA compliance program over the next three years. This may be the first time, however, that U.S. authorities have imposed such a requirement on an entity whose employees (because of Norway's continued 70.9% ownership interest) could themselves be considered foreign government officials for FCPA purposes. Interestingly, and signaling a perspective on what cooperation means that is different from DOJ, the SEC Order expressly acknowledges Statoil's cooperation by submitting its privileged information pursuant to a "non-waiver" agreement (for what limited benefit that is) and encouraging employee cooperation "by agreeing to pay travel expenses and attorneys' fees."
An interesting aspect of the deferred prosecution agreement with DOJ is that Norway had already investigated and in 2004 had fined Statoil the equivalent of $3 million under Norway's trading-in-influence statute. Thus, this case represents what could be an emerging trend under the OECD Convention on Combating Bribery of Foreign Government Officials where multiple countries which are able to assert jurisdiction over a transaction will seek fines or penalties. Here, the SEC's jurisdiction over the books and records and lack of internal controls violations is premised on Statoil's registration of its ADRs under the 1934 Exchange Act, but jurisdiction over the bribery violations appears premised only on the fact that one of the payments to the consulting company was routed through a New York bank. DOJ has apparently agreed to credit the $3 million already paid to Norway against its fine, thereby reducing the actual amount to $7.5 million. In three years, provided Statoil fulfills its obligations under the deferred prosecution agreement, DOJ will dismiss the criminal Information filed in the U.S. District Court for the Southern District of NY.
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