Key Energy Disgorges $5 Million to Settle SEC Enforcement Action

In a SEC cease and desist order filed on August 11, Key Energy Services, Inc., a Houston-based provider of rig-based oil well services, agreed to disgorge $5 million to settle charges that the company violated the books and records and internal control provisions of the FCPA.  According to the order, from August 2010 through at least April 2013, Key Energy’s Mexican subsidiary paid bribes of at least $229,000 to a contract employee at Petroleos Mexicanos (Pemex), the Mexican state-owned oil and gas company.  In exchange, the subsidiary received Pemex non-public information, advice and assistance on contracts with Pemex, and lucrative amplifications or amendments to those contracts.  The funds were allegedly funneled through an entity purporting to provide consulting services, but for which there was no evidence of appropriate authorization of the relationship, and no supporting documentation regarding the purported consulting work performed.  According to the SEC, the subsidiary improperly recorded the transfers to the consulting firm as legitimate business expenses, which were consolidated into Key Energy’s books and records.  Key Energy allegedly failed to implement and maintain sufficient internal controls, including within the subsidiary relating to interactions with Pemex officials, and failed to respond to indications that the subsidiary was improperly using consultants.

It is notable that Key Energy was not required to pay a civil fine in addition to disgorgement.  The SEC identified three reasons for accepting Key Energy’s offer of settlement and not imposing a separate civil penalty.  First, the SEC praised Key Energy for cooperating with and assisting in its investigation.  Key Energy was first contacted by the SEC in January 2014 concerning possible FCPA violations.  In April 2014, Key Energy was informed by employees of its subsidiary of possible bribes, at which time the company reported the allegations to the SEC and “undertook a broad internal investigation and risk assessment of [its] international operations.”  The SEC specifically noted that, “to the extent the internal investigation identified additional issues of concern, Key Energy provided updates to the Commission staff.”

Second, the SEC considered not only the “cooperation Key Energy afforded to the Commission staff,” but also the “remedial acts undertaken by [the company].”  The SEC noted that Key Energy, during its internal review, “promptly and simultaneously undertook significant remedial measures including … a renovation and enhancement of [its] compliance program.”  Specific remedial measures included (1) stronger vendor oversight, (2) enhanced financial controls, (3) increased training of all international employees, (4) developing and/or reviewing policies and procedures pertaining to the FCPA, codes of business conduct, and more, and (5) a coordinated wind-down and exit from all markets outside of North America, including a commitment to exit Mexico by the end of 2016.

Finally, “in determining the disgorgement amount and not to impose a penalty,” the SEC “considered Key Energy’s current financial condition and its ability to maintain necessary cash reserves to fund its operations and meet its liabilities.”  This third justification indicates the SEC is not only aware of the current financial strains within the oil and gas services sector, but is uninterested in unnecessarily putting companies out of business.  It is also possible that Key Energy’s cooperation and remediation, coupled with its tenuous financial condition, factored into the DOJ’s decision in April to close its investigation of the same conduct without bringing charges.

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Biomet Sets Aside Reserves for DPA Breaches

On August 8, 2016, medical device manufacturer Biomet announced in an SEC filing that it is “probable” that the company will incur additional liabilities in connection with the company’s 2012 deferred prosecution agreement (DPA) related to FCPA violations in Mexico and Brazil.  The company stated that it had set aside funds for this purpose, but did not specify the amount.  Biomet’s SEC filing stated that the company “expects to continue discussions with the SEC and DOJ but the terms of a potential resolution were not certain.”

Two months ago, DOJ stated in a court filing that Biomet had breached the DPA by failing to implement and maintain a compliance program.  See previous FCPA Scorecard coverage of that filing here.

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Six Individuals Charged in South Korea with Bribery Following Novartis SEC Settlement

According to an August 9, 2016 news report, six former and current executives of Novartis Korea have been indicted by prosecutors in Seoul for alleged corruption involving payments to physicians intended to boost sales.  The news report stated that the officials are alleged to have made payments to the physicians totaling $2.3 million from 2011 to present.  Several doctors and publishers of medical journals involved in the payments were also indicted according to the news report.

In March 2016, a different division of the Switzerland-based pharmaceutical company entered into a settlement with the SEC to resolve alleged violations of the FCPA’s book and records and internal controls provisions related to activities in China.  Prior FCPA Scorecard coverage of the Novartis AG settlement can be found here.  In the past few years, several other pharmaceutical companies have also faced corruption allegations regarding allegedly corrupt payments to employees of Chinese state-owned hospitals.  Prior FCPA Scorecard coverage of those investigations can be found here.

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SFO Announces Criminal Investigation of Airbus

On August 8, 2016, the UK Serious Fraud Office (SFO) announced that it is conducting an investigation of aircraft manufacturer Airbus.  The SFO stated that the investigation centers on the use of third party consultants.  In April 2016, the Wall Street Journal reported that the U.K. Export Finance Industry had cut off export credit financing to the company while it conducted a fraud investigation also related to the use of third party overseas agents and referred the matter to the SFO.  The SFO’s brief announcement asked for individuals with information to contact the agency through its confidential reporting system.

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Former President of Guatemala Soccer Federation Pleads Guilty in FIFA Investigation

On July 29, the DOJ announced that Brayan Jiménez, former president of the Guatemala soccer federation, pleaded guilty to racketeering conspiracy and wire fraud conspiracy charges.  Jiménez was the president of the Guatemala soccer federation from 2009 to 2015.  His guilty plea came in response to allegations that Jiménez received bribes in exchange for awarding media and marketing rights to a Florida company for the Guatemalan national soccer team’s World Cup qualifying games.  The bribes, totaling hundreds of thousands of dollars, were transmitted from U.S. bank accounts.  As part of the plea, Jiménez agreed to forfeit $350,000 and could be sentenced to a maximum of 20 years for each count.

The guilty plea came as part of the U.S. government’s investigation into corruption in international soccer. 42 individuals and entities have been charged thus far in the investigation, which has been ongoing since May 2015, and Jiménez is the sixteenth person to plead guilty.

Previous FCPA Scorecard coverage of the FIFA investigation can be found here.

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Och-Ziff and Embraer Reserve Hundreds of Millions of Dollars for Potential FCPA Settlements

Second quarter SEC filings revealed substantial financial reserves set aside by two companies, each under investigation for alleged FCPA violations for over half a decade. If they end up reflecting the size of the ultimate settlements reached, the reserves, totaling hundreds of millions of dollars, would represent some of the largest FCPA enforcement settlements ever reached by the Justice Department.

According to its July 29 Form 6-K/A filing with the SEC, Embraer S.A., a Brazilian aircraft manufacturer, has recognized a $200 million loss contingency in connection with its discussions to settle the DOJ’s investigation into allegations that Embraer sales executives bribed various Dominican individuals who, in exchange, influenced legislators in the Dominican Republic to approve a $92 million contract and financing agreement for aircraft.   Embraer also disclosed that a final settlement is likely to include a deferred prosecution agreement and the imposition of an independent monitor to oversee the company’s compliance with the terms of an agreement.  The related criminal case by the Brazilian government against eight Embraer S.A. sales executives is still ongoing. Additional FCPA Scorecard coverage of the Embraer investigation can be found here.

On August 2, Och-Ziff Capital Management Group LLC, a publicly-traded hedge fund, revealed in its Form 10-Q filing with the SEC that it has raised its FCPA investigation reserve to over $414 million from the $200 million accrued in the prior quarter.  Och-Ziff disclosed that it was raising the reserve based on ongoing discussions to resolve the matter with the SEC and DOJ.  According to the Wall Street Journal, the settlement discussions relate to allegations that the company knowingly paid bribes to Libyan government officials in order to obtain investments from Libya’s sovereign-wealth fund and in natural-resources deals in other African countries.  The Journal also reported that the Justice Department is pushing for the company to plead guilty, which would be a rare occurrence for a major financial company accused of FCPA violations.

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LATAM Airlines Settles FCPA Charges

On July 25,  LATAM Airlines Group S.A. (LATAM), a Chile-based airline, agreed to settle parallel criminal and civil FCPA matters relating to alleged bribery of Argentine labor union officials through a sham consulting contract with a third party in exchange for the union accepting lower wages and other concessions.  LATAM agreed to pay a total of more than $22 million, including a $12.75 million penalty as part of a three-year Deferred Prosecution Agreement (DPA) with DOJ.

As part of the DPA, LATAM agreed to continue cooperating with DOJ’s investigation, to make improvements to its compliance program, and to retain a compliance monitor for a period of more than two years.  In the DPA and in its press release regarding the settlement, DOJ noted that it took into account certain factors that weighed against LATAM, including that LATAM did not voluntarily disclose the alleged misconduct (which came to light through Argentinian press reports) or discipline the responsible employees.  However, DOJ did note that LATAM cooperated with DOJ’s investigation once the press reports became public, and “provided all relevant facts known to it, including about individuals involved in the misconduct.”

Because of the factors weighing against LATAM, the penalty was within the U.S. Sentencing Guidelines range, and the Company did not receive a discount off the bottom of the range as suggested in DOJ’s recent guidance regarding its FCPA pilot program.  As stated in the guidance, in order to be eligible for full mitigation credit, a company must voluntarily disclose the FCPA violations, and the DOJ considers such disclosure as a factor separate and apart from the company’s cooperation in the subsequent investigation.  The company must also engage in timely and appropriate remediation, which includes appropriate discipline of employees identified by the company as responsible for the misconduct.  The guidance specifically states that a monitor should not be required if the company “has, at the time of resolution, implemented an effective compliance program.”

In this case, one of the first under the FCPA pilot program, DOJ followed its guidance by refusing to give mitigation credit when the company did not voluntarily self-disclose and did not fully remediate.  It is difficult to say what, if any, credit LATAM received for its extensive cooperation once the investigation began – cooperation that included turning over to DOJ “all relevant facts known to [the Company], including about individuals involved in the misconduct.”

At the same time, LATAM also settled an SEC administrative enforcement action by agreeing to pay $6.74 million in disgorgement and $2.7 million in prejudgment interest  Earlier this year, the Company’s CEO separately settled with the SEC regarding the same scheme, and agreed to pay a $75,000 penalty and attend anti-corruption training.

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SFO Announces Criminal Investigation of Unaoil

On July 19, the UK Serious Fraud Office (SFO) announced that it is conducting a criminal investigation of Monaco-based Unaoil, its officers, employees, and agents. The investigation centers on allegations of bribery, corruption, and money laundering by the oil and gas company that were first made in March 2016 by Fairfax Media and the Huffington Post in a multi-part investigation. Since the publications, Unaoil has denied the “unfounded” allegations and has stated that is contemplating legal action against Fairfax Media, the Australian partner of the Huffington Post.

The SFO stated that its investigation, which is the latest fallout from the investigative reporting, has been aided by a “number of sources” that have come forward with information. In addition, numerous companies, including Core Labs, KBR, and FMC Technologies, have announced DOJ inquiries into Unaoil’s activities.

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SBM Offshore Enters Into Settlement Agreement With Brazilian Authorities

On July 15, Petrobras announced that SBM Offshore NV had entered into a settlement agreement with Brazilian authorities to resolve allegations stemming from the Petrobras bribery probe.  Under the terms of the agreement, the Dutch drilling company, which had been accused of paying bribes to Brazilian state-owned oil company Petrobras, will be immune to new legal actions stemming from the probe.  In exchange, SBM Offshore agreed to pay approximately $342 million in fines, comprising  $13.2 million to the Brazilian government and $328.2 million to Petrobras, of which $179 million “represents the nominal value to be deducted from future payments owed by Petrobras to SBM based on prevailing contracts.”

According to Petrobras, the leniency agreement is the outcome of negotiations that began in March 2015.  Petrobras further stated that it will resume its normal business relationship with SBM Offshore.

The agreement is the latest settlement for SBM Offshore in connection with the Petrobras bribery probe.  In 2014, SBM Offshore settled with Dutch authorities. In February 2016, SBM Offshore announced that the U.S. DOJ had re-opened its investigation into the company.

Click here to view previous FCPA Scorecard coverage of the SBM investigation.

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F.H. Bertling Ltd and Seven Individuals Charged in the UK With Bribery Surrounding Angola Operations

On July 13, 2016, the UK Serious Fraud Office (SFO) charged F.H. Bertling Ltd, a UK-based logistics and freight operations company, along with seven current and former executives, with making corrupt payments in violation of Section 1 of the Prevention of Corruption Act 1906.  F.H. Bertling is a subsidiary of Bertling Group, a privately-owned company headquartered in Hamburg, Germany.  The conduct at issue is alleged to have occurred between January 2005 and December 2006, and involves an alleged conspiracy to bribe an agent of Sonangol, an Angolan state oil company, to bolster F.H. Bertling’s business in the Republic of Angola.

Among other things, Section 1 of the Prevention of Corruption Act 1906 criminalizes the act of offering any gift or consideration to induce an agent to take action in relation to the agent’s principal.  Notably, the Prevention of Corruption Act 1906, and, collectively, the Prevention of Corruption Acts 1889-1916, were repealed and replaced by the Bribery Act 2010, which took effect on July 1, 2011.  The conduct at issue, however, occurred prior to the enactment of the Bribery Act and, although the Prevention of Corruption Acts were repealed, the government can still use them to prosecute offenses committed before the repeal.

The SFO accepted the case for investigation in September 2014.  F.H. Bertling and the charged individuals are now scheduled to appear before the Westminster Magistrate’s Court on August 4, 2016.

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