On October 11, 2006, Statoil ASA, a Norwegian corporation, entered into a Deferred Prosecution Agreement with the Department of Justice to resolve certain violations of the antibribery and books and records provisions of the Foreign Corrupt Practices Act. The DOJ and the U.S. Attorney for the Southern District of New York filed a Criminal Information two days later. This action represents the first criminal enforcement prosecution under the FCPA against a foreign issuer with no U.S. operations.
In related proceedings, the Securities and Exchange Commission announced on October 13, 2006 the entry of a Cease and Desist Order against Statoil for the payment of “bribes to an Iranian government official in return for his influence to assist Statoil in obtaining a contract to develop a significant oil and gas field in Iran and to open doors to additional projects in the Iranian oil and gas industry.” The Cease and Desist Order also charged violations of the internal controls and books and records provisions of the FCPA.
Pursuant to the Deferred Prosecution Agreement, Statoil agreed to pay a penalty of $10.5 million, admitted responsibility for its employees’ misconduct, and accepted an independent “Compliance Consultant” or monitor to review and oversee the implementation of Statoil’s compliance program for a period of three years. Under the Deferred Prosecution Agreement, Statoil was given a $3 million credit for the fines it previously paid to criminal law enforcement authorities in Norway. Statoil also consented to the Commission’s entry of the Cease and Desist Order and agreed to disgorge $10.5 million, to cease and desist from committing violations of the anti-bribery, internal controls, and books and records provisions of the FCPA, and to retain an independent monitor in the same manner as in the DOJ agreement.
Statoil is a Norwegian publicly-traded and partially government-owned company whose American Depository Shares are traded on the New York Stock Exchange and are registered pursuant to Section 12(b) of the Securities Exchange Act.3 As such, Statoil is an “issuer” within the meaning of the FCPA.
Statoil explores for and develops oil and gas resources. Prior to 2000, Statoil’s business was heavily weighted toward operations in Norway and the adjacent North Sea. At the end of 2000 and continuing into 2001, Statoil embarked on an effort to expand its international operations, and, in particular, focused its development efforts on Iran. It entered into a Cooperation Agreement with the National Iranian Oil Company (“NIOC”) in November 2000. The Iranian Ministry of Oil controls the development of oil and natural gas resources in Iran through NIOC and other wholly-owned companies.
According to the DOJ and SEC filings, Statoil employees identified an “Iranian Official” who served as the head of the “Iranian Fuel Consumption Optimizing Organization,” a subsidiary of NIOC, as having various useful social and familial ties with the Iranian Oil Minister and a former President of Iran. (The latter was publicly identified by Statoil officials as Akbar Hashemi Rafsanjani.) In November 2001, Iranian authorities suggested that Statoil pursue a subcontract to develop the South Pars Field, a major oil and gas field in Iran. The Iranian Official and son of the former President and the head of Statoil’s Exploration & Production (“E&P”) Department discussed a “consulting contract” which was ultimately executed, pursuant to which Statoil agreed to pay a “success fee” to, and provide money to “charities” selected by, the Iranian Official in exchange for being awarded a participation interest in the South Pars Project. The consulting contract called for Statoil to make initial payments of $200,000 and $5 million to Horton Investments Ltd., an intermediary company organized under the laws of the Turks and Caicos Islands that was nominally owned by a third party in the United Kingdom. The consulting contract contemplated additional annual payments of $1 million by Statoil over the following ten years, resulting in total payments of $15.2 million. Statoil’s CEO approved the contract.
Statoil paid $200,000 to the intermediary company in June 2002. In October 2002, the Iranian Oil Ministry awarded Statoil the contract to develop the South Pars Project. The Iranian Official also provided Statoil employees with nonpublic information regarding oil and gas projects in Iran, including copies of sealed bid documents submitted by Statoil’s competitors. Statoil then paid the intermediary company $5 million in January 2003. Statoil characterized these payments on its books and records as “consulting fees for special consultants and analyses relating to technical, administrative, tax, and financial matters.”
In March 2003, Statoil’s internal audit department notified Statoil’s Chief Financial Officer of the $5.2 million in payments under the consulting contract. A “security group,” formed under Statoil internal procedures at the direction of the CFO and head of internal audit, conducted an investigation into the consulting contract. In June 2003, the security group submitted its internal investigation report which identified the Iranian Official as the “consultant” under the consulting contract and concluded that there was “a strong indication of the consultant being involved in corrupt-like practices.” The report concluded that Statoil may have violated Norwegian and United States anti-bribery laws by entering into the contract. The CEO suspended further payments under the consulting contract, but otherwise did not address the recommendations of the security group to further investigate the matter and to consider a voluntary disclosure to the authorities.
On September 6, 2003, a whistleblower leaked information regarding the consulting contract to the Norwegian press. Four days later, on September 10, 2003, Statoil terminated the contract. Norwegian authorities initiated an investigation the next day. Subsequently, Statoil’s Chairman of the Board, its CEO, and the head of its E&P Department all resigned. The SEC notified Statoil on September 23, 2003 of its intention to investigate the transactions. Only then did Statoil retain counsel to conduct an independent investigation and agree to provide the results of that investigation to the SEC and the DOJ.
Over the last decade, Norway and many other countries have enacted criminal laws similar to the FCPA as a result of a series of multilateral international agreements, including the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions; the Inter-American Convention against Corruption; the Council of Europe’s Criminal Law Convention on Corruption; the Council of Europe’s Civil Law Convention and the United Nations Convention against Corruption. As a result, when newspapers revealed potential misconduct by Statoil, Norwegian authorities were the first to investigate and prosecute Statoil.
Norway signed the OECD Convention on December 17, 1997 and implemented it by amending Section 128 of its Penal Code to prohibit the bribery of foreign public officials. The OECD reviewed this initial version of Norway’s transnational corruption law with mixed results. In the OECD’s “Phase I” review, OECD examiners expressed concern that individuals convicted of corruption under that initial law faced a maximum penalty of only one year imprisonment and that Norway had only a two-year statute of limitations for corruption.
Norway revised its anti-bribery laws on July 4, 2003 to expand the definition of corruption and the penalties imposed. The revisions effectively removed bribery and similar forms of corruption from Section 12813 and introduced three new anti-corruption provisions into the Penal Code. Section 276a now explicitly creates the crime of corruption and imposes a jail term of up to three years. Section 276b creates the crime of “gross corruption” and makes it punishable by imprisonment of up to ten years. Section 276c establishes a crime of “trading in influence,” with a term of imprisonment of up to three years. Sections 276a and 276c specifically apply to foreign officials. As of September 2003, the date of the last OECD report, Norway had investigated only three cases, one of which was Statoil’s consultancy payments relating to Iran, which, as noted, had been reported in the Norwegian press earlier that month. In the OECD’s “Phase II” review, examiners observed that the investigation of Statoil was targeted solely against the company and not against any individual involved in the payments. They also noted that the Statoil matter demonstrated the inadequacy of ethics codes alone in preventing corruption, as evidenced by the fact that Statoil’s conduct came to light only after whistleblowers within the company resorted to the press to force management to address evidence of corruption.
Norway’s anti-corruption laws have also been reviewed by the Council of Europe’s Group of States Against Corruption (“GRECO”). In a September 2004 evaluation, GRECO judged Norway’s law enforcement and judicial authorities well equipped to deal with economic crimes such as corruption, but recommended that Norway improve its training of law enforcement officers to better detect corruption
Norway’s Investigation of Statoil
Norway’s National Authority for Investigation and Prosecution of Economic and Environmental Crime (“Okokrim”), enforces Norway’s anti-bribery and anti-corruption laws. Most of Okokrim’s private sector corruption cases involve attempts to bribe officials to influence purchasing decisions. In the last three years, Okokrim has investigated an average of five new corruption cases per year.
Okokrim’s investigation of Statoil resulted in a ruling on June 29, 2004 that concluded that Statoil violated the new trading in influence provision of the Norwegian Penal Code by making improper payments to the Iranian Official. Okokrim fined Statoil NOK 20 million (approximately $3 million). Although Statoil had entered into the consulting agreement with the Iranian Official and made payments to Horton Investments Ltd. before the enactment of the new law, Statoil decided not to contest Okokrim’s decision. On October 14, 2004, Statoil announced in a Form 6-K filing with the SEC that it would accept Okokrim’s penalty without admitting or denying the charges. Statoil conceded only that its employees had breached Statoil’s ethical policies and procedures and contended that it did not challenge Okokrim’s decision only because of the expenses it would incur in a lengthy appeal.
Investigations by the Department of Justice and Securities and Exchange Commission
Okokrim’s investigation and punishment of Statoil fell short in several ways. Senior executives had directly authorized the $5.2 million in improper payments to obtain the South Pars Field, a concession that could potentially result in hundreds of millions of dollars in Iranian business for Statoil. In that light, the approximate $3 million fine imposed by Okokrim could be viewed the company as a cost of doing business and not as a significant deterrent against future wrongdoing. Furthermore, Statoil had refused to take responsibility for its employees’ illegal conduct when it accepted the Okokrim penalty. Indeed, rather than admit wrongdoing, Statoil effectively characterized its payment of Okokrim’s penalty as a strategic decision to not incur the expenses involved in a lengthy fight over the application of an ex post facto law, ignoring the fact that as an issuer it had long been subject to the FCPA’s prohibitions against such payments
As a result of the DOJ and SEC actions, Statoil paid a significantly higher penalty of $18 million and, for the period of the deferred prosecution, has a pending criminal charge against it in the United States. More significantly, Statoil was required by the Department of Justice to accept a Statement of Facts in which it admitted making illegal payments to the Iranian Official to obtain a lucrative business opportunity. Finally, as a way of driving the message home and spurring it to implement a rigorous internal compliance program, both the DOJ and the SEC required Statoil to retain a U.S. Independent Compliance Consultant for a period of three years. The DOJ and SEC settlements thus filled the voids left by the Okokrim’s ruling.
The Statoil investigation is particularly striking in two ways. As previously noted, the DOJ’s prosecution of Statoil marks the first criminal prosecution under the FCPA of a foreign issuer that does not conduct any of its business in the United States. It demonstrates that the DOJ is unwilling to cede the field to foreign enforcement authorities where conduct by a foreign issuer takes place in part within the territory of the United States. In this instance, in addition to Statoil being an issuer, certain funds were wired from a bank in the United States, thus providing a territorial nexus for the U.S. enforcement actions. Further, although in some previous matters the DOJ or the SEC have imposed a monitor on foreign subsidiaries of U.S. companies, this is the first matter in which the DOJ and SEC imposed a monitor on an entirely foreign issuer. Through the use of monitors, the DOJ and SEC can better instill a culture of compliance in foreign issuers and track the effectiveness of their compliance efforts.
In the last decade, several nations have substantially expanded their efforts to combat corruption through laws similar to the FCPA. The Statoil proceedings demonstrate that other countries, including Norway, are taking a proactive approach in adopting and enforcing new and rigorous anti-corruption laws. The proceedings also show, however, that the DOJ and SEC will exercise the full reach of their jurisdiction to deter corruption in the global marketplace. We expect that as the anticorruption laws and legal systems evolve abroad, the DOJ and SEC will have greater opportunities for coordinating their investigations with other authorities. Failing that, we expect that the DOJ and SEC will continue to aggressively pursue corruption and expand their efforts against foreign issuers.