On November 4, 2010, the Department of Justice and Securities and Exchange Commission announced settlements with six major companies in their ongoing investigation of the oil services industry and its use of customs brokers and freight forwarders. In its announcement, the SEC noted that they constitute the “first sweep” by the SEC and Department of a “particular industrial sector,” suggesting that other industry-wide investigations may be the wave of the future.2 Assistant Attorney General Lanny Breuer, commenting on those cases, warned that the Department intended to continue its aggressive enforcement of the FCPA, and offered specific advice to companies that might find themselves the subject of corruption probes.3
Panalpina World Transport (Holding) Ltd. (“PWT”), a global freight forwarding company, and its U.S.-based subsidiary, Panalpina, Inc., admitted to paying $27 million in bribes to foreign officials in at least seven countries. Three of Panalpina’s customers, Tidewater Marine International, Inc., Transocean Inc., and a subsidiary of Royal Dutch Shell plc, also admitted to approving or condoning Panalpina’s payments on their behalf.4 In addition, Pride International and Noble Corporation admitted to having made similar payments through other customs brokers. The Department entered into three-year deferred prosecution agreements with all but Noble, which was given a less onerous non-prosecution agreement. The Department noted that Noble obtained a more favorable resolution because it had voluntarily conducted a comprehensive self-investigation, cooperated fully with the Department and the SEC, and agreed to conduct future reviews and submit three annual reports to the Department. Cadwalader conducted the investigation on behalf of Noble’s Audit Committee.
The SEC settlements involved these same six companies, as well as GlobalSanteFe Corporation, another oil services entity, that had allegedly made illegal payments through its customs brokers prior to merging with Transocean.
The criminal and civil dispositions resulted in criminal fines totaling $156.5 million, and an additional $80 million in civil penalties, disgorgement, and prejudgment interest.5
The largest penalties were imposed on Panalpina, Inc., which agreed to pay a total of $83.8 million, including $70.5 million in criminal fines.6 The company was charged with conspiracy to violate the books and records provisions of the FCPA, and aiding and abetting its customers’ violations of the Act.7 PWT was charged in a separate criminal information with conspiring to violate and violating the anti-bribery provisions of the FCPA. The charges against PWT were resolved as part of Panalpina’s agreement to enter into a three-year deferred prosecution agreement. 8 The conduct underlying both cases related to a scheme to pay at least $27 million in bribes to foreign officials in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia, and Turkmenistan.9 The companies admitted making these payments to avoid customs duties, expedite the importation of equipment, obtain false documents, minimize tax assessments, and secure other benefits on behalf of their customers.10
Panalpina Inc. also resolved a related civil complaint brought by the SEC by agreeing to the entry of a permanent injunction prohibiting future violations of the FCPA, and the paying of an additional $11.3 million in disgorgement of profits and prejudgment interest.11 Cheryl Scarboro, Chief of the Foreign Corrupt Practices Act Unit of the SEC’s Division of Enforcement, noted that its complaint against Panalpina Inc. was the first instance that the Commission had brought an FCPA action against a company that was not an issuer.12
Royal Dutch Shell plc
Shell Nigeria Exploration and Production Company Ltd. (“SNEPCO”), the Nigerian subsidiary of Royal Dutch Shell plc (“Shell”), was charged with conspiring to violate the anti-bribery and books and records provisions of the FCPA.13 Specifically, SNEPCO and Shell International Exploration and Production, Inc. (“SIEP”) were accused of having reimbursed $2 million in Panalpina expenses for bribes paid to customs officials.14 Shell entered into a deferred prosecution agreement with the Department, agreeing to pay a $30 million criminal penalty,15 and to provide, on behalf of SNEPCO, an annual written report to the Department regarding its continuing maintenance, and compliance with, a robust anti-corruption compliance program.16
SIEP and Shell also agreed to a cease-and-desist order from the SEC, disgorged $14.1 million in profits and paid $3.99 million in prejudgment interest.17
Tidewater Marine International
Tidewater Marine International Inc. (“Tidewater Marine”) was charged in a criminal information with paying approximately $1.6 million in bribes to Nigerian customs officials from 2002 to 2007 through a Panalpina Group company, and an additional $160,000 to officials in Azerbaijan from 2001 to 2006.18 The Department charged Tidewater Marine with two counts of conspiracy to violate the anti-corruption and books and records provisions of the FCPA, and one count of violating the Act’s books and records provisions.19 Tidewater Marine and its parent, Tidewater Inc., entered into a deferred prosecution agreement pursuant to which Tidewater Marine agreed to pay a $7.3 million criminal fine.20
In connection with the same payments to officials in Nigeria and Azerbaijan, Tidewater Inc. agreed to resolve the SEC’s enforcement action by consenting to an injunction permanently enjoining it from violating the FCPA, disgorging $8.1 million in profits, and paying a $217,000 civil penalty.21
The Department charged Transocean Inc. with conspiracy to violate the anti-bribery and books and records provisions of the FCPA, substantive violations of the anti-bribery provisions of the Act, and aiding and abetting the violation of its books and records provisions. These charges were the result of Transocean Inc.’s payment, through a Panalpina affiliate, of approximately $90,000 in bribes to Nigerian officials.22 Transocean Inc. and its parent Transocean Ltd. entered into a deferred prosecution agreement and Transocean Inc. agreed to pay a criminal penalty of $13.4 million.23
In addition, Transocean Inc. settled a civil complaint filed by the SEC charging it with violations of the anti-bribery, books and records, and internal controls provisions of the FCPA,24 by consenting to an injunction prohibiting future violations of the Act, and disgorging profits and paying prejudgment interest of $7.2 million.25
Pride International Inc.
Pride International Inc. (“Pride International”) and its wholly owned French subsidiary, Pride Forasol S.A.S. (“Pride Forasol”), also admitted that they had violated the FCPA by paying approximately $800,000 in bribes to officials in Venezuela, India, and Mexico between 2003 and 2005.26 They were charged in separate criminal informations with conspiracy to violate the anti-bribery and books and records provisions of the FCPA, and substantive violations of the Act’s anti-bribery provisions. In addition, Pride International was charged with violating the FCPA’s books and records provisions, while Pride Forasol was accused of aiding and abetting the violation of the same provisions.27 Pride Forasol pleaded guilty to the charges against it, and Pride International entered into a deferred prosecution agreement with the Department. The companies jointly agreed to pay a criminal fine of $32.6 million.28
In a related civil complaint against Pride International, the SEC alleged books and records and internal controls violations stemming from the same facts, as well as from other illegal payments made in Kazakhstan, Libya, Mexico, Nigeria, the Republic of Congo and Saudi Arabia between 2001 and 2006.29 Pride International consented to the entry of an injunction against it, and paid $23.5 million in disgorgement of profits and prejudgment interest. 30
With respect to the Pride cases, the Department commented that “[d]uring the course of the investigation, Pride had provided information and substantially assisted in the investigation of Panalpina.”31 Similarly, the SEC noted that Pride International had made a voluntary disclosure, undertaken a thorough internal investigation that included a compliance review of its other international operations, and had fully cooperated with the Commission.32
Noble, an offshore drilling services provider, entered into a non-prosecution agreement with the Department.33 The agreement stemmed from multiple instances between 2003 and 2007 in which Noble’s Nigerian subsidiary had, through a customs agent, created documents indicating that Noble’s drill rigs in Nigerian waters had been physically exported and re-imported pursuant to the requirements of its temporary import permits (“TIPs”). In fact, the rigs had always remained in Nigeria.34 In executing the false documentation, Noble’s customs agent had paid over $74,000 in “special handling charges” to Nigerian customs officials.35 Noble authorized these payments and improperly recorded them in its books and records.36 According to the non-prosecution agreement, as a result of its payments, Noble avoided “costs, duties, and penalties” totaling nearly $3 million.37
The non-prosecution agreement required Noble to pay a criminal fine of $2.59 million,38 conduct regular reviews of its internal controls, policies and procedures, submit annual reports to Department’s Fraud Section for three years, and implement a stringent corporate compliance program.39
Noble was the only one of the seven companies to receive a non-prosecution agreement. The Department explained its favorable treatment of Noble by listing the facts that Noble (a) had discovered the violations as a result of its own internal investigation; (b) had made a timely and voluntary disclosure to the government based on the findings of that internal investigation; (c) voluntarily conducted a world-wide internal investigation of all its business operations; (d) continued to cooperate fully with Department and the SEC; (e) had a pre-existing robust compliance program and its Audit Committee had taken measures to prevent violations; (f) undertook prompt remedial efforts to enhance its compliance program; (g) agreed to strengthen its compliance program and internal controls; and (h) agreed to conduct annual reviews and provide annual written reports to Department.40
In its complaint, the SEC alleged that Noble avoided costs and wrongfully obtained profits “of at least $4.29 million” as a result of the falsified TIPs.41 Without admitting or denying the allegations in the SEC’s complaint, Noble consented to the entry of an injunction against future violations and agreed to pay $4.29 million in disgorgement of profits and prejudgment interest of $1.28 million.42
The SEC filed a civil complaint against GlobalSantaFe Corp. (“GSF”) charging it with violations of the anti-bribery, books and records, and internal controls provisions of the FCPA for falsifying TIP papers and making illegal payments of at least $473,000 to customs officials in Nigeria, Gabon, Angola, and Equatorial Guinea.43 According to the SEC complaint, from 2002 to 2007, GSF allegedly made payments to Nigerian officials in order to obtain documentation reflecting that its rigs had exited and re-entered Nigerian waters when, in fact, the rigs had not moved at all.44 In addition, GSF, through its customs brokers, made additional illegal payments of approximately $300,000 to customs officials in Gabon, Angola, and Equatorial Guinea, in order to obtain preferential treatment.45 As a result, GSF avoided $2.7 million in customs-related fees and duties.46 GSF agreed to the entry of an injunction prohibiting future violations of the FCPA, and to disgorge profits and pay prejudgment interest and civil penalties totaling $5.9 million.47
Criminal Division Assistant Attorney General Lanny Breuer, in discussing the Panalpina resolutions, declared:
In resolving these investigations, we entered into five deferred prosecution agreements, one non-prosecution agreement, and accepted two guilty pleas; and, in this instance, no defendant was required to maintain a compliance monitor. The global resolution of these cases shows, as I said, the range of options available to us. But, perhaps more importantly for you, it also shows the range of options available to corporations that are serious about cooperation and prevention.48
By focusing on an entire industry and resolving the cases simultaneously, the Department and the SEC have sent a clear and important message about their intent to launch industry-wide investigations and punish corruption wherever it exists. The regulators have also highlighted the critical need for companies to be vigilant in preventing corrupt payments, and more importantly, to conduct thorough investigations of possible violations, make voluntary disclosures to the government, cooperate fully, and take prompt remedial action.