On November 4, 2010, the U.S. Government announced a series of settlements relating to payments made to the foreign customs services of numerous countries. The total amount of the penalties and disgorgement involved exceeded $200 million, demonstrating that the U.S. Government intends to send a clear message that these types of payments likely will be a focus going forward.
On November 4, 2010, the U. S. Department of Justice (“DOJ”) announced that Switzerland-based Panalpina World Transport (Holding) Ltd., a global freight forwarding and logistics services company, and its U.S.-based subsidiary, Panalpina Inc. (collectively “Panalpina”), admitted to engaging in a scheme through its subsidiaries and affiliates to pay bribes to numerous foreign officials on behalf certain customers in the oil and gas industry. In most cases, the purpose of the alleged payments was to circumvent local import regulations in numerous foreign jurisdictions. Under its deferred prosecution agreement with the DOJ, Panalpina will pay a $70.56 million criminal penalty, premised on the settlement of thousands of bribes allegedly paid between 2002 and 2007, totaling at least $27 million, that were made to foreign officials in Angola, Azerbaijan, Brazil, Kazakhstan, Nigeria, Russia and Turkmenistan.
In a parallel civil enforcement action brought by the Securities and Exchange Commission (“SEC”), Panalpina. agreed to pay approximately $11.3 million in disgorgement of profits relating to the same conduct. According to the SEC complaint, Panalpina paid bribes to customs officials to assist customers in obtaining preferential treatment for their international freight shipments. The SEC complaint alleges these payments typically were made where Panalpina's customers encountered difficulties or delays with importing goods into foreign jurisdictions, or where Panalpina's customers sought to avoid local customs duties and import requirements altogether. In furtherance of these objectives, the SEC alleges that cash payments typically were made by employees of Panalpina's local affiliates to local government officials. The SEC concluded that the recording of these payments in Panalpina’s books and records using such terms as “local processing,” “special intervention,” “special handling,” or other descriptions violated the books and records provisions of the FCPA.
In a related action, Tidewater Marine International Inc. (“Tidewater”), a Cayman Island subsidiary of Tidewater Inc., a global operator of offshore services and supply vessels for energy exploration, entered into a deferred prosecution agreement with the DOJ. Specifically, the DOJ alleged that Tidewater made approximately $160,000 in improper payments, through its agents and employees, to tax inspectors in Azerbaijan between 2001 and 2005 to secure favorable tax assessments. The DOJ also alleged that Tidewater made approximately $1.6 million in improper payments, through Panalpina, to Nigerian customs officials from 2002 to 2007 to induce the officials to disregard Nigerian customs regulations relating to the importation of vessels into Nigerian waters. The deferred prosecution agreement requires that Tidewater pay a $7.35 million criminal penalty.
In a parallel settlement with the SEC, Tidewater Inc. agreed to pay $7,223,216 in disgorgement and prejudgment interest of $881,146, as well as a $217,000 civil penalty. Specifically, the SEC complaint alleges that Tidewater paid $160,000 in bribes to foreign officials in Azerbaijan through a third party disguised as providing legitimate services in order to influence decisions to resolve tax audits in Tidewater’s favor, and that these payments were authorized by senior Tidewater employees despite knowing, or ignoring red flags, that such payments were for bribes.
Royal Dutch Shell
The DOJ also entered into a deferred prosecution agreement with Royal Dutch Shell plc (“Shell”), a global group of energy and petrochemicals companies, for alleged violations of the FCPA by its Nigerian subsidiary, Shell Nigeria Exploration and Production Company (“SNEPCO”). Specifically, the DOJ alleged that SNEPCO made approximately $2 million in improper payments to its subcontractors, while knowing that some or all of the money would be paid as bribes to Nigerian customs officials by Panalpina to induce the officials to disregard Nigerian customs regulations so that it could import materials and equipment into Nigeria. The deferred prosecution agreement requires that SNEPCO pay a $30 million criminal penalty.
In a parallel SEC action, Shell and its U.S. subsidiary, Shell International Exploration and Production Inc., agreed to pay $18 million in disgorgement of profits and prejudgment interest. According to the SEC cease-and-desist order, from 2002 through 2005, Shell used the services of a customs broker that involved suspicious payments of approximately $3.5 million to officials of the Nigerian Customs Service in order to obtain preferential treatment during the customs process, resulting in Shell profiting in the amount of $14 million.
The DOJ also announced it had reached an agreement with Noble Corporation (“Noble”), a Swiss company specializing in offshore drilling and related services, in which Noble admitted to paying approximately $74,000 to a Nigerian freight forwarding agent while knowing that some of the payments would be passed on as bribes to Nigerian customs officials, and that the company falsely recorded the bribe payments as legitimate business expenses in its corporate books and records. Under the non-prosecution agreement, Noble will pay a $2.59 million criminal penalty.
In a parallel SEC enforcement action, Noble agreed to approximately $5.5 million in disgorgement of profits and prejudgment interest. According to the SEC's civil complaint, Noble authorized its Nigerian subsidiary to make payments to its Nigerian customs agent while knowing that the payments would be passed on to Nigerian government officials. The SEC complaint alleges that these payments were made to obtain necessary importation permits issued by the Nigerian Customs Service. The SEC complaint notes that while Noble had an FCPA policy in place, the company lacked sufficient FCPA procedures, training, and internal controls to prevent the improper payments. Specifically, the complaint alleges that despite the findings of a Noble internal audit that Noble personnel in Nigeria did not understand the FCPA and the meaning of “facilitating or expediting payment,” no changes in process were made by the company to prevent payments that were in fact not facilitating payments.
Both the SEC complaint and the DOJ non-prosecution agreement recognize Noble’s early voluntary disclosure after an internal investigation of the underlying conduct, Noble's full cooperation with the investigation, and the remedial measure undertaken by Noble.
Pride International Inc., a Houston-based corporation, and Pride Forasol S.A.S., a wholly owned French subsidiary of Pride International (collectively "Pride"), agreed to settle charges with the SEC and DOJ stemming from an investigation that focused on allegations of foreign bribery in the oil field services industry. Pride International was charged with both conspiring to violate and violating the anti-bribery and books and records provisions of the FCPA. Its French subsidiary, Pride Forasol, was charged with conspiring to violate and violating the anti-bribery provisions of the FCPA, and aiding and abetting the violation of the books and records provisions of the FCPA.
According to court documents, Pride admitted that it paid a total of approximately $800,000 in bribes directly and indirectly to government officials in Venezuela, India and Mexico. The bribes were paid to extend drilling contracts for three rigs operating offshore in Venezuela, to secure a favorable administrative judicial decision relating to a customs dispute for a rig imported into India, and to avoid the payment of customs duties and penalties relating to a rig and equipment operating in Mexico.
Pride International entered into a three-year deferred prosecution agreement but did not pay any criminal penalties. This appeared to be premised on the fact that, as the DOJ stated, Pride “provided information and substantially assisted in the investigation of Panalpina.” Pride Forasol agreed to pay a $32.6 million criminal penalty.
In a settlement with the SEC arising out of the same allegations, Pride International also agreed to pay $23.5 million in disgorgement of profits and prejudgment interest. According to the SEC’s complaint, from 2003 to about 2005, employees or agents of Pride authorized or made payments to third parties while aware of a high probability that some or a portion of the payments would be used to bribe foreign officials in Venezuela, India, and Mexico in violation of the FCPA.
Transocean and GlobalSantaFe
Finally, the DOJ and SEC settled FCPA-related charges with Transocean Inc., a Cayman Islands subsidiary of Transocean Ltd. (collectively “Transocean”), a global provider of offshore oil drilling services and equipment based in Vernier, Switzerland.
According to documents filed with the court, from 2002 through 2007, Transocean made at least $90,000 in improper payments through its customs brokers to Nigerian customs officials to circumvent Nigerian customs regulations in order to extend the temporary importation status of its drilling rigs, to obtain false paperwork associated with its drilling rigs and to obtain inward clearance authorizations for its rigs and a bond registration. Transocean also made improper payments to Nigerian government officials through Panalpina’s express courier service to expedite the import of various goods, equipment and materials into Nigeria. In most cases, neither Transocean nor Panalpina paid customs duties for the importation of these items, in apparent violation of Nigerian customs requirements. In addition, the documents state that Transocean made improper payments through Panalpina to Nigerian government officials to expedite the delivery of medicine and other materials into the country. Transocean’s alleged total gains from this conduct was approximately $5,981,693.
To settle the investigation, Transocean entered into a deferred prosecution agreement and agreed to pay a criminal penalty of $13.4 million. In a related action, Transocean settled charges with the SEC, agreeing to disgorge $7.2 million in profits and prejudgment interest.
The SEC also settled FCPA-related charges with GlobalSantaFe Corp. (GSF). The SEC alleged that GSF made illegal payments to officials of the Nigerian Customs Service through the use of customs brokers from 2002 through 2007. In November of 2007, GSF merged with a subsidiary of Transocean. GSF agreed to pay a total of $5.9 million to settle these charges with the SEC. This included a civil penalty of $2.1 million and the remainder in disgorgement and prejudgment interest.
As these settlements show, considerable caution is required for costs such as customs clearance. Although the exception for facilitating payments might be applicable, there is a difference between paying a customs official for purposes of clearing goods that should be allowed into the country and paying the customs official for clearing goods that cannot lawfully be imported or that should be assessed higher duties. These latter types of payments, even if made to low-level officials, do not fall within the scope of the facilitating payment exception because they involve discretionary action. As these settlements demonstrate, the position of the DOJ and the SEC is that a payment made to convince a foreign official to interpret the law incorrectly is always a payment for a discretionary act that does not fall within the contours of the facilitating payment exception.
The DOJ press release discussing all settlements can be found here. The SEC’s civil complaint against Panalpina can be found here; the SEC’s Tidewater complaint here; the SEC’s Shell Cease-and-Desist Order here; the SEC’s Noble complaint here; the SEC’s Pride complaint here; the SEC’s Transocean complaint here; and the SEC’s GlobalSantaFe complaint here.