United States: Foreign Corrupt Practices Act Enforcement In The Energy Sector

This is the sixth issue of WilmerHale's 10-in-10 Hot Topics in Energy Series. Over the course of 10 weeks, our attorneys will share insights on current and emerging issues affecting the US energy sector. Attorneys from across various practice groups at the firm will offer their take on issues ranging from congressional investigations, to the impact of key regulatory reforms, to emerging trends in domestic litigation and international arbitration. Read our other recent publications.


The year 2018 marked a year of active Foreign Corrupt Practices Act ("FCPA") enforcement, with a significant focus on the energy sector.1 Monetary penalties and individual prosecutions both rose in 2018, driven predominantly by the US government's focus on combatting corruption at some of Latin America's most prominent energy companies. The total monetary penalties imposed on corporations for FCPA-related conduct rose from $1.9 billion in 2017 to $2.9 billion in 2018, due in no small part to the $1.8 billion settlement with Brazil's state-run oil company Petróleo Brasileiro S.A. ("Petrobras"). The sharp jump in the number of the Department of Justice's ("DOJ") and Securities and Exchange Commission's ("SEC") actions against individuals, which rose from 16 in 2017 to 28 in 2018, is a result of actions against individuals connected to the corruption scandal at Petróleos de Venezuela, S.A. ("PDVSA"), Venezuela's national oil and natural gas company. DOJ also continued to charge individuals in 2018 in connection with its investigation of Empresa Pública de Hidrocarburos del Ecuador ("PetroEcuador"), Ecuador's state-owned oil company.

Petrobras

Petrobras' settlement with US and Brazilian authorities made headlines in 2018 as one of the largest settlements in FCPA history. In September, Petrobras entered into agreements with authorities in both countries in connection with Petrobras' role in facilitating millions of dollars in illicit payments made to Brazilian politicians and political parties. The resolution—in which Petrobras agreed to pay $1.78 billion in total penalties and disgorgement—is one of the major actions to date coming out of Brazil's Operation Lava Jato ("Car Wash"), a long-running investigation that has resulted in the arrest and prosecution of politicians and corporate executives in Brazil and across Latin America.2 This blockbuster settlement demonstrates the continued strength of US cross-border cooperation, and particularly the United States' relationship with Brazil. Eighty percent of the $853.2 million criminal penalty will be paid to Brazil, with the DOJ and SEC splitting the remainder of the penalty.3

The DOJ and SEC papers describe "massive bid-rigging and bribery schemes" led by Petrobras executives, who doled out inflated contracts through a non-competitive process.4 The contractors then paid bribes, equivalent to roughly 1% to 3% of the contract values, to Petrobras executives, Brazilian politicians, and Brazilian political parties. DOJ estimates that contractors paid more than $2 billion in bribes from 2004 to 2012, with approximately half that amount paid to Brazilian politicians and political parties.

The Petrobras resolution marked only the second time that US authorities have settled with a state-owned enterprise.5 The resolution is also unique in that DOJ acknowledged that, unlike the typical FCPA defendant, Petrobras was itself victimized by the corrupt scheme on which its settlement was based.6 This unusual circumstance may explain why, despite the scope and magnitude of the corrupt conduct, DOJ did not actually charge the company with criminal violations, electing instead to settle with a non-prosecution agreement.

PDVSA

Misconduct at PDVSA has led to more individual FCPA-related prosecutions than any other corrupt scheme in the history of the FCPA, with more than 30 individuals charged and 18 guilty pleas so far. The DOJ papers describe corrupt conduct dating back to 2014 and allege a scheme involving an elaborate web of PDVSA officials, international third-party money launderers, and members of the Venezuelan elite.7 Apart from paying bribes in exchange for business with PDVSA, conspirators also exploited Venezuela's highly favorable government currency exchange rate.8 Ill-gotten gains and bribe payments were allegedly laundered through complex international arrangements, including real estate investments and transfers using banks and shell companies in the United States and across Latin America.

In 2018, DOJ brought 14 new actions and unsealed seven actions filed in 2017 against individuals connected to PDVSA. Individuals charged in the new actions included former officials from PDVSA and other Venezuelan government agencies; US-based owners of businesses that were awarded PDVSA contracts; and alleged "professional money launderers" from the United States, Venezuela, and other parts of Latin America who helped transfer and conceal the proceeds of the PDVSA embezzlement scheme.9 Although several of the charged individuals were not covered by the jurisdictional provisions of the FCPA, they were nevertheless charged with other criminal violations arising from bribery-related conduct, such as money laundering or wire fraud offenses.

PetroEcuador

In 2018, DOJ also continued its investigation into a sprawling bribery and money laundering scheme at PetroEcuador. DOJ announced charges against four individuals connected to PetroEcuador who allegedly facilitated approximately $3.2 million in bribes to PetroEcuador officials to secure approximately $27.8 million of business for GalileoEnergy S.A., an Ecuadorian company that provides services in the oil and gas industry.10 According to the indictments, the individuals concealed the bribes by funneling payments through intermediaries and offshore shell companies into bank accounts controlled by PetroEcuador officials.11

Enforcement by Foreign Regulators

Foreign regulators across Latin America have also increased their focus on corrupt conduct in the energy sector. Brazilian prosecutors recently levied corruption and money laundering charges against the former CEO of US oil services company Vantage Drilling, in connection with Vantage's contract with Petrobras.12 In May 2018, Mexico's state-owned oil company Petróleos Mexicanos ("PEMEX") published regulations requiring that service providers, contractors, suppliers, and other third parties maintain compliance programs in order to engage in business with PEMEX or its subsidiaries.13 And in Argentina, commentators are speculating that the Cuadernos ("Notebook") Scandal may become the next Operation Car Wash, involving an extensive bribery scheme to obtain public works contracts, including an estimated $200 million in energy-related projects and involving Argentina's high-ranking public officials.14

Conclusion

Looking forward from 2018, FCPA enforcement in the energy sector will likely continue to remain a priority for US authorities, especially considering DOJ's continued investigations into the Petrobras, PDVSA, and PetroEcuador bribery schemes. It is also likely that US authorities will continue to coordinate with foreign regulators. Companies in the energy sector, many of which conduct business in markets perceived to be affected by high levels of corruption, including those with cash-based economies or unstable governments, and in countries where contact with foreign government officials is unavoidable, should ensure that they have minimized FCPA risk by establishing an effective compliance program, conducting third-party due diligence tailored to the unique risks and circumstances of each country, and developing internal controls designed to prevent and detect bribery.

Footnotes

  1. For more information on global anti-bribery enforcement actions in 2018, please see WilmerHale's Global Anti-Bribery Year-In-Review: 2018 Developments and Predictions for 2019.
  2. US Department of Justice Press Release No. 18-1258: Petróleo Brasileiro S.A. – Petrobras Agrees to Pay More Than $850 Million for FCPA Violations (Sept. 27, 2018), www.justice.gov/opa/pr/petr-leo-brasileiro-sa-petrobras-agrees-pay-more-850-million-fcpa-violations; US Securities and Exchange Commission Press Release No. 2018-215: Petrobras Reaches Settlement With SEC for Misleading Investors (Sept. 27, 2018), www.sec.gov/news/press-release/2018-215.
  3. Non-Prosecution Agreement Between US Department of Justice and Petróleo Brasileiro S.A., (Sept. 26, 2018), www.justice.gov/criminal-fraud/file/1097256/download.
  4. Non-Prosecution Agreement Between US Department of Justice and Petróleo Brasileiro S.A. – Petrobras, Attachment A ¶ 14 (Sept. 26, 2018), www.justice.gov/criminal-fraud/file/1097256/download.
  5. The first instance of such a settlement was Norwegian oil company Statoil, which entered into a deferred prosecution agreement with DOJ in 2006. US Department of Justice Press Release No. 06-700: US Resolves Probe Against Oil Company that Bribed Iranian Official (Oct. 13, 2018), www.justice.gov/archive/opa/pr/2006/October/06_crm_700.html. Additionally, after the Petrobras settlement, the SEC reached a third state-owned-enterprise settlement with Eletrobras, the Brazilian state-owned electric utilities company, on December 26, 2018. US Securities and Exchange Commission Press Release No. 3-18962: SEC Charges Eletrobras With Violating Books and Records and Internal Accounting Controls Provisions of the FCPA (Dec. 26, 2018), www.sec.gov/enforce/34-84973-s.
  6. Non-Prosecution Agreement Between US Department of Justice and Petróleo Brasileiro S.A. – Petrobras, at 3 (Sept. 26, 2018), www.justice.gov/opa/press-release/file/1096706/download.
  7. Information, United States v. Ivan Alexis Guedez, No. 18-cr-00611 (S.D. Tex. Oct. 12, 2018); Criminal Complaint, United States v. Jose Manuel Gonzalez Testino, No. 18-MJ-03171 (S.D. Tex. July 27, 2018); Criminal Complaint, United States v. Francisco Convit Guruceaga, et al., No. 18-MJ-03119, ¶¶ 6-13 (S.D. Fla. July 23, 2018); Sealed Indictment, United States v. Juan Carlos Castillo Rincon, No. 18-CR-00200 (S.D. Tex. Apr. 11, 2018) (Indictment unsealed Sept. 13, 2018); Sealed Indictment, United States v. Luis Carlos de Leon-Perez, Nervis Gerardo Villalobos-Cardenas, Cesar David Rincon-Godoy, Alejandro Isturiz-Chiesa, and Rafael Ernesto Reiter-Munoz, No. 17-CR-00514 (S.D. Tex. Aug. 29, 2017) (Indictment unsealed Feb. 12, 2018); Sealed Indictment, United States v. Jose Orlando Camacho, No. 17-cr-00394 (S.D.Tex. July 5, 2017) (Indictment unsealed Sept. 13, 2018).
  8. US Department of Justice Press Release No. 18-1420: Texas Businessman Pleads Guilty to Money Laundering Charges in Connection With Venezuela Bribery Scheme (Oct. 30, 2018), www.justice.gov/opa/pr/texas-businessman-pleads-guilty-money-laundering-charges-connection-venezuela-bribery-scheme; US Department of Justice Press Release No. 18-980: Two Members of Billion-Dollar Venezuelan Money Laundering Scheme Arrested (July 25, 2018), www.justice.gov/opa/pr/two-members-billion-dollar-venezuelan-money-laundering-scheme-arrested.
  9. US Department of Justice Press Release No. 18-1188: Business Executive Pleads Guilty to Foreign Bribery Charge in Connection With Venezuelan Bribery Scheme (Sept. 13, 2018), www.justice.gov/opa/pr/business-executive-pleads-guilty-foreign-bribery-charge-connection-venezuelan-bribery-scheme; US Department of Justice Press Release No. 18-1527: Venezuelan Billionaire News Network Owner, Former Venezuelan National Treasurer and Former Owner of Dominican Republic Bank Charged in Money Laundering Conspiracy Involving Over $1 Billion in Bribes (Nov. 20, 2018), www.justice.gov/opa/pr/venezuelan-billionaire-news-network-owner-former-venezuelan-national-treasurer-and-former.
  10. US Department of Justice Press Release No. 18-1173: Financial Advisor Pleads Guilty to Money Laundering Charge in Connection With Bribery Scheme Involving Ecuadorian Officials (Sept. 11, 2018), www.justice.gov/opa/pr/financial-advisor-pleads-guilty-money-laundering-charge-connection-bribery-scheme-involving.
  11. Indictment, United States v. Chatburn Ripalda and Larrea, No. 18-20312, 9-10 (S.D. Fla. Apr. 19, 2018); Information, United States v. Escobar Dominguez, No. 18-20108 (S.D. Fla. Feb. 20, 2018); Information, United States v. Baquerizo Escobar, No. 18-20596 (S.D. Fla. July 11, 2018).
  12. Clara Hudson, "American CEO's Knowledge of Bribery Scrutinized in Petrobras Dispute," Global Investigations Review (Oct. 31, 2018), globalinvestigationsreview.com/article/jac/1176147/american-ceo's-knowledge-of-bribery-scrutinised-in-petrobras-dispute.
  13. General Procurement Rules and Standards for Pemex and Subsidiaries, Federal Register of Mexico (May 18, 2018); Luis Dantón Martínez Corres, "PEMEX Requires Compliance Programs for Contractors," The FCPA Blog (May 22, 2018), www.fcpablog.com/blog/2018/5/22/pemex-requires-compliance-programs-for-contractors.html.
  14. Maximiliano N. D'Auro, Francisco Grosso & Virginia Frangella, "Will the Notebooks Scandal Be Argentina's Operation Carwash?," The Anti-Corruption Report, Nov. 14, 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions