FCPAméricas Blog
Living the Cliché at PetroTiger
2.06.2014
The DOJ’s PetroTiger press release reads like an overblown caricature of an FCPA case: top executives of an oil and gas company formed in the British Virgin Islands, with offices in New Jersey and operations in Colombia, allegedly paid approximately $250,000 to a Colombian government official in exchange for lucrative government contracts. It is tempting to add: well, obviously.
But stereotypes are untrustworthy shortcuts, and the DOJ and SEC give credit to companies with risk-based – not stereotype-based – FCPA compliance programs. With that in mind, this blog post looks at some red flags apparent in this case, and at a novel issue that it presents.
But first, the basics: on January 6, federal prosecutors unsealed criminal FCPA, money laundering and wire fraud charges against two ex-CEOs of PetroTiger Ltd. They simultaneously announced that the ex-General Counsel of PetroTiger (who is presumably cooperating with prosecutors) had pleaded guilty to one count of conspiracy. The charges relate to two different schemes. The first was to pay bribes to a Colombian official in exchange for government approval of a key contract, and the second was to obtain kickback payments from a company PetroTiger was seeking to acquire. The executives were also charged in connection with their attempts to launder the proceeds of both schemes.
The Red Flags
A core principle of FCPA compliance is to adequately assess corruption risks, and the PetroTiger charges show the presence of several corruption red flags. First, the oil and gas sector is an industry with very high corruption risk. According to the Mintz Group’s Where the Bribes Are database, the energy sector has accounted for over $2.12 billion in FCPA penalties since 1977. That is nearly half of the $4.84 billion total FCPA penalties ever imposed as of July 2013.
Similarly, obtaining government approval of high value contracts is a stereotypical example of an activity with high corruption risks. The FCPA Resource Guide refers to the economic significance of a transaction as a risk indicator, and securing licenses, permits or approvals from government officials can also be high-risk scenarios.
Another classic red flag apparent from the PetroTiger charges involves contracts with family members of public officials. According to the charges, the PetroTiger executives attempted to conceal their bribes by creating a false justification for them: compensation for consulting services performed by the wife of a key government official. The charges state that those services were never delivered, but that the PetroTiger executives backed up their claim with false invoices submitted by the official’s wife.
And finally, PetroTiger’s BVI entity merits a second look to see if it is a shell company. The connections between shell companies and corruption are increasingly clear, as shown by a 2011 study by the World Bank. The use of offshore shell companies and other opaque corporate structures should be considered an indicator of corruption risk and assessed accordingly.
PetroTiger Kickbacks
In an interesting twist, the alleged PetroTiger kickback scheme flips the usual FCPA corruption scenario on its head. According to the charges, PetroTiger executives sought to enrich themselves at the expense of their investing partners by accepting bribes from a corporation that PetroTiger was seeking to acquire. This has potential consequences beyond just irony – New Jersey has a commercial bribery statute that prohibits the solicitation or acceptance of undue benefits by corporate officers and lawyers. As a result, this scheme could result in charges for Travel Act violations against the PetroTiger executives (for more on how this would work, see here.)
More to Come?
When charges are brought against two CEOs and a General Counsel for activity involving both the payment and solicitation of bribes, it is probably safe to assume that PetroTiger did not have great FCPA “tone at the top”. But we will have to wait to see if PetroTiger itself faces FCPA sanctions. For now, the focus is on the executives.
The opinions expressed in this post are those of the author in his or her individual capacity, and do not necessarily represent the views of anyone else, including the entities with which the author is affiliated, the author`s employers, other contributors, FCPAméricas, or its advertisers. The information in the FCPAméricas blog is intended for public discussion and educational purposes only. It is not intended to provide legal advice to its readers and does not create an attorney-client relationship. It does not seek to describe or convey the quality of legal services. FCPAméricas encourages readers to seek qualified legal counsel regarding anti-corruption laws or any other legal issue. FCPAméricas gives permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author and to FCPAméricas LLC.
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Post authored by Matthew Fowler, FCPAméricas Contributor
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