If the SEC were to put titles on its complaints, the above may be fitting for the complaint released (see here) earlier this week against Bobby Benton (the former Vice President, Western Hemisphere Operations for Pride International, Inc.).
In its complaint (see here), the SEC alleges that "Benton was responsible for, among other things, ensuring that Pride conducted its Western Hemisphere operations in compliance with the FCPA, that adequate controls were in place to prevent illegal payments, and that the company's books and records were accurate."
Despite this position, the SEC alleges that: (i) "Benton authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat; (ii) "Benton learned that a customs agent engaged by Pride's Mexican subsidiaries paid approximately $15,000 to a Mexican customs official to ensure that the export of a rig would not be delayed due to customs violations; and (iii) Benton concealed the bribe payments made by the manager of the Venezuelan branch of a French subsidiary of Pride from Pride's internal and external auditors by "redact[ing] references to the Venezuelan payments in an action plan responding to an internal audit report."
The SEC further alleges that "[d]espite his knowledge, and in one instance authorization, of the Venezuelan and Mexican bribes, Benton signed two false certifications in connection with audits and reviews of Pride's financial statements denying any knowledge of bribery." The financial results of the Mexican and Venezuelan entities were consolidated with Pride's for purposes of financial reporting.
The "foreign officials" involved are Mexican customs officials / customs agents and an official of Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
Based on the above conduct, the SEC charged Benton with violating the FCPA's antibribery provisions, aiding and abetting FCPA violations, and aiding and abetting violations of the FCPA's books and records and internal control provisions.
Most SEC FCPA enforcement actions (whether against a company or an individual) are settled on the same day the civil complaint is filed. Not so in this case and the SEC complaint notes that Benton asserted his 5th amendment privilege against self-incrimination when subpoenaed to testify by the SEC. Will the SEC actually be put to its burden of proof in an FCPA case?
Pride International's most recent disclosure on this issue is in its 10-Q filed on November 2, 2009 (see here - pgs. 17-18). As noted in the disclosure, what began as an inquiry into Latin America operations has spawned into a substantial worldwide review of the company's operations.
*****
The Benton complaint mentions Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
The DOJ/SEC's interpretation of the "foreign official" element of an FCPA anti-bribery violation is well known by now - all employees of state-owned or state-controlled entities (SOEs), such as PDVSA, are "foreign officials" regardless of title or position.
Further, all employees of SOE wholly-owned subsidiaries are considered "foreign officials" under this interpretation. In fact, a business entity does not even need to be majority owned by a SOE for its employees to be considered "foreign officials" by DOJ/SEC (see the KBR/Halliburton enforcement action (see here paras 13-14) where officers and employees of Nigeria LNG Limited (NLNG) are deemed "foreign officials" despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies (see here).
Applying DOJ/SEC's untested and unchallenged interpretation to PDVSA can, well, let's just say it can lead to some rather weird results.
Why?
One of PDVSA's wholly-owned subsidiaries is Citgo Petroleum Corporation ("CITGO") (see here).
Thus, under DOJ/SEC's view, all CITGO employees are "foreign officials" under the FCPA regardless of title or position.
This despite the fact that CITGO is a Delaware corporation based in Houston.
In other words, CITGO is both subject to the FCPA and all of its employees (under the DOJ/SEC interpretation) are "foreign officials." How's that for a little mental gymnastics.
At the very least, this gives readers something to think about the next time they attend a ball game at Fenway Park (see here).
In its complaint (see here), the SEC alleges that "Benton was responsible for, among other things, ensuring that Pride conducted its Western Hemisphere operations in compliance with the FCPA, that adequate controls were in place to prevent illegal payments, and that the company's books and records were accurate."
Despite this position, the SEC alleges that: (i) "Benton authorized the payment of $10,000 to a third party, believing that all or a portion of the funds would be given by the third party to a Mexican customs official in return for favorable treatment by the official regarding certain customs deficiencies identified during a customs inspection of a Pride supply boat; (ii) "Benton learned that a customs agent engaged by Pride's Mexican subsidiaries paid approximately $15,000 to a Mexican customs official to ensure that the export of a rig would not be delayed due to customs violations; and (iii) Benton concealed the bribe payments made by the manager of the Venezuelan branch of a French subsidiary of Pride from Pride's internal and external auditors by "redact[ing] references to the Venezuelan payments in an action plan responding to an internal audit report."
The SEC further alleges that "[d]espite his knowledge, and in one instance authorization, of the Venezuelan and Mexican bribes, Benton signed two false certifications in connection with audits and reviews of Pride's financial statements denying any knowledge of bribery." The financial results of the Mexican and Venezuelan entities were consolidated with Pride's for purposes of financial reporting.
The "foreign officials" involved are Mexican customs officials / customs agents and an official of Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
Based on the above conduct, the SEC charged Benton with violating the FCPA's antibribery provisions, aiding and abetting FCPA violations, and aiding and abetting violations of the FCPA's books and records and internal control provisions.
Most SEC FCPA enforcement actions (whether against a company or an individual) are settled on the same day the civil complaint is filed. Not so in this case and the SEC complaint notes that Benton asserted his 5th amendment privilege against self-incrimination when subpoenaed to testify by the SEC. Will the SEC actually be put to its burden of proof in an FCPA case?
Pride International's most recent disclosure on this issue is in its 10-Q filed on November 2, 2009 (see here - pgs. 17-18). As noted in the disclosure, what began as an inquiry into Latin America operations has spawned into a substantial worldwide review of the company's operations.
*****
The Benton complaint mentions Petroleos de Venezuela S.A. (PDVSA), the Venezuelan state-owned oil company.
The DOJ/SEC's interpretation of the "foreign official" element of an FCPA anti-bribery violation is well known by now - all employees of state-owned or state-controlled entities (SOEs), such as PDVSA, are "foreign officials" regardless of title or position.
Further, all employees of SOE wholly-owned subsidiaries are considered "foreign officials" under this interpretation. In fact, a business entity does not even need to be majority owned by a SOE for its employees to be considered "foreign officials" by DOJ/SEC (see the KBR/Halliburton enforcement action (see here paras 13-14) where officers and employees of Nigeria LNG Limited (NLNG) are deemed "foreign officials" despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies (see here).
Applying DOJ/SEC's untested and unchallenged interpretation to PDVSA can, well, let's just say it can lead to some rather weird results.
Why?
One of PDVSA's wholly-owned subsidiaries is Citgo Petroleum Corporation ("CITGO") (see here).
Thus, under DOJ/SEC's view, all CITGO employees are "foreign officials" under the FCPA regardless of title or position.
This despite the fact that CITGO is a Delaware corporation based in Houston.
In other words, CITGO is both subject to the FCPA and all of its employees (under the DOJ/SEC interpretation) are "foreign officials." How's that for a little mental gymnastics.
At the very least, this gives readers something to think about the next time they attend a ball game at Fenway Park (see here).
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