Last week the Department of Justice (DOJ) settled a multi-part enforcement action, partly involving the Foreign Corrupt Practices Act (FCPA), with Vitol Inc. (Vitol), the US subsidiary of Vitol Holding II SA. Vitol agreed to pay a combined $135 million to resolve matters. Interestingly, also included in the overall settlement was a disgorgement of more than $12.7 million to the Commodity Futures Trading Commission (CFTC) in a related matter and a penalty payment to the CFTC of $16 million related to trading activity. The FCPA component was settled via a Deferred Prosecution Agreement (DPA) and Criminal Information (Information).
One thing about criminals is that they are usually quite clever. It has been quite some time since we have seen the traditional “bags of cash across the border” bribery scheme. This case has some interesting bribery schemes that every compliance professional should study and see if the schemes used by Vitol could appear in their organization. This makes a review of the enforcement action quite instructive.
As I noted yesterday, the first key to this enforcement action was that Vitol bribery in Brazil was not to directly obtain contracts but to do so indirectly through the illegal purchase of inside information which would allow it to underbid its competitors through pricing and competitor information. During the 2011 to 2014 time period, Vitol admitted that it bribed at least five other Petróleo Brasileiro SA (Petrobras) officials some $8 million in exchange for receiving confidential pricing information that Vitol used to win fuel oil contracts with Petrobras. The Information reported that Vitol reaped some $33 million in profits as a result of this inside information.
Market Intelligence and Last Look
The data obtained included “(i) “market intelligence,” which included internal Petrobras import and export forecasts and other confidential information intended to benefit Vitol in trading with Petrobras; and (ii) “last look” information, including confidential bid information that Petrobras received from Vitol’s competitors, which Vitol used to determine the amount it would need to bid to win public tenders. Apparently, obtaining the market intelligence was an approved business strategy of Vitol as this scheme began when “Vitol Trader 1 asked Vitol Brazil Executive to find a contact within Petrobras who could provide Vitol with confidential information regarding Petrobras’s fuel oil import and export program. The information Vitol Trader 1 requested included information that was detailed in weekly internal Petrobras reports that contained Petrobras’s production volume and quality, anticipated imports, shipping routes and cargo loading details…The bribe payments ranged from approximately $5,000 per month in 2005 to approximately $12,000 per month by in or about January 2014.”
The Last Look scheme began in a different way as in 2006 “Brazilian Official 1 offered Vitol Brazil Executive “last look” information on confidential competitive bids for fuel oil that Petrobras received from other companies, which would allow Vitol to match or beat the final bids submitted by Vitol’s competitors.” Through this information, which was shared with Vitol traders across the globe, they developed what their traders called the “golden price” which was the number they had to hit to make the purchase or sale. Interestingly, here the bribes were built into the price structure as “Vitol paid Brazilian Official 1 bribes in the amount of eight cents per barrel of fuel oil that Vitol purchased from Petrobras in winning tenders.” Finally, as the Information stated, “From at least in or about and between March 2006 and December 2014, Vitol paid for and received confidential “last look” information for over 50 Petrobras tenders. In addition, on at least five occasions, Vitol also paid per barrel bribes to Brazilian Official 1 and three other Petrobras officials in connection with tenders outside of Brazil in which Petrobras was a Vitol competitor. In connection with these tenders outside of Brazil, Vitol paid bribes to Petrobras officials in the amount of eight cents per barrel if Vitol won the tender or four cents per barrel if Vitol did not win.”
The funding of the bribes was not only equally creative but equally well-known within Vitol. Sham contractors in Brazil were set up to invoice Vitol for non-existent services. Payment of these fraudulent contracts were then made to known “doleiros” whose business is to both launder money and get illegally obtained funds out of Brazil. These doleiros then “converted the funds into Brazilian currency so that Vitol Brazil Executive could deliver cash to” the corrupt Petrobras officials.
Riggged Bids
In yet another bribery scheme, Vitol paid the bribes to Brazilian officials through intermediaries, in exchange for receiving confidential pricing information that Vitol, at times, used to bid or offer on fuel oil contracts from Petrobras. With this confidential information, Vitol traders would then have “secret negotiations to establish corruptly-agreed upon prices for Petrobras contracts that included bribes to the Brazilian officials and commissions to Brazil Consultant 1 and Brazil Consultant 2. After the prices were secretly agreed to pursuant to the corrupt scheme, the parties engaged in sham negotiations to make those negotiations appear legitimate” so that a paper trail was created if they were audited.
This corruption scheme had the following characteristics. In exchange for the bribe payments, Vitol received “confidential product and pricing information that allowed Vitol to determine its interest in pursuing a deal for that particular Petrobras cargo shipment.” Thereafter, a corrupt intermediary, acting on behalf of Vitol, negotiated a final price between Vitol and Petrobras. The “delta” between the sale price and the purchase price would be used to pay commissions and bribes. They then facilitated a staged negotiation between Petrobras and Vitol for that particular cargo. The fraudulent transaction then went something like the following: ““Gentlemen, your email should be to [Vitol Trader 1] indicating +17, Geneva will counter at +15 and close @ +16.”
Vitol consummated more than 30 transactions with Petrobras in this or a similar manner in or about and between 2011 and 2014.” The amount of the bribes was to be determined on a case-by-case basis.
These bribery schemes make clear that compliance professionals not only need to be on the lookout for new and different ways to fund a bribe but corruption for indirect business development. These schemes also make clear why an antitrust compliance program is equally necessary for any multi-national organization to prevent, detect and remediate anti-competitive behavior.
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