Today, I conclude my four-part exploration of the Vitol Inc. (Vitol) Foreign Corrupt Practices Act (FCPA) enforcement action. 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). Today, I want to consider some of the lessons learned from this enforcement action.
Concurrent Crimes
While I have not detailed the CFTC Order, it bears noting that bribery and corruption in violation of the FCPA was not the sole crime engaged in by Vitol. A separate enforcement action was brought by the CFTC which required Vitol to pay more than $95 million in civil monetary penalties and disgorgement. In the Order it stated, “By attempting to manipulate such benchmarks, Vitol was also attempting to manipulate and would have distorted numerous futures, swaps, and other derivatives and physical trades that price in reference to those benchmarks. This would be to the detriment of market participants that had opposite exposure (including Vitol’s counterparties), or who looked to rely on the benchmarks as a fair price reference for physical or derivative trades, including U.S. futures contracts and swaps.”
Every compliance practitioner needs to understand that corporate bribery and corruption can lead to other crimes as well. In the case of Vitol, it was “Section 6(c)(1) of the Act, 7 U.S.C. § 9 (2018), and Regulation 180.1, 17 C.F.R. § 180.1 (2020), prohibit the use or attempted use of any manipulative or deceptive device, untrue or misleading statements or omissions, or deceptive practice, in connection with any swap or contract of sale of any commodity in interstate commerce, or for future delivery. Specifically, Regulation 180.1(a)(1)–(3)”.
There has been another FCPA enforcement action which had concurrent illegal activity. Back in 2011, Bridgestone Corporation pled guilty to and agreed to pay a $28 million criminal fine for its role in conspiracies to rig bids and to make corrupt payments to foreign government officials in Latin America related to the sale of marine hose and other industrial products manufactured by the company and sold throughout the world. It would seem that anti-competitive behavior can be a direct outcome of bribery and corruption.
Insider Information
Bribery and corruption is not always used to directly obtain or retain business. Vitol obtained confidential bid information from Petrobras on its competitors, which Vitol used to determine the amount it would need to bid to win public tenders. One scheme involved information Vitol obtained that detailed weekly internal reports containing Petrobras’s production volume and quality, anticipated imports, shipping routes and cargo loading details.
A second scheme provided 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 their 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.
Payment for these bribes were built into the price structure of eight cents per barrel of fuel oil that Vitol purchased from Petrobras in winning tenders. Finally, Vitol also paid per barrel bribes to corrupt 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 it 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 to “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.
Fake Negotiations
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 corrupt employees. 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. Vitol received confidential product and pricing information that allowed the company 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.”
Antitrust Compliance Programs Needed
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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