I am continuing my review of the Amec Foster Wheeler (Foster Wheeler) international corruption enforcement action. Today, I want to focus on the underlying facts of the corruption. These facts are laid out in the Department of Justice’s (DOJ) Information and the Securities and Exchange Commission (SEC) Cease and Desist Order (Order). In reviewing these documents, you see just how corrupt the actions of Foster Wheeler were, how high up the corruption ran in the organization and how, in 2012, employees of what was once a Texas based US company (before it reincorporated in Switzerland for tax avoidance) would so actively violate and totally disregard the Foreign Corrupt Practices Act (FCPA).
It all started with a conversation over some dandy menswear items as a corrupt Italian agent had been surreptitiously given confidential Petrobras bid documents by a corrupt Petrobras official. According to the Order, “At that time, both Italian Agent and the outgoing non-executive Chairman of the Board of Foster Wheeler were regular customers of a high-end men’s clothing store in New York City. Per Italian Agent’s request, the clothing store sales manager arranged an introduction with the outgoing Chairman of the Board.” This outgoing Chairman sent the documents to the acting Chief Executive Officer (CEO) of Foster Wheeler who passed them on to the Brazilian Country Manager. You can see where all this is going, corruption straight from the top passed all the way down the chain.
The biggest problem was that the corrupt Italian Agent could not pass the Foster Wheeler due diligence standards. The corrupt Italian Agent initially thought it could be hired as a subagent to Unaoil, which it believed Foster Wheeler already had a commercial relationship with. However, “This was untrue; in fact, Foster Wheeler had recently decided not to retain Monaco Intermediary Company because of compliance concerns. Nonetheless, Italian Agent offered to arrange for Monaco Intermediary Company to receive his payments from Foster Wheeler, if that would be simpler than conducting due diligence on Italian Agent.”
The corrupt Italian Agent was not detoured explaining to the Brazilian Country Manager, “It seems that the issue of the project has major problems . . . To discuss about compliance (for which I insist we have a solution) it is irrelevant now when you are facing [an] uphill battle during which we could be of some real professional help”. The Brazil Country Manager duly reported to his superiors in Houston this email and stated, “[I]n this [email] the guy is more ‘explicit.’” He added, “[I]n Brazil we should try to avoid the path he offers at all. If we do it in 1 project . . . we will be bullied to do it in all projects by him and others.” Pretty clear to all what was going on.
Magically (or perhaps not) the “Brazil Country Manager confirmed with Foster Wheeler’s CEO and COO that Foster Wheeler would offer Italian Agent a 2% commission. At the time, FWEL’s UFN-IV bid was due within days.” Of course, there was the pesky matter that there was no contract in place but how important is a written contract after you have already agreed to hire a corrupt agent and the commission rate for that same corrupt agent? Yet the subsidiary General Counsel “drafted an interim agency agreement to use Italian Agent even though Foster Wheeler’s policy on outside agents did not allow for interim agreements while due diligence was pending.”
Even more amazingly, after the Interim Agreement was put in place, the due diligence came back on the corrupt Italian Agent, indicating association with Unaoil. Foster Wheeler management received the completed due diligence report on Italian Agent, which referenced his links to Monaco Intermediary Company, and indicated that the due diligence review did not corroborate his past work experience. Based on the due diligence results, Foster Wheeler decided not to engage Italian Agent as an agent on the UFN-IV project. However, Foster Wheeler did not terminate the interim agency agreement. To remedy the situation, a corrupt Brazilian Agent was employed instead. This corrupt Brazilian Agent worked directly with the corrupt Italian Agent, which continued to work on the project throughout its duration, all in violation of Foster Wheeler policies and procedures.
Foster Wheeler eventually won the Petrobras contract. According to the Information, “In or about August 2012, while Foster Wheeler was negotiating the final terms of its agency agreement with [corrupt Brazilian Agent]… Foster Wheeler Energy Executive 1 told an in-house attorney at Foster Wheeler Energy that Foster Wheeler Energy Executive 1 believed that [corrupt Italian Agent] might have promised to pay bribes to Petrobras officials. Foster Wheeler Energy Executive 1 further stated that he wanted to ensure that Foster Wheeler Energy entered into the agency agreement with [corrupt Brazilian Agent because there could be a problem with the UFN-IV contract if [corrupt] Italian Agent were not to receive funds to pay those bribes through [corrupt Brazilian Agent]’s agency commissions.” Now there is evidence of actual knowledge that a bribe had been offered. Did anyone at Foster Wheeler say, ‘let’s stop this illegal conduct?’ Alas, no.
Indeed, quite the opposite. Foster Wheeler made approximately $190 million on the contract with Petrobras and it ultimately earned approximately $12.9 million in profits from the contract. The [corrupt Brazilian Agent] received a two percent commission rate. In other words, lots of ‘spreading around money’, which the [corrupt Brazilian Agent] proceeded to do.
It goes to show how corruption, skating over the edges or just plain not looking at the facts can permeate an organization. But it was not simply located to corrupt officers and employees in the great state of Texas. The Foster Wheeler corruption also reached to its US business unit, which held the contract with Petrobras. One can only assume the DOJ and SEC asked the ‘where else’ question given the level of corruption in this Petrobras deal.
All of this started over some high-end men’s clothing, no doubt including silk shirts. Perhaps the real moral of this story is that if you want top end men’s clothing, Saville Row is the only place to go.
Tomorrow the mechanics of the bribery scheme, the abject failure of Amec and John Wood Group PLC in their pre- and post-acquisition due diligence and the final resolution. Most importantly, why this enforcement action should be studied by every compliance professional.
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