05/18/2011 09:10:00 AM EST
The SEC’S First Deferred Prosecution/Cooperation Agreement: A New Approach?
The SEC and Tenaris S.A resolved an FCPA case with a
deferred prosecution agreement. It is the first deferred prosecution agreement
under the initiative the Commission announced last year. The company also
settled FCPA charges with the Department of Justice, entering into a
non-prosecution agreement. The resolution of these actions reflects what DOJ terms
the "extraordinary cooperation" of the company.
Tenaris is a Luxembourg based international seller of
steel pipe products and related services to the oil and gas industry. In 2006
and 2007 Tenaris bid on contracts with OJSC O'ztashqineftgaz ("OAO") to supply
pipeline for the development and production of oil and natural gas in
Uzbekistan. OAO was a subsidiary of Uzbekneftegaz, a state owned holding
company of Uzbekistan's oil and gas industry.
To facilitate the bidding process the company retained a
local agent. Through the agent Tenaris was able to obtain confidential
information regarding the bids of competitors. As a result, the company was
successful in obtaining contracts during the time period which generated almost
$5 million in profits. The agent was paid a commission, portions of which went
to state officials as bribes.
Tenaris first learned of the bribes in March 2009 through
a third party. The audit committee immediately retained counsel who launched an
internal investigation. In a filing with the SEC on June 30, 2009 Tenaris
disclosed the customer allegations that lead to the inquiry and the
investigation, noting that it had self-reported to DOJ and the SEC. The next
month counsel for the company briefed DOJ and SEC officials, promising to conduct
a more detailed investigation and report again.
Subsequently, the company conducted a world-wide inquiry
of its business operations and controls. It also provided DOJ and the SEC what
the latter called "extensive, through, real-time cooperation . . ." making full
voluntary disclosure of the underlying conduct. The company also enhanced its
compliance measures. The steps taken included the adoption of a strengthened
Code of Conduct, Business Conduct Policy and Agent retention Procedure that
addresses anticorruption and compliance with the FCPA.
Tenaris resolved the charges with DOJ by entering into a
non-prosecution agreement. The company also agreed to pay a criminal fine of
The deferred prosecution agreement executed with the SEC
is modeled on those used by the Justice Department. Under its terms the company
agreed to pay $5.4 million in disgorgement and prejudgment interest. Tenaris
also accepted responsibility for its actions and agreed "not to contest or
contradict the factual statements" regarding the underlying conduct detailed in
the agreement. A footnote provides that the agreement is the result of
settlement negotiations and thus the statements in it are not binding on the
company in any other proceeding.
As part of the agreement Tenaris will continue to
cooperate with the SEC. The company also agreed to: 1) provide the Commission
with a written certification of compliance prior to the end of the agreement in
2013; 2) annually review and update its Code of Conduct; 3) require that each
director, officer and management level employee certify compliance with the
Code of Conduct on an annual basis; and 4) conduct FCPA training and
supervision for all officers and managers, finance employees, other working in
areas implicated by its anticorruption and compliance policies and future
The fact that the SEC chose an FCPA case to enter into
its first deferred prosecution agreement may indicate a shift in approach. DOJ
has long used this type of agreement to resolve FCPA charges. In those
agreements the Justice Department typically acknowledges the cooperation of the
company. In many cases a description of the cooperation is provided and DOJ
indicates the impact of it on the resolution of the matter.
In contrast the SEC frequently makes little reference to
the cooperation of the company in its parallel FCPA settlements, an approach
which seems at odds with the purpose of the initiative under which the
agreement was crafted. This approach also makes it difficult at best to
evaluate the impact of cooperation on the ultimate resolution of the case and
offers little guidance to issuers. This is particularly true since SEC
settlements in these cases all tend to be similar. In contrast, the agreement
here details the cooperation steps of the company as well as its compliance
undertakings. Perhaps the Tenaris agreement signals the beginning of a new
effort to foster cooperation and focus on compliance and prevention.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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