Friday FCPA Roundup for Week Ending August 8

Friday FCPA Roundup for Week Ending August 8

 This article was reprinted with permission from FCPA Professor

Scrutiny alerts and updates, an FCPA fumble, checking in with the SFO, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Cobalt International Energy

Cobalt has been under FCPA scrutiny since 2011 for its alleged business relationships in Angola.  (See here and here for prior posts).

In this recent SEC filing, the company states:

“As previously disclosed, the Company is currently subject to a formal order of investigation issued in 2011 by the SEC related to its operations in Angola.  [...] In connection with such investigation, on the evening of August 4, 2014, the Company received a “Wells Notice” from the Staff of the SEC stating that the Staff has made a preliminary determination to recommend that the SEC institute an enforcement action against the Company, alleging violations of certain federal securities laws. In connection with the contemplated action, the Staff may recommend that the SEC seek remedies that could include an injunction, a cease-and-desist order, disgorgement, pre-judgment interest and civil money penalties. The Wells Notice is neither a formal allegation nor a finding of wrongdoing. It allows the Company the opportunity to provide its reasons of law, policy or fact as to why the proposed enforcement action should not be filed and to address the issues raised by the Staff before any decision is made by the SEC on whether to authorize the commencement of an enforcement proceeding. The Company intends to respond to the Wells Notice in the form of a “Wells Submission” in due course.

The Company has fully cooperated with the SEC in this matter and intends to continue to do so. The Company has conducted an extensive investigation into these allegations and the receipt of the Wells Notice does not change the Company’s belief that its activities in Angola have complied with all laws, including the U.S. Foreign Corrupt Practices Act. The Company is unable to predict the outcome of the SEC’s investigation or any action that the SEC may decide to pursue.”

Rare are so-called Wells Notices in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC.  However, this is the second instance in the past four months of the SEC sending an issuer a Wells notice in connection with an FCPA inquiry. (See here for the prior post regarding Qualcomm).

As highlighted by the below excerpts, the Wells notice was a hot topic during Cobalt’s most recent quarterly earnings call.  The below excerpts also capture the candid statements of Cobalt’s CEO concerning the SEC’s position.

Joseph Bryant - Chairman and Chief Executive Officer

Before we get into the Q&A, let me say a few words about our 8-K disclosure from earlier this morning. As it noted, last evening, less than 24 hours ago, we received a Wells Notice from the Securities and Exchange Commission related to the investigation the agency has been conducting relating to Cobalt’s operations in Angola and the allegations of Angolan government official ownership of Nazaki Oil and Gas, one of the other working interest owners in Blocks 9 and 21 offshore Angola. In the notice, the staff of the SEC stated that it had made a preliminary and, in our view erroneous, determination to recommend that the SEC move forward with an enforcement action against the company. I think it’s important to point out that the Wells Notice is neither a formal allegation nor a finding of wrongdoing. It merely allows Cobalt the opportunity to provide its reasons of law, policy and fact as to why the proposed enforcement action should not be filed before any enforcement decision is made by the SEC. As you know, we have fully cooperated with the SEC and the investigation since it began nearly 3.5 years ago. And we will continue to do so. In the same vein, we will, of course, take this opportunity and respond to the SEC as part of the Wells process. But let me be very clear. This Wells Notice does nothing to change our prior conclusion that our activity in Angola have fully complied with all laws, including the Foreign Corrupt Practices Act, and Cobalt continues to strongly refute any allegation of any wrongdoing.”


Evan Calio – Morgan Stanley, Research Division

I appreciate your comments on the Wells Notice and underlying FCPA claims. Is there any — can you comment if there’s any potential collateral effect in a negative outcome scenario, meaning other than a potential fine? Could it affect your career or anything in your leases?


Well, good question, Evan. We obviously disagree with the staff’s position in the Wells Notice and we’ll respond to the notice in due course. As we’ve stated repeatedly over the past several years, Cobalt has and always will conduct all aspects of our business to the highest ethical standards and in full compliance with all laws and regulations in all jurisdictions, not just Angola, where we operate. This is the case of all of our Angolan operations. We fully plan and expect to pursue the exploration, appraisal and development of all of our Angolan assets, including Cameia development in a timely manner as we’ve previously discussed. And that’s about all I can say, Evan.


Okay, that’s great. And do you have a hearing date on the Wells Notice? Or is that — just not at this time?


No. There’s a process, but to be honest, it’s just like some other things, it can just wander on.


Joseph Allman - JP Morgan Chase & Co, Research Division

So just back to the Wells Notice for a few minutes, John. Are you planning on taking a reserve? I assume it’s not estimable at this point if there is any fine, so I assume the answer is no. And then just — could you just describe the next steps a little bit? I think you guys have to write a response. If I’m not mistaken, you’ve got about 2 weeks to file that response. Is that correct? Could you just give us some more details on that?

John Wilkerson – Chief Financial Officer, Principal Accounting Officer and Executive Vice President

We are not planning on taking a reserve.


And yes, there is a formal process that we respond to. Our view of the facts — and of course, we know the facts incredibly well since we’ve been investigating this for a very long time, and so we will submit our facts to the SEC here in the next several weeks.


Edward Westlake – Crédit Suisse AG, Research Division

Let’s then get into the Wells Notice as well. So I mean, my understanding, which may be incorrect, of the FCPA is that one aspect of it is doing due diligence, which is the standard of reasonable inquiries, and then the other aspect of it is if some exchange took place in order to get access to the block. It seems from the outside to me that perhaps some disagreements with you and the SEC on how much due diligence was needed could be a civil sort of issue whereas if there was some exchange, that seem to me would be more criminal. So I’m just trying to get a sense of what it is that the SEC, if you know, disagree with you on in terms of their assessment as to why they’d want to go towards an enforcement.


Well, the way the process works is it’s somewhat opaque, to be honest with you, on one side, but it’s fully transparent on our side. So we know all the facts, we know them very well. And I’ve said many times that we built Cobalt the right way from day 1 before we ever considered leases in Angola. All of our FCPA, all of our compliance, all of our due diligence systems were built into the company from day 1. I didn’t fall off the turnip truck yesterday and neither did any of these guys around the table. We know all about FCPA and we weren’t about to wander into anything there unknowingly. So all I can say for sure is we know what we’ve done. We know what compliance is required. We’ve gone above and beyond that and we’ll stand firm on our actions.


Okay. And all of the due diligence which I’ve done also suggests that your staff has done a very good job in terms of doing their due diligence. But maybe a different way of asking the question, do you think it’s just the level of due diligence which the SEC disagree with you on? Or do you think that there has been some exchange? I understand that Nazaki is a full paying member of the consortium, in fact, was imposed on you rather than something that you chose. But I’m just trying to get some understanding as to what it is you think they disagree with you on.


Ed, I appreciate your probing nature, but I really can’t answer that. Again, what I can tell you is, again, we understand the requirements. We understand the law, we understand compliance, we understand due diligence. And we have gone above and beyond in every case. And we sit here today confident in our position, and I cannot and will not speculate on what the SEC’s views are.


Okay. And then have there been any inquiries from the DOJ?


We have — at every step of the last 3.5 years, we have managed both the SEC and the DOJ simultaneously to make sure that both of those federal agencies are fully up to speed on what we’ve done and what we know about. So I would say constant communication with both agencies has been a routine over the past 3 years.



Right. And maybe just a follow-up on the Wells Notice. Will we ever see the actual SEC letter? Is that a public domain or is it private in terms of their allegations, when eventually they make them.


It’s currently private, and we’ll — I hope we’re demonstrating how transparent we are. When we know something, we’ll tell you. And when we have something we can release, we’ll release it. That’s about all really I can say about it.


I mean, it would be helpful, I think, for investors to see what the allegation specifics are to be able to make a judgment call but, obviously, I leave that up to you.


Got it.


Al Stanton – RBC Capital Markets, LLC, Research Division

[J]ust back to the Wells notice. Can I ask whether the letters are addressed to the company or do they actually name specific individuals?


The company.

Staying with Cobalt-related issues, Global Witness recently issued this press release stating:

“BP and its partners including Houston-based Cobalt have contributed US$175 million over the past two-and-a-half years to fund a project in Angola known as the Sonangol Research and Technology Center (SRTC), with another US$175 million due to be paid by January 2016. Global Witness asked BP and Cobalt to provide any information that confirms the SRTC exists. The companies did not provide this information in their responses. BP stated that Sonangol, Angola’s state-owned oil company, “has informed BP that the SRTC is still in planning stage.” Cobalt said they “monitor the progress of our social contributions in Angola, including the Research and Technology Center” but did not provide any further information about the project. Global Witness asked Sonangol for information to confirm the existence of the SRTC, but the company did not respond. We commissioned interviews with well-placed industry insiders, but none of them could confirm that the SRTC exists.  Global Witness is calling on the Angolan authorities to disclose where this money has gone.”

SBM Offshore

The company has been under FCPA (and related scrutiny) since 2012 concerning allegations primarily in Equatorial Guinea and Angola and disclosed in this press release as follows.

“As previously disclosed in various press releases, SBM Offshore voluntarily reported in April 2012 an internal investigation into potentially improper sales practices involving third parties to the relevant authorities, and has since been in dialogue with these authorities. SBM Offshore is discussing a potential settlement of the issues arising from the investigation. While these discussions are ongoing, it is sufficiently clear that a resolution of the issues will have a financial component, and consequently SBM Offshore has recorded a non-recurring charge of US$240 million in the first half of 2014, reflecting the information currently available to the Company. Until the matter is concluded, SBM Offshore cannot provide further details regarding a possible resolution of the issues arising from the investigation, and no assurance can be given that a settlement will actually be reached. As always, the Company will inform the market as soon as further information can be provided.”

FCPA Fumble

U.S. Senator Roger Wicker (R-MS) is not the first member of Congress to fumble an FCPA issue, just the latest.  As noted in this Radio Free Europe article:

“A U.S. senator has asked federal authorities to investigate whether a powerful Russian media mogul seen as the mastermind behind the Kremlin-funded RT network used dirty money to purchase pricey California real estate.   U.S. Senator Roger Wicker (Republican-Mississippi) has asked the Justice Department to investigate whether Mikhail Lesin, Russian President Vladimir Putin’s former press minister, violated the Foreign Corrupt Practices Act or laundered money by acquiring multimillion-dollar homes in the Los Angeles area.”  [See here for Senator Wicker's letter to the DOJ].

Dear Senator Wicker, alleged “foreign officials” are not subject to the FCPA.  See U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991).

Checking In With the SFO

The U.K. Serious Fraud Office recently announced the following sentences of individuals in connection with the Innospec prosecution.

Dennis Kerrison, 69, of Chertsey, Surrey, was sentenced to 4 years in prison. Paul Jennings, 57, of Neston, Cheshire, was sentenced to 2 years in prison. Miltiades Papachristos, 51 of Thessaloniki, Greece, was sentenced to 18 months in prison. David Turner, 59, of Newmarket, Suffolk, was sentenced to a 16 month suspended sentence with 300 hours unpaid work

Mr Kerrison and Dr Papachristos were convicted of conspiracy to commit corruption in June 2014 in relation to Indonesia only. Mr Jennings pleaded guilty in June 2012 to two charges of conspiracy to commit corruption and in July 2012 to a further charge of conspiracy to commit corruption in relation to Indonesia and Iraq. Dr Turner pleaded guilty to three charges of conspiracy to commit corruption in January 2012 in relation to Indonesia and Iraq.

Further information on the guilty verdict delivered in the trial of Mr Kerrison and Dr Papachristos can be found here, while information on the guilty pleas entered into by Dr Turner and Mr Jennings can be found here and here.

Upon sentencing the defendants, HHJ Goymer said:

“Corruption in this company was endemic, institutionalised and ingrained… but despite being a separate legal entity it is not an automated machine; decisions are made by human minds.

“None of these defendants would consider themselves in the same category as common criminals who commit crimes of dishonesty or violence….. but the real harm lies in the effect on public life, the effect on community and in particular with this corruption, its effect on the environment.  If a company registered or based in the UK engages in bribery of foreign officials it tarnishes the reputation of this country in the international arena.”

Concerning the sentencing of Dr Turner, the Judge also said:

“It is necessary to give encouragement to those involved in serious crime to cooperate with authorities.  You [Dr Turner] very narrowly indeed escaped going to prison.”

David Green CB QC, Director of the SFO said:

“This successful conclusion to a long-running investigation demonstrates the SFO’s ability and determination to bring corporate criminals to justice.”

Innospec itself pleaded guilty in March 2010 to bribing state officials in Indonesia and was fined $12.7 million in England with additional penalties being imposed in the USA.

Dr Turner was also ordered to pay £10,000 towards prosecution costs and Mr Jennings was ordered to pay £5000 towards these costs.  Dr Turner and Mr Jennings have already been subject to disgorgement of benefit by the US Securities and Exchange Commission.  The matter of costs for Mr Kerrison and Dr Papachristos has been adjourned pending the hearing of confiscation proceedings against them.”

For more on the sentences, see here from

Reading Stack

Professor Stephen Bainbridge knows Delaware corporate law and related corporate governance issues as well as anyone.  In regards to the Wal-Mart Delaware action (see here for the prior post noting that despite the hype, the decision was much to do about little), Professor Bainbridge writes:

“There’s been a fair bit of blawgosphere chatter about [the Wal-Mart Delaware action].”  [...]  Personally, it just doesn’t seem that big a deal. Somebody want to explain to me why I should care more?”



Sometimes a suitable proxy for potential red flags may be whether, upon reading a certain set of facts and circumstances, one becomes dizzy.  This recent New York Times article regarding former U.K. Prime Minister Tony Blair may make you dizzy.


A good weekend to all.

 Read more articles on the FCPA by Mike Koehler at FCPA Professor.

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