As I wrote last week I certainly do not need to invent
compliance stories to blog about and even if I did no one would believe me. I
was reminded of this once again last week when I read an article by Sam
Rubenfeld, in the August 24, 2010 edition of the Wall Street Journal
Corruptions Currents, entitled "Gulfsands
In Business With Cousin Of Syrian President". Rubenfeld reported that
the London based company, with offices here in Houston, was working with a
company controlled by Mr. Rami Makhlouf, reported to be the first cousin of the
President of Syria.
Rubenfeld also referred to a Gulfsands Press
Release dated on August 24, 2011; from the information presented in the
Press Release, it would appear that Gulfsands has sustained quite a long
relationship with Mr. Makhlouf. The release reported the following:
Administrative Services Contract. The original agreement with Mr. Makhlouf, a
company owned by the Makhlouf Interests was signed in 2000. Mr. Makhlouf was engaged
by a Joint Venture (JV), which consisted of Ocean Energy (80% Owner) and
Gulfsands (20% Owner). The original contract stated that Mr. Makhlouf would
provide "various support and administrative services" to the JV. There is no
total amount of monies paid under this agreement reported in the Press
Release but it reports that total fees paid "aggregate less than $250,000 per
annum". Further, the services agreement entered into with Mr. Makhlouf at that
time was done under the oversight of Ocean Energy's general counsel.
majority owner of the JV, Ocean Energy was acquired by another company, Devon.
This acquisition occurred in 2003. Devon withdrew from the JV in 2005. So the
2000-2005 issues may fall on Devon as part of its acquisition of Ocean Energy.
Milestone Payments: In addition to the payments under the Administrative
Services Contract of something of an "aggregate of less than $250,000 per
annum" over the past 11 years, Mr. Makhlouf has also received "milestone
payments totaling $900,000 from the JVs. The Press Release uses the plural
"joint ventures" but does not identify to which JVs these milestone payments
were made and does not reference the contract under which these milestone
payments were made.
addition to the above, the Press Release noted that "a company owned
beneficially by Makhlouf Interests, owns 5.75% of the Company's issued share
capital. These shares were acquired in August 2007, at a premium to the then
prevailing market price."
5. Lastly, "The Group rents office premises in Damascus
from a company owned beneficially by Makhlouf Interests. The lease is on terms
negotiated at arms-length and considered normal for a commercial lease of this
kind in Syria."
So, whatever the relationship between Gulfsands and Mr.
Makhlouf, they have been long standing and on-going. At least until August 24,
2011, when, as reported by Rubenfeld, Gulfsands said in the statement that it
suspended all payments to interests of Makhlouf following sanctions imposed in
May, and it "suspended the voting, dividend and transfer rights pertaining to
the shares in Gulfsands held by Al Mashreq."
So what does a compliance officer, or as Jim McGrath
would say, 'specialized outside counsel' need to review here? Should counsel
start with Gulfsands or maybe even Devon? Would it be the Administrative
Services Contract or the Milestone Payment Contract? Should you analyze the
payments made to Mr. Makhlouf to see if there is sufficient back up
documentation to support these payments? What about the milestone payments? Do
you review the office lease at all? Does the fact that the Administrative
Services Contract was "under the oversight of Ocean Energy's general counsel"
at the time it was executed between the parties in any way protect Gulfsands?
And last, but by no means least, should you contact and maybe self-disclose any
of this to the Department of Justice? Questions, Questions and More Questions...
Visit the FCPA Compliance and Ethics Blog,
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