On April 17, the U.S. Securities and Exchange Commission issued a cease-and-desist order against Italian multinational oil and gas company Eni S.p.A. (“Eni”) in which it imposed a $24.5 million financial penalty for Eni’s violations of the books and records and internal controls provisions of the Foreign Corrupt Practices Act (“FCPA”).
According to the order, in 2006 the management of an Eni-controlled subsidiary, Saipem S.p.A. (“Saipem”),
came to understand from the Algerian owner of [an unnamed] intermediary, who was well-connected in Algerian politics, that, in order to obtain business in Algeria, Saipem would need to hire the intermediary. In meetings with Saipem’s management, the Algerian energy minister at the time referred to the owner of the intermediary as his personal secretary and someone he considered like a “son.”
Thereafter, between 2007 and 2010, Eni “entered into four sham contracts with an intermediary to assist in obtaining contracts awarded by Algeria’s state owned oil company.” Saipem conducted little or no due diligence before entering into the contracts, yet the executive who served as Saipem’s CFO from 1996 to 2008 (identified only as “Executive A” in the order), “participated in Saipem’s approval of the intermediary contracts, despite being aware of Saipem’s lack of due diligence.”
Under the sham contracts, the intermediary would purportedly “help Saipem identify and evaluate business opportunities, assist with bidding processes, develop strategies for procuring contracts, and provide advice and assistance in connection with the performance of such contracts.” In fact, the intermediary not only “never rendered any legitimate services to Saipem,” but “was wholly unequipped to provide the contemplated consulting services in the technically complex energy design sector, having no employees or offices in Algeria and only a “virtual office” in Geneva, Switzerland staffed by one individual.”
Even so, “Saipem paid approximately €198 million to the intermediary and was awarded at least seven contracts from the Algerian state-owned oil company.” Executive A “facilitated the payments to the intermediary, despite being aware of the lack of services rendered by the intermediary. Executive A was later hired to be the CFO of Eni in August 2008, and continued to facilitate Saipem’s payments to the intermediary while at Eni.”
Saipem received no legitimate services from the intermediary, but was awarded at least seven contracts from the Algerian state-owned oil company. It indicated in its filings with the SEC that its payments to the intermediary were lawful “brokerage fees.” In addition, “because Eni’s CFO was aware of and participated in Saipem’s conduct, Eni failed to proceed in good faith to use its influence to cause Saipem to devise and maintain a system of internal accounting controls consistent with [the FCPA].” As the order stated,
[a]s the principal finance officer of Eni, Executive A could not have been proceeding in good faith to cause Saipem to devise and maintain sufficient internal accounting controls while simultaneously being aware of, and participating in, conduct at Saipem that undermined those controls.
Based on Eni’s Offer of Settlement, the SEC imposed a financial penalty of $24.5 million, consisting of disgorgement of $19.75 million and prejudgment interest of $4.75 million. The SEC acknowledged that it “considered remedial acts promptly undertaken by Eni and cooperation afforded the Commission staff.” That cooperation included “compiling financial data and analysis relating to the transactions at issue, making substantive presentations on key topics, and providing translations of key documents and foreign proceedings.”
Note: This SEC settlement with Eni is noteworthy for a unique reason. In contrast with other SEC FCPA resolutions, which often involve coordinated settlements with the Justice Department or foreign enforcement authorities, the Eni settlement occurred after Italian courts acquitted Eni, Saipem, Executive A, and others of charges of international corruption for the Saipem payments “through an intermediary to Algerian officials.”
Despite this unusual situation, which could still change if Italian authorities appeal the case to the Italian Supreme Court, this settlement still merits the attention of anti-bribery and corruption (ABC) compliance officers. Compliance teams should brief their companies’ senior leadership about the settlement, particularly because the involvement of “Executive A” shows the risks to a company when one of its senior executives directly participates in condoning and furthering FCPA violations.