Does your company do business in Nigeria or any other country perceived as a high risk for corruption? Does your company work with “consultancy agreements” to acquire or maintain business in these countries? Compliance professionals know the challenges of helping to ensure that a corporation and all its officers, salespersons, staff and consultants stay on the right side of the law and, specifically, the Foreign Corrupt Practices Act.
The Department of Justice (DoJ) strengthened our toolbox when they announced another chapter in enforcement actions that stemmed from business conducted by Willbros International Inc. (Willbros International) and its parent company, Houston-based Willbros Group Inc. (Willbros), that has been ongoing for the last several years. Last week, Paul G. Novak, a former consultant for Willbros International was sentenced for his role in a conspiracy to pay more than $6 million in bribes to government officials of the Federal Republic of Nigeria and officials from a Nigerian political party. Novak was sentenced to serve 15 months in prison and ordered to pay a $1 million fine and to serve two years of supervised release post-prison. In sentencing Novak, the court took into consideration the assistance Novak provided the government in ongoing investigations – one can imagine how it would be without that cooperation.
I’m a firm believer in “show and tell.” Share this news with your top management team. Share it with the people who acquire, maintain and conduct the business in countries known for corruption concerns (for a list, refer to the Transparency International report). Let them see that they have skin in the game.
According to the DoJ press release, Novak admitted that from approximately late-2003 to March 2005, he conspired with others to make a series of corrupt payments totaling more than $6 million to various Nigerian government officials and officials from a Nigerian political party to assist Willbros and its joint venture partner, a construction company based in Mannheim, Germany, in obtaining and retaining the Eastern Gas Gathering System (EGGS) Project, which was valued at approximately $387 million. The EGGS project was a natural gas pipeline system in the Niger Delta designed to relieve existing pipeline capacity constraints.
According to court records, Novak and his alleged co-conspirators Kenneth Tillery, Jason Steph, Jim Bob Brown, three employees from Willbros’s joint venture partner and others agreed to make the corrupt payments to, among others, government officials from the Nigerian National Petroleum Corporation, the National Petroleum Investment Management Services, a senior official in the executive branch of the federal government of Nigeria, and members of a Nigerian political party. Court documents state the bribes were paid to assist in obtaining and retaining the EGGS contract and additional optional scopes of work.
According to information contained in plea documents, to secure the funds for those corrupt payments, Novak and his alleged conspirators caused Willbros West Africa Inc., a subsidiary of Willbros International, to enter into so-called “consultancy agreements” with two consulting companies Novak represented in exchange for purportedly legitimate consultancy services. In reality, those consulting companies were used to facilitate the payment of bribes.
On May 14, 2008, Willbros Group Inc. and Willbros International entered into a deferred prosecution agreement with the government and agreed to pay a $22 million penalty, in connection with the company’s payment of bribes to government officials in Nigeria and Ecuador. Kenneth Tillery was charged, along with Novak, for his alleged role in the bribery scheme in an indictment unsealed on Dec. 19, 2008. According to the indictment, Tillery was a Willbros International employee and executive from the 1980s through January 2005. From 2002 until January 2005, Tillery served as executive vice president and, later, as president of Willbros International. Tillery remains a fugitive. The charges against Tillery are merely accusations, and he is presumed innocent unless and until proven guilty.
Underlying all is the fundamental question — when is a “consultancy agreement” legitimate? Real, not perfunctory, risk-based due diligence is required. Follow the money. Common sense tell us that these agreements can be legitimate when there is actual work to be done and the value of the work to be done is reflected in the pricing for it as well. Yet, common sense is not enough protection from the FCPA.
Consultancy agreements should be presumed guilty until proven innocent and appropriate. Common red flags taken included in the DoJ’s A Resource Guide to the U.S. Foreign Corrupt Practices Act include:
- excessive commissions to third-party agents or consultants;
- unreasonably large discounts to third-party distributors;
- third-party “consulting agreements” that include only vaguely described services;
- the third-party consultant is in a different line of business than that for which it has been engaged;
- the third party is related to or closely associated with the foreign official;
- the third party became part of the transaction at the express request or insistence of the foreign official;
- the third party is merely a shell company incorporated in an offshore jurisdiction; and
- the third party requests payment to offshore bank accounts.
The compliance professionals can’t do it all, nor should they and/or the legal department and/or the CFO’s office need to be the enforcers against proposed consultancy agreements. It starts with absolute direction from the top of the company — the board, the CEO and the executive management team must clearly convey that business must be done the right way, the legal way, and that violations of FCPA will not be tolerated. It is best implemented by knowledgeable and trained teams that are pulling the deals together to ensure that the consultancy agreement is bona fide before it is submitted for due diligence. It’s not just the company that is at risk — they are.
Show and tell helps.
